CMP: INR1,228 TP: INR1,450(+18%)

Transcription

1 21 July QFY17 Results Update Sector: Financials HDFC Bank BSE SENSEX S&P CNX 27,711 8,510 Motilal Oswal values your support in the Asiamoney Brokers Poll 2016 for India Research, Sales and Trading team. We request your ballot. Bloomberg HDFCB IN Equity Shares (m) 2,528.2 M.Cap.(INR b)/(usd b) 3,105 / Week Range (INR) 1240 / 929 1, 6, 12 Rel. Per (%) 2/6/13 12M Avg Val (INR M) 1596 Free float (%) 78.6 Financials & Valuation (INR b) Y/E Mar E 2018E NII OP NP NIM (%) EPS (INR) EPS Gr. (%) BV/Sh. (INR) ABV/Sh. (INR) RoE (%) RoA (%) P/E(X) P/BV (X) P/ABV (X) Div. Yield (%) CMP: INR1,228 TP: INR1,450(+18%) Buy Steady quarter; 20%+ earnings compounding continues on a higher base HDFC Bank's (HDFCB) 1QFY17 PAT grew 20% YoY (in line with expectations) to INR32.4b on the back of healthy core PPoP growth (+22% YoY). Key highlights for the quarter were: a) margin improvement (+10bp QoQ to 4.4%); b) stable C/I ratio (45%); c) strong retail loan growth (+25% YoY, +3% QoQ); and d) moderation in fee growth (15.5% YoY), which led to a decline in the fee/average assets ratio to 1.1%, the lowest level in 50 quarters. Strong growth in retail loans was led by home loans (+25% YoY, +5.5% QoQ) and high-yielding unsecured loans (PL: +41% YoY and credit card: +26% YoY), with the overall share of retail loans increasing to 63.4% v/s 62.5% in 1QFY16. Corporate loans grew 20% YoY (-1% QoQ). CASA deposits grew 19% YoY (-3% QoQ), driven by SA (+22% YoY). The CASA ratio on a YoY basis was largely stable at ~40%. Other highlights: a) Absolute GNPA increased 12% QoQ, with the slippage ratio increasing to 2.1% v/s 1.4% in 4QFY16; b) HDFCB utilized INR1.3b of floating provisions for Punjab food corporation exposure; outstanding floating provisions now stand at INR12.5b; c) CET1 ratio remains healthy at 13.3% (+10bp QoQ); and d) NSL remains the lowest at 42bp. Valuation and view: HDFCB is well positioned in the current environment, with ~40% CASA ratio, growth outlook of at least 1.3x industry, and least asset quality risk. With CET1 of ~13.3%, strong capacity building amid the moderate growth cycle (branches at 4,541 v/s 1,412 in FY09) and significant digitalization initiatives, the bank is well placed to benefit from the expected pick-up in the economic growth cycle. RoE is expected to be ~19-20% in FY17/19. Comfort on earnings remains high. Maintain Buy with a target price of INR1,450 (3.8x FY18E BV) based on the RI model. Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com); Krishnan ASV (A.Krishnan@MotilalOswal.com); / Dhaval Gada (Dhaval.Gada@MotilalOswal.com); Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal Oswal research is available on Bloomberg, Thomson Reuters, Factset and S&P Capital.

