KOTAK MAHINDRA BANK Loan growth moderates; asset quality stable

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1 RESULT UPDATE KOTAK MAHINDRA BANK Loan growth moderates; asset quality stable India Equity Research Banking and Financial Services Kotak Mahindra Bank s Q2FY14 headline earnings (consolidated excluding life insurance) were in line with expectation at INR5.4bn (up 19% YoY). Moderation in advance growth, investment depreciation of INR2.64bn (one-third recognized in this quarter and it chose not transfer securities from AFS to HTM under RBI s special dispensation) and lower non-interest income led to lower than anticipated banking business earnings. NIMs surprised positively improving 15bps QoQ (to 4.9%) and asset quality was stable. Earnings in auto financing, securities and asset management businesses were also higher than expectation. With lower growth, RoE profile will be capped below 15% and valuation of banking business (adjusting for subsidiaries) at 3x FY15E P/ABV appears expensive. Maintain REDUCE with TP of INR667. Banking business earnings were up 26% YoY to INR3.25bn riding on NIM expansion (full benefit of capital raising in Q1FY14 and improvement in asset yield due to investment run-down). As guided, advances growth moderated to 11% YoY CV/CE portfolio declined 16% YoY and corporate lending growth was modest at 6%. It has upped its guidance on branch expansion to 600 branches by FY14. Kotak Prime maintained earnings momentum - up 10% YoY to INR1.25bn (versus our expectation of a decline). Advances growth moderated to 12%. Profitability of securities business was higher as daily trading volume improved 15% QoQ to INR42.5bn and market share improved to 2.4% (2.2% in Q1FY14). Earnings of asset management business improved QoQ despite AUMs coming off sequentially mainly due to mix in favour of long term debt. In life insurance business, PAT was lower at INR440mn (compared to INR710mn in Q1FY14 and INR470mn in Q2FY13) due to lower investment income. This report also contains Q2FY14/Q1FY14 earning concall highlights Outlook and valuations: Expensive; maintain REDUCE While NIMs will settle at better than anticipated level, investment depreciation, lower growth, and higher capitalization will keep RoE profile weak below 15%. Earnings of capital market related businesses will tend to be volatile and growth in auto financing business will moderate. Valuations of banking business (adjusting for subsidiaries) at 3x FY15E P/ABV appear rich and we maintain REDUCE/Sector Underperformer. Financials Edelweiss Research is also available on Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. (INR mn) Year to March Q2FY14 Q2FY13 Growth (%) Q1FY14 Growth (%) FY13 FY14E FY15E Net int. inc. 14,164 11, , ,216 51,051 58,130 PAT 5,391 4, ,566 (3.1) 19,982 22,417 25,726 EPS (INR) (8.4) BV per share (INR) Price/Earnings (x)* Price/ BV (x)* * adj for insurance EDELWEISS 4D RATINGS Absolute Rating Rating Relative to Sector REDUCE Edelweiss Securities Limited Underperformer Risk Rating Relative to Sector Medium Sector Relative to Market Equalweight MARKET DATA (R: KTKM.BO, B: KMB IN) CMP : INR 707 Target Price : INR week range (INR) : 807 / 588 Share in issue (mn) : M cap (INR bn/usd mn) : 543/ 8,852 Avg. Daily Vol.BSE/NSE( 000) : SHARE HOLDING PATTERN (%) Current Q1FY14 Q4FY13 Promoters * MF's, FI's & BK s FII's Others * Promoters pledged shares (% of share in issue) PRICE PERFORMANCE (%) Stock Nifty : NIL EW Banks and Financial Services Index 1 month (1.8) months months Kunal Shah kunal.shah@edelweissfin.com Nilesh Parikh nilesh.parikh@edelweissfin.com Prakhar Agarwal prakhar.agarwal@edelweissfin.com October 24, 2013

