Kotak Mahindra Bank (KOTMAH) 1390

Transcription

1 Result Update Rating matrix Rating : Hold Target : 1505 Target Period : 12 months Potential Upside : 8% What s changed? Target Changed from 1250 to 1505 EPS FY15E Changed from 22.1 to 22.8 EPS FY16E Changed from 25.7 to 27 Rating Unchanged Quarterly performance Crore Q3FY15 Q3FY14 YoY (%) Q2FY15 QoQ (%) NII Other Income PPP PAT Key financials crore FY14 FY15E FY16E FY17E NII PPP PAT Valuation summary FY14 FY15E FY16E FY17E P/E Target P/E P/ABV Target P/ABV RoA RoE Stock data Market Capitalisation crore GNPA (Q3FY15) 1219 crore NNPA (Q3FY15) 611 crore NIM (Q3FY15) week H/L 1444/630 Equity capital 384 crore Face value 5 DII holding (%) 2.0 FII holding (%) 35.3 Price performance Return % 1M 3M 6M 12M Kotak Mahindra bank HDFC Bank Axis Bank Research Analyst Kajal Gandhi kajal.gandhi@icicisecurities.com Vasant Lohiya vasant.lohiya@icicisecurities.com Sheetal Ashar sheetal.ashar@icicisecurities.com January 21, 2015 Kotak Mahindra Bank (KOTMAH) 1390 Growth traction strong; merger to add value Standalone profit grew 36% YoY to 464 crore, higher than our estimate of 432 crore, mainly due to strong other income and lower provisions that came in higher than estimates at 444 crore rising 26% YoY vs. our estimate of 404 crore. NII grew 12.4% YoY to 1038 crore as estimated with stable margin at 5% Other income grew 65% YoY to 494 crore, higher than expectation led by strong treasury gains of 118 crore vs. 85 crore QoQ Credit and deposits grew higher than estimates at 21.6% YoY ( crore) and 33.6% YoY ( crore), respectively, vs. 17% and 28% expected. Higher growth was seen in retail (mortgage) and agri loan book whereas the corporate book slowed down leading to NII growth coming marginally lower at 1058 crore while NIM has also declined to 4.8% vs. 5% QoQ Consolidated PAT grew 21% YoY and flat QoQ to 716 crore. Share of subsidiaries in PAT moderated to 36% vs. 38% earlier New bank in 2002, making material mark in industry-retail heavy Kotak Mahindra Bank, promoted by Uday Kotak, post receiving a licence in 2002 has grown to a loan-book size of crore and built a branch network of 641 branches managing CASA ratio of 31%. The bank s retail loans form 41% of total loans while corporate & agriculture comprise the rest. In 2003, it had 72% retail loans while CV loans dominated the book that has slightly moderated now at 5062 crore. However, home loan ( 1284 crore) & other personal loans are also growing fast in retail. Hence, KMB earns the best NIM in industry at % led by high yielding retail loans. Also, auto loans by Kotak Prime are strong. We revised credit CAGR of 20% to 22% to crore, maintaining margins at ~4.5%. Savings rate deregulation; raising same to 6% proves beneficial The savings rate was hiked to 6% by KMB post deregulation by the RBI in September The bank almost tripled its savings deposits from 3331 crore in March 2011 to 9200 crore by March It garnered crore on a quarterly basis vs. 900 crore in full year FY11. CASA ratio averaged around 28-29% in the past and is seen averaging around 32-33% consistently by FY16E to crore. Total deposits grew at 23% CAGR over FY We have raised growth estimates and see deposits growth at 21.2% CAGR (from 19%) over FY14-16E to crore. Strong management, business model and controlled asset quality KMB has one of the most stable asset quality with NNPA ratio of 1% and negligible restructured assets. KMB is well capitalised with tier I of 18.1% (maintained 15-18% since start). It has grown credit by 15x in FY02-08 to crore and post that at 25% CAGR to crore by FY13 with profit surging to 1360 crore from 54 crore in FY02. FY14 growth was sluggish on a conscious slowdown. On high other income and low provisions, PAT may grow at 18% CAGR over FY14-16E to 2077 crore. Maintain HOLD, merger to add strength KMB trades at rich valuations consistently due to its superior return ratios and NIM (RoA of 1.8% and NIM at 5%). With the ING Vysya Bank merger, the bank brought down promoter stake from 40% to 34% and also added value and geographical synergies in the company. We roll over to FY17 factoring in current Kotak group valuation on an SOTP basis at 1370 (4.5x FY16E standalone ABV for bank). However, addition of ING Vysya incremental BV and assigning KMB multiple we add 135 to the SOTP. We maintain HOLD rating with a revised target price of ICICI Securities Ltd Retail Equity Research