2 Exhibit 1: Quarterly Performance: In-line with estimate Y/E March 1QFY17A 1QFY17E V/S our Est Comments Net Interest Income 77,814 78,074 0 Inline performance; NIMs improve 10bp QoQ % Change (Y-o-Y) Other Income 28,066 28,217-1 Higher than expected non-core income offset by lower than expected fee income growth Net Income 105, ,291 0 Operating Expenses 47,689 48,225-1 Operating Profit 58,192 58,066 0 In-line % Change (Y-o-Y) Other Provisions 8,667 9,250-6 Lower than expected NPA provisioning Profit before Tax 49,525 48,816 1 Tax Provisions 17,136 16,475 4 Net Profit 32,389 32,341 0 In-line performance % Change (Y-o-Y) Share of retail loans based on internal classification now stands at 63.4% (+100bp QoQ/YoY) Strong traction in loan growth across segments Reported loans grew 23% YoY and 1% QoQ, driven by strong growth in Retail segment; Retail (based on internal classification) loans grew +3% QoQ and +25% YoY and corporate de-grew 1.4% QoQ (+20% YoY). Sequential growth in retail loans was mainly driven by strong growth in a) home loans (+5.5% QoQ, +25% YoY) HDFCB has retained 70% of loan originated, b) Kissan Gold Cards (-2% QoQ, +33% YoY), and c) Personal loans (+9% QoQ, +41% YoY). CV/CE loan growth improved 2% QoQ (+19% YoY). Share of unsecured loans has increased to 13.1% of overall loans (v/s 12% in 1QFY16) and 26% of retail loans (v/s 24% in 1QFY16). Continued robust performance on other retail portfolio, higher cross sell and healthy delinquency trends is leading to high risk appetite for high yielding retail loans. Overall average interest earning assets increased 19% YoY (+2% QoQ) v/s 27 YoY in 4QFY16. Exhibit 2: Share of unsecured loans in overall loans increased 70bp QoQ at 13.1% QFY06 4QFY06 3QFY07 2QFY08 1QFY09 4QFY09 3QFY10 2QFY11 4QFY12 3QFY13 2QFY14 4QFY15 3QFY16 13 Exhibit 3: HDFCB s market share in credit card loans 54%+ Credit Card Loan Market Share (%) 64 HDFCB ICICIBC QFY06 1QFY07 4QFY07 3QFY08 2QFY09 1QFY10 4QFY10 3QFY11 2QFY12 1QFY13 4QFY13 3QFY14 2QFY15 1QFY16 4QFY16 CASA growth remained stable at 19% YoY (-3% QoQ) NIM improves 10bp QoQ; CASA ratio remains healthy at 40% Reported NIM improved 10bp QoQ at 4.4% (+10bp YoY). Cost of funds (computed basis) moderated 15bp QoQ led by increasing benefit from deposit rate cuts and healthy CASA growth (+19% YoY). Overall NII growth was 22% YoY (+4% QoQ). 21 July

3 CA deposits grew by 14% YoY (-14% QoQ) v/s 17% YoY in 4QFY16. SA grew by 22% YoY (+3% QoQ); overall SA ratio remained stable at 27%. Core fees grew by 8% QoQ (+18% YoY) Fee income growth moderates HDFCB reported fee income growth of +15.5% YoY (-9% QoQ) lower than balance sheet growth (+20% YoY). Overall fee income / average assets now stand at 8% - 50 quarter low. Trading gains increased to INR2.8b (5.6% of PBT) v/s INR1.3b in 1QFY16 (3.1% of PBT) and INR1.2b in 4QFY16 (2.3% of PBT). Forex income de-grew 10% YoY (+11% QoQ) v/s -14% YoY in 4QFY16. Exhibit 4: Core fee (ex forex) / Avg. assets (%) at 50 quarter low 1.6 Core fee Income/ average assets (%) Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Source: MOSL, Company HDFCB added just 21 branches in 1QFY17 and 440 branches in last one year Opex growth trails revenue growth Overall opex grew by +19% YoY (+4% QoQ), similar to 4QFY16 marginally lower than 20% revenue growth; led by lower other expense growth (+20.5% YoY v/s 22% in 4QFY16). Employee expenses grew 17% YoY v/s 13% YoY in 4QFY16. During the quarter, 21 branches were added v/s 239 branches in 4QFY16; bank also added 13 ATMs v/s 157 in 4QFY16. Cost-to-core income ratio increased to 47.3% v/s 46.3% in 4QFY16 (47.2% in 1QFY16). As the branches mature, the management expects the ratio to stabilize/decline over the medium term. 21 July