2 Banking and Financial Services Table 1: Business-wise profitability Year to March Q214 Q213 Growth (%) Q114 Growth (%) FY13 Kotak Mahindra Bank (Standalone) 3,530 2, ,030 (12.4) 13,607 Kotak Mahindra Prime 1,250 1, , ,313 Kotak Mahindra Capital Company (20) 42 (147.6) 40 (150.0) 170 Kotak Securities ,140 International subsidiaries (87.5) (100) (110.0) 60 Kotak Mahindra AMC & Trustee Co 170 (50) (440.0) Kotak Mahindra Advisors (55.6) Kotak Mahindra Investments (31.3) Total consolidated profit after tax 5,490 4, ,570 (1.4) 20,050 Equity affiliates/minority int & others (100) (110) (9.1) (10) (70) PAT (excluding life insurance) 5,390 4, ,560 (3.1) 19,980 Kotak Life Insurance (6.4) 710 (38.0) 1,900 PAT 5,830 5, ,270 (7.0) 21,880 Business overview Banking: Growth moderates on expected lines, NIMs improve, asset quality stable Source: Company Banking business (standalone) reported a profit of INR3.52bn (up 26% YoY) lower than our expectation of INR3.7bn. While net interest income settled at levels better than expected, the miss in earnings was owing to lower non-interest income (particularly stressed asset recovery), higher operating expenses and investment depreciation of INR879mn. Advances growth moderated to 11% YoY as was guided by management. This was primarily due to: 1) continued run-down in CV segment which declined 17% YoY (it now forms 14% of advances as against 20% in FY12); and 2) muted corporate segment growth (flat QoQ) conscious decision by management to focus on quality. Within wholesale segment, focus continues on medium term finance and working capital and it will be cautious in 3 segments in particular: infra, airlines and diamonds. Growth in consumer banking segment and agri division was on track (up 27% YoY and 23% respectively) - largely driven by housing and personal segments (driven by portfolio acquired from Barclays) registering growth of 22% and 45% respectively. The management has maintained its full year growth target of 15%. Within segments, consumer division will grow faster than commercial and wholesale banking business. It is particularly finding a better momentum in non-urban locations. In CV segment, it= took conscious decision to slow down CV portfolio 18 months ago, and will continue to disburse to quality customers. Margins surprised positively increasing 15bps QoQ to 4.9% (versus our expectation of decline). This was on following the full benefit of capital raising in Q1FY14 and improvement in asset yield (as sequential rundown has lent some support to overall yield on assets). Additionally, funding cost was stable as there was no need to tap high cost deposits/borrowings when loan growth was flat QoQ. Restructured INR300mn of one account (based out of Andhra Pradesh) during the quarter leading to outstanding restructured portfolio of INR450mn (versus INR63mn in Q1FY14). 2 Edelweiss Securities Limited

3 Kotak Mahindra Bank Liability franchise of the bank continues to strengthen: momentum in saving deposit mobilization continued, growing further by 4% QoQ (42% YoY). CASA and TDs below INR50mn constitutes 63% of total deposits (59% in FY13). The bank carried investments of INR95bn in AFS/HFT category with duration of 2.3 years, on which there was MTM hit of INR2.64bn - of which one-third was recognized in Q2FY14. It has chosen not to transfer any securities from AFS to HTM had it done that investment depreciation would have been merely INR465mn instead of INR2.64bn. Due to correction in G-sec yield, the unamortized MTM depreciation has come off from INR176 bn is now down to around INR900mn. The bank has aggressively added 57 branches in Q2FY14 taking the total tally to 502 branches. With RBI freeing up the branch licensing requirement for Tier 1 and Tier 2 cities, the management has upped the guidance of branch expansion to 600 branches by March 2014 (against 550 earlier) and in less than three years will double the branch network to 1,000. We are now building in advance CAGR of 15% over FY13-15E and factoring in credit cost of 70bps. This coupled with stable NIMs leads to earnings CAGR for banking business at 13% over FY13-15E. Table 2: Commercial banking Key metrics (INR mn) Q2FY14 Q2FY13 Growth (%) Q1FY14 Growth (%) FY13 Net interest income 9,241 7, , ,060 Pre-provisioning profits 6,065 4, ,788 (22.1) 21,570 Provisions ,689 (57.2) 1,850 PBT 5,343 4, ,099 (12.4) 19,720 Tax 1,817 1, ,071 (12.3) 6,110 PAT 3,525 2, ,028 (12.5) 13,610 Advances 506, , , ,690 Deposits 526, , , ,290 Advances + Investments 731, , ,410 (6.6) 773,420 Source: Company Kotak Mahindra Prime: Growth moderated, asset quality holding on well Auto financing business (Kotak Prime) maintained earnings momentum - up 10% YoY to INR1.25bn (vis-à-vis our expectation of marginal decline). However, auto advance moderated significantly registering a growth of only 12% (versus historical run-rate of 20% plus historically). Auto advances contribute ~75% with LAS, CRE, corporate loans etc contributing the rest. NIMs were estimated to have improved to 5.2% (4.8% in Q1FY14) as focus was more on incremental spreads rather than growth. Asset quality has been holding on well with net NPLs inching up marginally to 0.3%. With moderation in auto advance growth (some impact due to RBI s strictures on subvention from manufacturers) and NIMs near 5% we expect a PAT CAGR of 15%. 3 Edelweiss Securities Limited