2 Variance analysis Q3FY15 Q3FY15E Q3FY14 YoY (%) Q2FY15 QoQ (%) Comments NII 1, , , NII marginally lower than estimate, higher mortgage and agri loans along with build-up in investment book NIM (%) bps bps Other Income NIM decline of 30 bps led by growth of low yielding retail and higher deposit growth to raise investment book having low yields than loans Strong treasury gain of 118 crore pushes other income while fee income was flat with slow corporate loan growth Net Total Income 1, , , , Staff cost Other Operating Expenses PPP Provision Writeback of 56 crore in investment provisions PBT Tax Outgo PAT PAT growth came higher-than-expected Key Metrics GNPA 1, , , , NNPA Asset quality relaitvely stable Total Restructured assets Restructured assets stable at 0.25% of total credit Change in estimates FY15E FY16E ( Crore) Old New % Change Old New % Change Comments Net Interest Income 4, , , , Pre Provision Profit 2, , , , NIM (%) bps bps PAT 1, , , , Bank has guided on realising ~ crore from its stressed portfolio over next three years not factored by us in estimates ABV ( ) Assumptions Current Earlier FY13 FY14 FY15E FY16E FY15E FY16E Credit growth (%) Deposit growth (%) CASA ratio (%) NIM calculated (%) Cost to income ratio (%) GNPA ( crore) , , , , ,636.2 NNPA ( crore) Slippage ratio (%) Credit cost (%) ICICI Securities Ltd Retail Equity Research Page 2

3 Merged entity will have 441 branches in the Top 8 cities Merged entity The proposed merger would result in ~15.2% dilution of the equity share capital of the merged Kotak. Hence, promoter holding in Kotak Mahindra Bank is expected to decline to 34% from 40% currently. RBI had directed Kotak Bank s promoter to bring down their holding to 30% by December 2016 and 20% by March In terms of business parameters, Kotak Mahindra Bank, post merger will become the fourth largest private bank with branches at 1214, business size of crore, employees at ~40000 & customers at ~10 million. Rationale for deal 1. The merger would give Kotak Bank a deeper presence in southern India as ING Vysya has two-third of its 573 branches in south. Kotak Bank has 80% of its 641 branches in western & northern region. Thus, the merger provides larger presence with minimum overlap 2. The merger enables Kotak Bank to diversify its book, especially in the SME segment, which constitutes 7% of loans vs. 36% in case of ING Vysya 3. The merger would yield more liquidity with significant foreign headroom in Kotak Bank even post merger, with foreign shareholding at ~47% in the merged entity. The management indicated that they will apply to RBI for raising the foreign holding limit to 74% from 49% currently 4. Merger will allow Kotak Bank to leverage on large international corporates in India with access to overseas relationships of ING Group 5. The merger is also beneficial on the liability front as both banks have CASA ratio of ~31%. Owing to strong SME business, ING Vysya s CA float is healthy. Further, there is large scope for garnering savings balances as Kotak Bank offers a higher rate of 5.5-6% View on merger We believe the deal remains beneficial for the merged entity while its book value is accretive. Standalone Kotak Bank trades at higher valuation (more than 4x ABV) compared to ING Vysya (~2x ABV). The acquisition has been cheap at 2.2x trailing ABV of ING Vysya. In the past, acquisition deals have happened at higher multiples of >3x ABV. Though in terms of value per branch at ~ 25 crore, this deal seems higher, it should be looked at from the perspective that ING Vysya Bank is much better than banks acquired in previous deals. Post merger, Kotak s banking business RoA will decline to ~1.6% from 1.8% immediately. However, we believe the benefits of merger synergies will accrue over time, which will enable the merged entity to clock healthy return ratios, going ahead. We expect Kotak s banking business post merger ABV to increase by ~ 30. Valuing at 4.5x the incremental book value, it adds 135 to SoTP based target price. Exhibit 1: Combined branch network (H1FY15) status (Total ~1240) Branches ING Vysya Kotak Bank Kotak (Merged) West 12% 46% 30% North 20% 34% 27% South 64% 15% 38% East 47% 5% 5% ICICI Securities Ltd Retail Equity Research Page 3