4 1QFY17 Conference Call Highlights Asset quality Net additions for 1QFY17: INR5.7b (Gross slippages 17.61b) Less than one-third of net additions from agri portfolio; one-third from retail and one-third from business banking Handful of accounts are vulnerable; no patterns (sector color or geographical color) in slippages from the SME / business banking CV asset quality is actually witnessing marginal improvements quarter after quarter Standard asset provisioning would be at 40bp on aggregate basis (marginally lower during the quarter) Used floating provisions of INR1.3b for FCI exposure (INR5b incremental floating provision during the quarter) FCNR deposits FCNR deposits largely maturing during Oct-Dec quarter Some balance sheet contraction is obvious (loans to NR customers in foreign currency to the tune of USD2b); assets and liabilities will come off on the overseas book by USD2b; total exposure in INR terms at USD3.4b Opex Expenses related to branch expansion may have been front-loaded (late FY16 rather than early FY17); hence, this component could moderate Expenses on digital footprint will continue BAU Incremental improvements in cost-to-income to be achieved through improved productivity (branches breaking even PLUS higher usage of digital channels) Fee income Forex income remains soft (this can only recover on the back of a pick-up in forex and trade volumes) - 60% of this fee income is from retail Bond gains stronger during the initial part of 1QFY17 The competitive landscape for fees from POS terminals has not changed materially because of fintechs - it has been historically competitive even amongst banks Investment book Investment portfolio had a one-off element earlier Mobilized surplus funds through deposits and other sources, which is being deployed in short-term investments (T-bills largely) Unsecured loans Largest part of the PL book is salaried customers who have salary accounts with HDFC Bank No internal ceiling on the proportion of unsecured lending within the overall bank PL (50% to internal customers); cards (70% to internal customers) - DSA sourcing in personal loans would be sub-30% 21 July

5 All MFI origination happens through internal staff (no use of business correspondents) branches offer gold loans Risk mitigation measures Focus on internal customers more than external (Proportion of internal customers in the personal loan book would be 50%; proportion of internal customers in the credit card portfolio would be close to 70%) Internal portfolios generally have 20-40bp lower delinquencies compared to external portfolios Usage of analytics is a lot higher within the bank (event-based triggers and alerts which are clearly actionable) Relentless monitoring through use of bureau as well as in-built systems Cost of funds Further room for re-pricing benefits to accrue to the bank MCLR Top 3-4 banks tend to have MCLRs within 5-10bp Not a tool for competitive positioning but more for better transmission to customers Wallets / digital banking Bank wallets are clearly more attractive than non-bank wallets Interesting wallet features can typically be replicated, implying little scope for differentiation amongst peer banks Adoption of digital channels in wholesale banking is very high (cash management product; transaction) - launched recently for SME customers (proportion of digital transactions tends to rise with customers who adopt it once) HDB Financial Services Marginally higher risk - compensated by marginally higher returns Loans against property; business banking Asset base at INR260b Self-employed or other segments (benchmark criteria will be marginally inferior to the bank s own standards) 21 July

6 Buy with a target price of INR1,450 (3.8x FY18E BV) Valuation and view Structural drivers in place with (1) CASA ratio of ~40%, (2) growth outlook of at least 1.3x the industry growth, (3) improving operating efficiency led by digitalization initiatives, (4) expected traction in income due to strong expansion in branch network, and (5) best-in-class asset quality. Retail loan growth is seeing a strong revival with the contribution from high ROE retail products like unsecured personal loans, LAS and Credit cards going up. Despite the moderate growth in underlying assets like Auto, CV and CE loans HDFCB is seeing the strong loan growth-indicating a market share gain. Led by strong loan growth, revenue growth remains very healthy at 20%+ over last seven quarter, which is giving bank avenues to expand aggressively (branches up 11% YoY, headcount up 12% YoY) and invest in the digitalization without much impact on cost ratios (C/I ratio remains in the range of 45-47%). With growth momentum remaining healthy, core revenues are expected to remain 20%+ from hereon. Despite pricing pressure, NIMs are expected to remain at the current levels as a) CASA growth will pick up, b) benefit of falling rate cycle will occur due to high share of fixed rate retail loans (~70% of book) and c) high-yielding retail loans contribution will rise. The biggest risk to earnings for private financials is the implementation of dynamic provisioning by RBI, wherein HDFCB is best placed due to floating provisions created during the last three years. HDFCB carries floating provisions of INR13b+ created to smoothen earnings growth led by better-than-factored credit cost on retail loans. Earnings CAGR of 20% (best amongst the large private banks), with core income growth pick-up led by healthy loan growth, superior NIMs, gradual improvement in fee income and operating efficiencies led by digital initiatives. Over the last 12 years, HDFCB s market share has increased significantly in (1) retail loans, (2) low-cost deposits and (3) profitability, indicating the strength of its franchisee. Strong fundamentals and near-nil stress loans would enable the bank to gain market share. Further, continued strong investment in people and branches indicating management positive outlook on business. RoEs are expected to be the best amongst private banks at ~20%. The stock trades at FY18 PBV/PE of 3.2x/17.5x. We maintain Buy with a target price of INR1450 (3.8x PBV FY18) based on the residual income growth model. We introduce FY19 estimates and roll forward target price to FY18. Our key assumptions are a) Risk free rate of 7.5% b) Risk premium of 5% c) Beta of 0.9x d) average growth of ~15% over FY16-36E and e) terminal growth rate of 5%. 21 July