4 Banking and Financial Services Table 3: Kotak Mahindra Prime Key metrics (INR mn) Q2FY14 Q2FY13 Growth (%) Q1FY14 Growth (%) FY13 PBT 1,910 1, , ,410 PAT 1,250 1, , ,310 Auto advances 131, , , ,770 Kotak Securities: Improve traction on market share gain Source: Company Securities business reported earnings of INR400mn (compared to INR310mn in Q1FY14. Average daily trading jumped 15% QoQ to INR42bn and market share increased to 2.4% from 2.2% in Q1FY14. In securities business, we expect industry-wide trading volume to remain weak at least through FY14 and early FY15E and commission yields to be under pressure (due to an increased portion of options volume and competition). Table 4: Kotak securities Key metrics (INR mn) Q2FY14 Q2FY13 Growth (%) Q1FY14 Growth (%) FY13 Revenues 1,520 1,550 (1.9) 1, ,990 PBT ,890 PAT ,140 PAT margin (%) Avg daily volumes (INR bn) Branches 1,286 1,346 (4.46) 1,311 (1.9) 1,330 Customers 880, , , ,000 Investment banking: Muted profitability Source: Company Investment banking reported a loss of INR20mn (versus profit of INR40mn in Q1FY14). Table 5: Kotak Mahindra Capital Company Key metrics (INR mn) Q2FY14 Q2FY13 Growth (%) Q1FY14 Growth (%) FY13 Total income (40.0) 220 (45.5) 830 PBT (30) 60 (150.0) 50 (160.0) 240 PAT (20) 40 (150.0) 40 (150.0) 170 Asset management: Earnings profile improves Source: Company Earnings of asset management business improved QoQ to INR170mn (up > 1.5x QoQ)- despite AUMs coming off sequentially to INR353bn (against INR377bn in Q1FY14) this was mainly due to mix in favour of long term debt. Table 6: Domestic asset management business - key metrics (INR mn) Q2FY14 Q2FY13 Growth (%) Q1FY14 Growth (%) FY13 Revenues ,290 PBT 260 (50) (620.0) PAT 170 (50) (440.0) AUMs 353, , ,000 (6.4) 312,610 Source: Company 4 Edelweiss Securities Limited

5 Kotak Mahindra Bank Life insurance: Profitability under strain Life insurance business reported muted earnings at INR440mn (down 6% YoY/38% QoQ). Weighted new business premium (WNRP) grew 11% YoY in Q2FY14 to INR1.09bn. Proportion of renewal premium also inched up to ~54% (from 49% in Q1FY14). Going forward, the management will focus on increasing proportion of traditional policies (up to 40-45%) in its product mix to maintain profitability post the regulator s restriction on ULIP pricing. The management expects industry-wide premium to grow at 10% and Kotak, to grow at faster clip than the industry average. Table 7: Kotak Life Insurance Key metrics (INR mn) Q2FY14 Q2FY13 Growth (%) Q1FY14 Growth (%) FY13 Gross premium inc. (INR mn) 6,070 6,200 (2.1) 4, ,790 Profit (INR mn) (6.4) 710 (38.0) 1,900 Table 8: SOTP valuations (FY15E) Method AUMs / earnings / Multiple (x) Value of business (INR mn) Kotak Bank's holding Value (INR mn) Source: Company Value per share Bank PABV 132, , , Prime PABV 32, , , Life insurance Appraisal value 45, , Securities / Invt banking PE 1, , , MF/Offshore AUMs/PE % of AUM 675, , , Total 523, , Source: Edelweiss research 5 Edelweiss Securities Limited