4 Exhibit 2: Advances mix % ING Kotak Bank Merged Agri SME Large Retail Exhibit 3: Business parameters H1FY15 Merged banking entity Amount ( crore) ING Vysya Kotak bank* Kotak (Merged) Branches (nos) ATMs (nos) Employees (nos) Customers (millions) ~2 ~8 ~10 Total Assets Advances Deposits RoAA (Annualised) RoAE (Annualised) GNPA ,801 GNPA % NNPA NNPA % , * Standalone numbers ICICI Securities Ltd Retail Equity Research Page 4

5 [ Company Analysis Business aspects (Kotak) Kotak Mahindra Bank has a presence across all financial verticals, namely banking, securities, investment banking, asset management, consumer finance and life insurance. The company has a diversified product offering and has an experienced management. In the past six years, the credit and deposit CAGR has been 25% and 23%, respectively, to crore and crore by FY14, higher than industry averages. Kotak Bank has largely been a retail lender with 64% of its loan book being in retail in FY10. It has now moderated to 46% in FY14. In FY14, credit grew 9.5% YoY and deposits 15% YoY. In H1FY15 Advances growth recovered with corporate banking loans surging 43% YoY while overall growth was 20% YoY to crore. Ex CV/CE, the growth was 24% YoY. Deposits grew a strong 29% YoY to crore. Credit grew 21% YoY to in Q3FY15 Exhibit 4: On YoY basis business growth muted. ( crore) FY Q1FY Q2FY Q3FY FY Q1FY Q2FY Q3FY FY Q1FY Q2FY15 Q3FY15 FY15E FY16E Advances Deposits Source: Company quarterly earnings update, ICICIdirect.com Research Except for CV/CE and corporate banking, YoY basis credit growth was strong across other segments, especially in case of personal loans and agri finance. Retail loans now constitute 42% of total credit in standalone whereas due to auto loans of Kotak Prime, in consolidated, retail forms ~50% of total credit of crore as on FY14 (now crore). Currently, CV/CE is still seeing lower growth while home loans, personal loans including small business loans and agri saw strong QoQ growth. Exhibit 5: Loan book movement over the years (standalone) crore FY12 FY13 Q1FY14 Q2FY14 Q3FY14 FY14 Q1FY15 Q2FY15 Q3FY15 Growth yoy (%) Proportion (%) Growth qoq (%) CVs and contruction eqmt Personal Loans incl small busines Home loans Corporate banking Agricultural finance Others Total KMB earns the best NIM in industry at 4.7-5% led by high yielding retail loans and working capital corporate loans. NII has grown from 1858 crore in FY10 to 3720 crore by FY14 supported by strong credit and savings deposit growth. We expect higher NII and is seen growing at 16% vs. 12% CAGR to 4985 crore by FY16E on account of strong credit growth performance. ICICI Securities Ltd Retail Equity Research Page 5

6 NII was marginally lower than estimate with higher mortgage and agri loans along with build-up in the investment book. Over FY14-16E, we expect NIMs to stay at healthy levels of ~4.5% (in line with management guidance). Exhibit 6: NIM lower sequentially to 4.7% from 5% 5.2 (%) Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 NIM Source: Company quarterly earnings update, ICICIdirect.com Research Deposit franchise (branches) build-up gradually enabled KMB to maintain healthy margins of >4.5% since FY08 despite a challenging environment. In the past two or three years due to higher focus on savings deposits, CASA has been stable at 31% wherein other banks are seeing a decline in CASA. The combined branch network post merger is expected to be around 1240 currently. With strong savings deposits growth at 36% YoY to crore, branches are expected to deliver a strong performance over time. Initial cost is incurred on employees and setup upfront. We expect deposits to grow at 21% CAGR to crore. Exhibit 7: Branch network grows to 661 branches (added 130 branches in last one year) Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Source: Company quarterly earnings update, ICICIdirect.com Research Other income growth remains strong Non interest income has grown 2.2x to crore by FY14. Core fee income and forex transaction fees enabled the bank to achieve stronger other income. Q3FY15 saw non interest income surging 64% YoY to 494 crore mainly led by strong trading gains at 118 crore. On a QoQ basis, the growth was 6%. ICICI Securities Ltd Retail Equity Research Page 6