7 Exhibit 5: We largely maintain our earnings estimate INR b Old Estimates New Estimates % Change FY17 FY18 FY19 FY17 FY18 FY19 FY17 FY18 FY19 Net Interest Income Other Income Total Income Operating Expenses Operating Profits Provisions PBT Tax PAT Loans 5,807 7,259 9,074 5,668 7,028 8, Deposits 6,776 8,470 10,587 6,557 8,131 10, Margins (%) Credit Cost (%) RoA (%) RoE (%) EPS BV ABV Exhibit 6: One year forward P/BV PB (x) Peak(x) Avg(x) Min(x) Exhibit 7: One year forward P/E 42 PE (x) Peak(x) Avg(x) Min(x) Jul-06 Oct-07 Jan-09 Apr-10 Jul-11 Oct-12 Jan-14 Apr-15 Jul-16 Jul-06 Oct-07 Jan-09 Apr-10 Jul-11 Oct-12 Jan-14 Apr-15 Jul July

8 Exhibit 8: DuPont Analysis: Strong improvement in risk adjusted NIMs and operating leverage; RoAs close to decadal high (%) Y/E March FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E Net Interest Income Core Fee Income Fee to core Income Core Income Operating Expenses Cost to Core Income Employee cost Others Core operating Profits Trading and others Operating Profits Provisions NPA Others PBT Tax Tax Rate RoA Leverage (x) RoE Exhibit 9: DuPont Analysis: Robust core operating performance continues (%) 4QFY14 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 NII Fees (ex-forex) Fees to core Inc Core Income Operating Expenses Cost to Core Inc (%) Employee Expenses Other Expenses Core Oper. Profit Trading and others Operating Profit Provisions PBT Tax Tax Rate ROA Leverage (x) ROE July

9 Story in charts Exhibit 10: Loans grew 1% QoQ (+23% YoY) Loans (INR b) YoY Growth (%) Exhibit 11: Deposit growth among the best in the industry Deposits (INR b) YoY Gr (%) HFY12 9MFY12 FY12 1QFY13 1HFY13 9MFY13 FY13 1QFY14 1HFY14 9MFY14 FY14 1HFY15 9MFY15 FY15 1QFY16 1HFY16 9MFY16 FY16 1QFY17 1,755 1,885 1,943 1,954 2,133 2,316 2,415 2,397 2,586 2,686 2,967 3,030 3,121 3,273 3,471 3,655 3,820 4,185 4,364 4,646 4,706 1HFY12 9MFY12 FY12 1QFY13 1HFY13 9MFY13 FY13 1QFY14 1HFY14 9MFY14 FY14 1HFY15 9MFY15 FY15 1QFY16 1HFY16 9MFY16 FY16 1QFY17 2,112 2,307 2,325 2,467 2,575 2,741 2,841 2,962 3,033 3,130 3,492 3,673 3,721 3,907 4,141 4,508 4,842 5,069 5,240 5,464 5,738 Exhibit 12: Healthy traction in vehicle loan growth continues Vehicle Loans (INR b) YoY Growth (%) Exhibit 13: CV/CE de-grew QoQ (+14% YoY) CV and CE loans (INR b) YoY Growth (%) HFY12 9MFY12 FY12 1QFY13 1HFY13 9MFY13 FY13 1QFY14 1HFY14 9MFY14 FY14 1HFY15 9MFY15 FY15 1QFY16 1HFY16 9MFY16 FY16 1QFY HFY12 9MFY12 FY12 1QFY13 1HFY13 9MFY13 FY13 1QFY14 1HFY14 9MFY14 FY14 1HFY15 9MFY15 FY15 1QFY16 1HFY16 9MFY16 FY16 1QFY Exhibit 14: Share of retail loans (based on internal classification) ticked higher to 63.4% v/s 62.4% in FY16 Loan Break-up % of YoY Gr QoQ Gr 1QFY17 1QFY16 4QFY16 (INR b) loans (%) (%) Auto PL LAS Wheerlers CV and CE CC Bus. Banking Home loans Gold loans Kissan gold cards Others Retail loans ,983 2, , Corp and International ,723 1, , Total loans ,706 3, , Exhibit 15: NIMs improve QoQ (+10bp YoY, %) QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 21 July