6 Banking and Financial Services Financial snapshot (INR mn) Year to March Q2FY14 Q2FY13 % change Q1FY14 % change YTD14 FY14E FY15E Interest income 29,826 26, , , , ,501 Interest exp 15,662 14, ,027 (2.3) 31,689 70,592 78,371 Net int. inc. (INR mn) 14,164 11, , ,904 51,051 58,130 Non interest income 2,731 9,663 (71.7) 10,062 (72.9) 12,793 24,927 26,642 Non interest expenses 7,522 13,751 (45.3) 13,282 (43.4) 20,803 36,651 41,280 Pre-provision profit 9,373 7, ,521 (10.9) 19,894 39,327 43,492 Provisions ,596 (46.0) 2,457 5,715 5,036 Profit before tax 8,512 6, ,925 (4.6) 17,437 33,612 38,456 Tax 2,895 2, ,035 (4.6) 5,931 10,645 12,179 Core profit 5,616 4, ,890 (4.6) 11,506 22,967 26,276 Minorities/affiliates (225) (162) NA (324) NA (549) (550) (550) Attributable PAT 5,391 4, ,566 (3.1) 10,957 22,417 25,726 Ratios NII/GII (%) Cost/income (%) Provisions / PPOP Tax rate (%) Edelweiss Securities Limited

7 Key highlights of Q2FY14 concall takeaways Kotak Mahindra Bank For leveraged financial institutions, four aspects of balance sheet become very critical in the current environment: 1) Capital Core equity 18.1% 2) Investments no transfer to HTM; total HTM is 11% of NDTL (amongst the lowest). Duration of investment book is 2.1 years. Total investments of INR225bn: INR80 bn is in SLR HTM category, INR50bn in money market (primarily treasury bills), INR95bn is MTM securities i.e AFS/HTM category with duration of 2.3 years. On AFS/HFT category, there is MTM hit of INR2.63bn of which one-third is amortized in Q2FY14. Due to correction in G-sec yield, the unamortized MTM depreciation has come off from INR1.76bn to around INR900mn. 3) Lending Bearish on construction equipment and CV segment adjusting for decline of 17% in this segment, growth would have been 18% (instead of reported 11%). In agri and consumer (the segments which it is comfortable) the growth is 24%. Cautious on 3 sectors: leveraged infra (project finance business), airline and diamonds. 4) Deposit Building a low cost deposit franchise. Added 57 branches in Q2FY14 and ups the target of branch expansion to 600 branches by March 2014 (against 550 earlier) and in less than three years will double the branch network to 1,000 (from current 502). With respect to credit growth Focus on lending in Bharat area continues. In wholesale segment, focus is on medium term finance and working capital. In CV segment: took conscious decision to slow down CV portfolio 18 months back; has taken bulk of the pain and should not see any increase in stress in existing portfolio. Truck operators dependant on mining and infra have witnessed major stress. It is close to bottom but not out of woods. Incremental NPLs in this category has bottomed out. Mortgages growing in select categories. Other stress assets include loans against FD/shares and credit card. It also includes 2 new segments recently ventured into: gold loans, semi-urban & rural housing. Infrastructure: bigger opportunity is not lending at par but distressed infrastructure (buying portfolio at discount). On a risk adjusted basis, would like to take exposure in this segment through distressed buyout route. Continues with credit growth guidance of around 15% for FY14. 7 Edelweiss Securities Limited

8 Banking and Financial Services With respect to network expansion Branch licensing is freed up and that s primarily the reason for increasing the guidance on branch expansion. Covers close to 190 cities; going forward half of the branches will come in smaller location and rest will be concentrated on top 20 cities. With respect to asset quality Restructured INR300mn of one account (based out of Andhra Pradesh) during the quarter. There were some recoveries in this period which were fully provided for and written off. Do not see any big item as a potential risk to balance sheet at this stage and is reasonably comfortable with asset quality in current environment there will always be some accounts under watch list. Unsecured portfolio is witnessing fairly steady performance. With respect to NIMs NIMs have improved as it raised capital in middle of Q1FY14 (so full benefit reflected in this quarter). Investment portfolio has run-down sequentially and that has lent some support to overall yield on assets. With respect to operating cost Can add branches every year without any significant increase in cost/income. It is expected to be in high 40s. Reasons for lower staff cost down 12% QoQ Incentive provision in treasury is lower compared to Q1. Retirement benefit has come down with interest rates moving up. ESOP valuation based on stock price movement. Relevant datapoints Wholesale deposits at 37% of overall deposit base. Promoters stake: timeline is 2018 to bring it down to 20%. Fee income growth driven by forex related income. 8 Edelweiss Securities Limited

9 Kotak Mahindra Bank Key highlights of Q1FY14 concall takeaways Broader macro outlook: Real economy is slowing down pretty significantly and even if GDP growth is 5% or higher it will be better. There was increasing pressure on Central Bank to take actions to control rupee depreciation, though the measures were not as drastic as in 1997, when call rates touched as high as 80%. 3 areas of speculative excesses or flow in forex market: 1) Exchange traded (restrictions imposed to control these few weeks back), NDF (already restrictions exist), banks open position (which RBI was monitoring closely). Hence, to control banks open position RBI took steps to tighten liquidity or put fear of liquidity tightness that would control speculation. Cut-off yields in last few auctions indicate Central Bank is is comfortable to offer securities at % 10-year Gsec yield. Fx forward trading at 7% premium. CD market in India should trade at bps premium to fully hedge dollar cost for banks. Outlook on advance growth Advance growth guidance is revised down from 20% to 15% considering slowing economy. Within segments, consumer division will grow faster than commercial and wholesale banking business. Consumer banking portfolio has held up pretty well and that is making it more comfortable in growing it at a pace higher than average 15%. It is finding momentum more in non-urban locations. Stress in CV/CE was more than normal in Q1FY14 and considering this it will continue to de-grow CE/CV book (reducing MoM disbursements) Before RBI s measures it was of the view that guidance should be somewhere between 15-20% and post the measures it is now guiding for 15% Outlook on asset quality Increase in credit cost and increase in GNPLs was essentially arising out of increased stress in CV/CE segment and recognition of one corporate account of INR 1.5 bn as NPL which otherwise would have been classified as restructuring as it is referred to CDR. Credit cost guidance has been upped to 60 bps for FY14 increased from bps guided earlier Do not see any big item as a potential risk to balance sheet at this stage and is reasonably comfortable with its credit cost guidance. Zero CDRs (no account where it participated in restructuring); no funded account has been moved to non-funded category; no sale to ARC and no conversion of any loan to credit substitute. 9 Edelweiss Securities Limited

10 Banking and Financial Services Outlook on NIMs Maintains NIM guidance at around 4.5% Outlook on other operating metrics Focused on cost containment while this quarter cost/income came off significantly due to higher revenues in treasury it expects it to settle in higher 40s Relevant datapoints Provision breakup INR 1330 mn is loan loss provisioning and INR 350 is investment depreciation. Bulk deposit forms 25% of total deposits and CDs would be another 14%. Life insurance profit increased significantly due to investment income as it cut duration in May which has helped. Fee income growth led by business banking segment Peaked exposures in bonds, CDs and prior to RBI s move it was almost half the exposure it had during peak SLR duration is 2.5 years Continues to deepen presence in tractor financing segment RoA at Kotak Mahindra Prime is 2.5% 10 Edelweiss Securities Limited

11 Company Description Kotak Mahindra Bank KMB is India s leading full services financial conglomerate, dominating the securities and investment banking space. It is currently focused on growing its banking, asset management, and insurance businesses. It began operations in 1986 as a bill discounting and leasing NBFC under Kotak Mahindra Finance and converted itself into a bank in The group has a widespread presence across 375 plus cities. KMB has 500+ branches. The group has a decent platform to cross-sell its products, given its presence in the financial spectrum. Kotak Securities has ~2.4% market share in overall market volumes and is one of the prominent domestic investment bankers. It is developing its presence in the asset management and insurance businesses, where it has 3-5% market share. Investment Theme The operating performance in financing business has been strong with a robust advance growth and consistently low credit costs. We expect advances to grow at 15% over FY13-15E and NIMs to be under pressure with incremental focus on quality corporate segment. While it has limited exposure to some of the stressed segments, we believe credit costs are closer to bottoming out. Earnings of capital market related businesses are reeling under pressure due to increased fragmentation and expense build up. Key Risks Growth momentum continues to be buoyant. Asset quality continues to be under control and credit cost increase remains capped. Traction in auto financing business continues. 11 Edelweiss Securities Limited