10 Exhibit 16: Quarterly fees/assets (%) at multi-year low Fee Inc.(INR b) Fee Inc. as % of Avg. Assets Exhibit 17: Asset quality remains under check Gross NPAs (%) Net NPAs (%) 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY HFY12 9MFY12 FY12 1QFY13 1HFY13 9MFY13 FY13 1QFY14 1HFY14 9MFY14 FY14 1HFY15 9MFY15 FY15 1QFY16 1HFY16 9MFY16 FY16 1QFY Exhibit 18: Branch additions moderate; bank added just 21 branches during the quarter Branch Addition (4 qtr rolling) QFY06 4QFY06 3QFY07 2QFY08 1QFY09 4QFY09 3QFY10 2QFY11 4QFY12 3QFY13 2QFY14 4QFY15 3QFY Exhibit 19: CASA ratio remains stable YoY (%) CASA Deposits (INR b) CASA Ratio (%) HFY12 9MFY12 FY12 1QFY13 1HFY13 9MFY13 FY13 1QFY14 1HFY14 9MFY14 FY14 1HFY15 9MFY15 FY15 1QFY16 1HFY16 9MFY16 FY16 1QFY17 21 July

11 Exhibit 20: Quarterly Snapshot FY15 FY16 FY17 Variation (%) 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q QoQ YoY Profit and Loss (INR m) Net Interest Income 51,716 55,110 56,999 60,132 63,888 66,809 70,685 74,533 77, Other Income 18,506 20,471 25,349 25,638 24,619 25,518 28,722 28,659 28, Trading profits ,655 1,961 1,259 1,624 3,279 1,155 2, Exchange Profits 2,242 2,217 2,534 3,287 3,480 3,196 2,774 2,828 3, Others (Ex non core) 16,014 17,303 20,160 20,390 19,880 20,698 22,669 24,676 22, Total Income 70,222 75,581 82,348 85,769 88,507 92,327 99, , , Operating Expenses 31,784 34,979 34,563 38,550 40,008 41,898 42,048 45,843 47, Employee 11,259 11,669 11,325 13,256 13,590 14,140 14,313 14,980 15, Others 20,525 23,310 23,238 25,294 26,418 27,758 27,736 30,863 31, Operating Profits 38,438 40,602 47,786 47,220 48,499 50,429 57,359 57,349 58, Provisions 4,828 4,559 5,604 5,767 7,280 6,813 6,539 6,625 8, PBT 33,610 36,043 42,181 41,453 41,219 43,616 50,820 50,725 49, Taxes 11,280 12,228 14,236 13,384 14,262 14,922 17,251 16,982 17, PAT 22,330 23,815 27,945 28,069 26,957 28,695 33,568 33,742 32, Asset Quality GNPA 33,562 33,617 34,679 34,384 38,522 38,278 42,552 43,928 49, NNPA 10,074 9,173 9,037 8,963 10,277 10,377 12,606 13,204 14, GNPA (%) NNPA (%) 4 5 PCR (Calculated, %) Ratios (%) Fees to Total Income Cost to Core Income Tax Rate CASA (Reported) Loan/Deposit RoA RoE Margins (%) - Calculated Yield on loans Yield On Investments Yield on funds Cost of funds Spreads Margins Margins (%) - Reported July

12 Exhibit 21: Quarterly Snapshot continued FY15 FY16 FY17 Variation (%) 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q QoQ YoY Balance Sheet (INR b) ESC Reserves and Surplus Net Worth Deposits 3,721 3,907 4,141 4,508 4,842 5,069 5,240 5,464 5, Borrowings + Sub Debt Other Liabiliites Total Liabilities 4,914 5,100 5,349 5,905 6,293 6,600 6,879 7,088 7, Cash Money at call Investments 1,088 1,154 1,196 1,516 1,724 1,713 1,823 1,639 2, Advances 3,121 3,273 3,471 3,655 3,820 4,185 4,364 4,646 4, Total earning assets 4,290 4,540 4,788 5,260 5,687 5,976 6,245 6,373 6, Fixed Assets Other Assets Total Assets 4,914 5,100 5,349 5,905 6,293 6,600 6,879 7,088 7, Loan Break Up (%) Retail Auto Loans Personal Loans Loan against securities Two wheeler CV & CE Credit Cards Business Banking Home loans Gold loans Kissan Gold Cards Other Retail loans Corp. & International Franchise Branches 3,488 3,600 3,659 4,014 4,101 4,227 4,281 4,520 4, ATM 11,428 11,515 11,633 11,766 11,952 11,666 11,843 12,000 12, July

13 Exhibit 22: Financials: Valuation metrics Rating 66 CMP Mcap EPS (INR) P/E (x) BV (INR) P/BV (x) RoA (%) RoE (%) (INR) (USDb) FY17 FY18 FY17 FY18 FY17 FY18 FY17 FY18 FY17 FY18 FY17 FY18 ICICIBC* Buy HDFCB Buy 1, AXSB Buy KMB* Buy YES Buy 1, IIB Buy 1, IDFC Bk Buy FB Neutral DCBB Buy JKBK Neutral SIB Buy Private Aggregate SBIN (cons)* Buy PNB Neutral BOI Neutral BOB Buy CBK Neutral UNBK Buy OBC Neutral INBK UR ANDB Buy Public Aggregate Banks Aggregate HDFC* Buy 1, LICHF Buy IHFL Buy GRHF Buy REPCO Buy DEWH Buy Housing Finance RECL Neutral POWF Neutral Infra Finance SHTF Buy 1, MMFS Buy BAF Buy 8, ,631 1, MUTH Buy SKSM Buy Asset Finance NBFC Aggregate Financials *Multiples adj. for value of key ventures/investments; For ICICI Bank and HDFC Ltd BV is adjusted for investments in subsidiaries 21 July

14 Financials and Valuation Income Statement (INR Million) Y/E March E 2018E 2019E Interest Income 278, , , , , , ,643 1,017,809 Interest Expense 149, , , , , , , ,387 Net Interest Income 128, , , , , , , ,422 Change (%) Non Interest Income 57,836 68,526 79,196 89, , , , ,826 Net Income 186, , , , , , , ,248 Change (%) Operating Expenses 92, , , , , , , ,263 Pre Provision Profits 93, , , , , , , ,985 Change (%) Provisions (excl tax) 18,774 16,770 15,880 20,758 27,256 33,741 39,205 55,914 PBT 75,132 97, , , , , , ,071 Tax 23,461 30,249 42,937 51,128 63,417 75,275 89, ,294 Tax Rate (%) PAT 51,671 67,257 84, , , , , ,778 Change (%) Equity Dividend (Incl tax) 11,749 15,360 19,275 24,142 28,790 34,428 41,381 49,810 Core PPP* 79,428 97, , , , , , ,782 Change (%) *Core PPP is (NII+Fee income-opex) Balance Sheet (INR Million) Y/E March E 2018E 2019E Equity Share Capital 4,693 4,759 4,798 5,013 5,056 5,056 5,056 5,056 Reserves & Surplus 294, , , , , , ,274 1,135,241 Net Worth 299, , , , , , ,330 1,140,298 Deposits 2,467,064 2,962,470 3,673,375 4,507,956 5,464,242 6,557,090 8,130,792 10,082,182 Change (%) of which CASA Dep 1,194,059 1,405,215 1,646,214 1,984,921 2,363,108 2,865,307 3,474,453 4,213,367 Change (%) Borrowings 238, , , , , , , ,075 Other Liabilities & Prov. 374, , , , , , , ,397 Total Liabilities 3,379,095 4,003,319 4,915,995 5,905,031 7,088,456 8,474,150 10,321,216 12,593,951 Current Assets 209, , , , , , , ,758 Investments 974,829 1,116,136 1,209,511 1,516,418 1,638,858 1,884,686 2,223,930 2,624,237 Change (%) Loans 1,954,200 2,397,206 3,030,003 3,654,950 4,645,940 5,668,046 7,028,377 8,715,188 Change (%) Fixed Assets 23,472 27,031 29,399 31,217 33,432 36,373 39,315 44,256 Other Assets 217, , , , , , , ,512 Total Assets 3,379,095 4,003,319 4,915,995 5,905,031 7,088,456 8,474,150 10,321,216 12,593,951 Asset Quality (%) Y/E March E 2017E 2018E 2016E GNPA (INR m) 19,994 23,346 29,893 34,384 43,928 58,924 83, ,047 NNPA (INR m) 3,523 4,690 8,200 8,963 13,204 20,547 25,555 44,240 GNPA Ratio NNPA Ratio PCR (Excl Tech. write off) E: MOSL Estimates 21 July