12 Banking and Financial Services Financial Statements Key Assumptions Year to March FY12 FY13 FY14E FY15E Macro GDP(Y-o-Y %) Inflation (Avg) Repo rate (exit rate) USD/INR (Avg) Sector Credit growth Deposit growth CRR SLR G-sec yield Banking business assumptions Yield on advances Cost of funds Credit growth Deposit growth CASA Slippages Securities business assumption Average daily trading volumes 40,340 35,358 40,101 42,106 Commission yields PMS AUMs 32,865 39,437 47,325 56,790 Investment banking assumption Financial advisory & transaction fee Operating margin Kotak Mahindra Prime assumption Advance growth Yield on advances Cost of funds Gross NPLs Kotak AMC AUM growth Management fees Income statement (INR mn) Year to March FY12 FY13 FY14E FY15E Interest income 82, , , ,501 Interest expended 46,888 61,486 70,592 78,371 Net interest income 35,232 43,216 51,051 58,130 Non interest income 18,754 21,494 24,927 26,642 - Fee & forex income 12,824 14,351 16,662 18,548 - Misc. income 5,850 7,043 8,175 8,005 - Investment profits Net revenue 53,986 64,709 75,978 84,772 Operating expense 28,199 32,464 36,651 41,280 - Employee exp 11,700 13,705 15,949 18,352 - Other opex 16,499 18,760 20,702 22,928 Preprovision profit 25,788 32,245 39,327 43,492 Provisions 862 2,294 5,715 5,036 Profit before tax 24,926 29,951 33,612 38,456 Provision for tax 8,109 9,451 10,645 12,179 Profit After Tax 16,317 19,982 22,417 25,726 Diluted EPS (INR) Dividend per share (INR) Dividend payout (%) Growth ratios (%) Year to March FY12 FY13 FY14E FY15E NII growth Fees growth (15.3) Opex growth PPP growth Provisions growth (46.2) (11.9) Net profit Edelweiss Securities Limited

13 Kotak Mahindra Bank Balance sheet (INR mn) As on 31st March FY12 FY13 FY14E FY15E Equity capital 3,703 3,733 3,841 3,841 Reserves & surplus 121, , , ,405 Net worth 125, , , ,245 Deposits 274, , , ,143 Borrowings 178, , , ,311 Other liabilities 167, , , ,925 Total liabilities 745, , ,084 1,132,624 Loans 528, , , ,583 Investments 151, , , ,187 Cash and equivalents 27,489 27,223 24,979 23,094 Fixed assets 7,249 7,501 7,541 7,374 Other Assets 30,212 29,920 27,456 25,387 Total assets 745, , ,084 1,132,624 RoE decomposition (%) Year to March FY12 FY13 FY14E FY15E Net interest income/assets Fees/Assets Investment profits/assets Net revenues/assets Operating expense/assets Provisions/assets Taxes/assets Total costs/assets ROA Equity/assets ROAE (%) Valuation parameters Year to March FY12 FY13 FY14E FY15E Diluted EPS (INR) Y-o-Y growth (%) Book value per share (INR) Adjusted book value per share Diluted PE (x) Price/ Adj. BV (x) Dividend yield (%) Price/Earnings (x)* Price/ BV (x)* *Adjusted for Insurance Peer comparison valuation Market cap Diluted PE (X) Price/ Adj. BV (X) ROAE (%) Name (USD mn) FY14E FY15E FY14E FY15E FY14E FY15E Kotak Mahindra Bank 8, Axis Bank 9, Federal Bank 1, HDFC Bank 26, ICICI Bank 19, IndusInd Bank 3, ING Vysya 1, Karnataka Bank South Indian Bank Yes Bank 2, Median AVERAGE Source: Edelweiss research 13 Edelweiss Securities Limited

14 Banking and Financial Services Additional Data Directors Data Shankar Acharya Chairman Uday Kotak Executive Vice Chairman & MD Asim Ghosh Director C Jayaram Joint Managing Director Dipak Gupta Joint Managing Director Prakash Apte Director Amit Desai Director N P Sarda Director S. Mahendra Dev Director Auditors - S B Billimoria & Co Holding Top10 Perc. Holding Perc. Holding Capital International Investors 4.95 Sumitomo Mitsui Banking 4.27 Europacific Growth Fund 4.09 Heliconia PTE 2.60 Mahindra Anuradha A 1.84 Melany Holding 1.73 Madison Holding 1.73 First State Investments 1.48 Mathew International Capital 1.47 JP Morgan 1.25 *in last one year Bulk Deals Data Acquired / Seller B/S Qty Traded Price 16 Sep 2013 Canada Pension Plan Investment Board Buy *in last one year Insider Trades Reporting Data Acquired / Seller B/S Qty Traded 26 Sep 2013 Mr. Eshwar Karra Sell Sep 2013 Ms. Shanti Ekambaram Sell Sep 2013 Mr. Eshwar Karra Sell Sep 2013 Mr. Manish Kothari Sell *in last one year 14 Edelweiss Securities Limited

15 RATING & INTERPRETATION Company Absolute reco Relative reco Relative risk Company Absolute reco Relative reco Relative Risk Allahabad Bank BUY SP M Axis Bank BUY SO M Bank of Baroda BUY SP M Development Credit Bank BUY SO M Federal Bank BUY SO L HDFC HOLD SP L HDFC Bank HOLD SP L ICICI Bank BUY SO L IndusInd Bank BUY SP L IDFC BUY SO L ING Vysya BUY SO L Karnataka Bank BUY SP M Kotak Mahindra Bank REDUCE SU M LIC Housing Finance BUY SP M Magma Fincorp BUY SO M MMFS BUY SO M Manappuram General Finance BUY SP H Multi Commodity Exchange of India BUY SP M Muthoot Finance BUY SP M Oriental Bank Of Commerce BUY SP L Power Finance Corp BUY SO M Punjab National Bank HOLD SP M Reliance Capital BUY SO M Rural Electrification Corporation BUY SP M Shriram City Union Finance BUY SO M South Indian Bank HOLD SP M State Bank of India BUY SP L Union Bank Of India BUY SP M Yes Bank BUY SO M ABSOLUTE RATING Ratings Expected absolute returns over 12 months Buy More than 15% Hold Between 15% and - 5% Reduce Less than -5% RELATIVE RETURNS RATING Ratings Sector Outperformer (SO) Sector Performer (SP) Criteria Stock return > 1.25 x Sector return Stock return > 0.75 x Sector return Stock return < 1.25 x Sector return Sector Underperformer (SU) Stock return < 0.75 x Sector return Sector return is market cap weighted average return for the coverage universe within the sector RELATIVE RISK RATING Ratings Low (L) Medium (M) High (H) Criteria Bottom 1/3rd percentile in the sector Middle 1/3rd percentile in the sector Top 1/3rd percentile in the sector Risk ratings are based on Edelweiss risk model SECTOR RATING Ratings Overweight (OW) Equalweight (EW) Criteria Sector return > 1.25 x Nifty return Sector return > 0.75 x Nifty return Sector return < 1.25 x Nifty return Underweight (UW) Sector return < 0.75 x Nifty return 15 Edelweiss Securities Limited

16 Banking and Financial Services Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai Board: (91-22) , Vikas Khemani Head Institutional Equities Nischal Maheshwari Co-Head Institutional Equities & Head Research Nirav Sheth Head Sales Coverage group(s) of stocks by primary analyst(s): Banking and Financial Services Allahabad Bank, Axis Bank, Bank of Baroda, Development Credit Bank, Federal Bank, HDFC, HDFC Bank, ICICI Bank, Infrastructure Development Finance Co Ltd, IndusInd Bank, Karnataka Bank, Kotak Mahindra Bank, LIC Housing Finance, Multi Commodity Exchange of India, Manappuram General Finance, Magma Fincorp, Mahindra & Mahindra Financial Services, Muthoot Finance, Oriental Bank Of Commerce, Punjab National Bank, Power Finance Corp, Reliance Capital, Rural Electrification Corporation, State Bank of India, Shriram City Union Finance, South Indian Bank, Union Bank Of India, ING Vysya, Yes Bank Recent Research Date Company Title Price (INR) Recos 24-Oct-13 Karnataka Bank Slippages elevated on lumpy accounts; NIMs improves; Result Update 100 Buy 23-Oct-13 ING Vysya Bank Benign asset quality; capital raising cushions margin; Result Update 578 Buy 22-Oct-13 Yes Bank Core steady; SWAP gains offset investment depreciation; Result Update 372 Buy Distribution of Ratings / Market Cap Edelweiss Research Coverage Universe Buy Hold Reduce Total Rating Interpretation Rating Expected to Rating Distribution* * 1 stocks under review > 50bn Between 10bn and 50 bn < 10bn Market Cap (INR) Buy Hold Reduce appreciate more than 15% over a 12-month period appreciate up to 15% over a 12-month period depreciate more than 5% over a 12-month period 16 Edelweiss Securities Limited

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