15 Financials and Valuation Ratios Y/E March E 2018E 2019E Spreads Analysis (%) Avg. Yield-Earning Assets Avg. Yield on loans Avg. Yield on Invt Avg. Cost-Int. Bear. Liab Avg. Cost of Deposits Interest Spread Net Interest Margin Profitability Ratios (%) RoE RoA Int. Expense/Int.Income Fee Income/Net Income Non Int. Inc./Net Income Efficiency Ratios (%) Cost/Income* Empl. Cost/Op. Exps Busi. per Empl. (INR m) NP per Empl. (INR lac) * ex treasury Asset-Liability Profile (%) Loans/Deposit CASA Ratio Investment/Deposit CAR Tier Valuation Book Value (INR) Change (%) Price-BV (x) Adjusted BV (INR) Price-ABV (x) EPS (INR) Change (%) Price-Earnings (x) Dividend Per Sh (INR) Dividend Yield (%) E: MOSL Estimates 21 July

16 Corporate profile Company description HDFC Bank amongst the ten private sector bank which were awarded license post liberalization of 1990s. The bank was incorporated in August 1994 and is promoted by the biggest mortgage lender in the country, HDFC Limited (21.6% stake). The bank is now the second largest private sector bank in India with asset size of INR6t+ and market share of ~5% in deposit and loans respectively. As on September 30, 2015, the bank had a network of 4,227 branches and 11,666 ATMs spread across the country. Exhibit 1: Sensex rebased Source: MOSL/Bloomberg Exhibit 2: Shareholding pattern (%) Mar-16 Dec-15 Mar-15 Promoter DII FII Others Note: FII Includes depository receipts Source: Capitaline Exhibit 4: Top management Name Shyamala Gopinath Aditya Puri Paresh Sukthankar Kaizad Bharucha Sanjay Dongre Designation Chairperson Managing Director Deputy Managing Director Executive Director Company Secretary Exhibit 3: Top holders Holder Name % Holding Europacific Growth Fund 3.9 LIC of India 2.2 ICICI Prudential Life Insurance Company Ltd 1.6 Capital World Growth and Income Fund 1.4 ICICI Prudential Focussed Bluechip Quity Fund 1.1 Source: Capitaline Exhibit 5: Directors Name Name A N Roy Bobby Parikh Keki Mistry Malay Patel Partho S Datta Renu Karnad Source: Capitaline *Independent Exhibit 6: Auditors Name Delloite Haskins & Sells Type Tax Exhibit 7: MOSL forecast v/s consensus EPS MOSL Consensus (INR) forecast forecast Variation (%) FY FY Source: Bloomberg Source: Capitaline 21 July

17 PRODUCT GALLERY Our recent reports on HDFC BANK Our recent reports on Financial sector Our recent reports on other Financial companies

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