7 Strong management, business model and controlled asset quality KMB s asset quality is one of the most stable with NNPA ratio of 1% and negligible restructured assets. This depicts the strong operational business model of the bank and management having full control. Exhibit 8: NPA levels maintained at comfortable levels The management has guided that their CV/CE portfolio may have bottomed out in terms of NPA and no major negative surprise is expected. The focus now would be on resolution and recoveries (%) Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 FY15E FY16E GNPA NNPA Source: Company quarterly earnings update, ICICIdirect.com Research Standard restructured loans stood stable at 159 crore (stable at 0.25% of net advances) after seeing a huge surge in Q1FY15. In FY14, RA was 0.01% of net advances. Still the number is too small. We expect GNPA and NNPA ratios to be same around 1.8% and 1%, respectively, by FY16E. Even in FY17E we expect stability in asset quality. ICICI Securities Ltd Retail Equity Research Page 7

8 Performance of consolidated entity stable Exhibit 9: Consolidated profit over the years, ex bank other subsidiaries form 36% of PAT Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Kotak Bank Kotak Securities * Kotak Mahindra Capital Kotak Prime Kotak AMC & Trust International Subsidiaries Kotak Investment advisors Kotak Mahindra Investments Kotak Mahindra Old Mutual Total (net off aflliates/minority) Exhibit 10: Profitability performance at consolidated level PAT ( crore) Q3FY15 Q3FY14 YOY (%) Q2FY15 QoQ (%) Kotak Bank Kotak Securities Kotak Mahindra Capital NA -7.0 NA Kotak Prime Kotak AMC & Trust NA -1.0 NA International Subsidiaries NA Kotak Investment advisors Kotak Mahindra Investments Kotak Mahindra Old Mutual Total (net off equity aflliates/minority) Source: Company quarterly earnings update, ICICIdirect.com Research Kotak Prime The overall loan book has tripled in six years from 5615 crore to crore in FY14. Kotak Prime, the next highest profit making segment, grew tepidly with loan growth of 2% YoY to crore in FY14 while car loans within the same grew 4% YoY to crore. PAT grew 14% YoY to 491 crore. Q3FY15 PAT was flat around 120 crore with subdued loan growth continuing. Exhibit 11: Kotak Mahindra Prime continues to deliver steady profitability Crore Q3FY15 Q2FY15 Q3FY14 YoY Gr. (%) QoQ Gr. (%) PBT PAT Loans car loans in same CAR (%) ROA (%) NET NPA -cars (%) Source: Company quarterly earnings update, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 8

9 Exhibit 12: Kotak Prime second highest profit contributor Q3FY15 Q2FY15 Q1FY15 Q4FY14 Q3FY14 Q2FY14 Q1FY14 Q4FY13 Q3FY13 Q2FY13 Q1FY13 Q4FY12 Q3FY12 Q2FY12 Q1FY12 PBT PAT Loans car loans CAR ROA Net NPA -cars 0.4% 0.3% 0.3% 0.3% 0.4% 0.3% 0.2% 0.2% 0.2% 0.2% 0.1% 0.2% 0.20% % Kotak Securities Kotak Securities (K-Sec), a KMB subsidiary, has been one of the large stock broking firms offering both retail and institutional services. It had 9% market share in FY07, which has declined to as low at 2.4% currently on account of rising options volume generating lower yields and relative lower push by the broker in the same. The company clocked an average daily turnover of 3,720 crore in FY07 and is currently at 3920 crore after reaching peaks of 4200 crore in between. The end of the JV with Goldman Sachs in May 2006 has not made any meaningful impact on its market share. Competition intensified in the recent past in the Indian broking space, which resulted in a fall in broking yields for all players. Exhibit 13: Average daily turnover trend ( Crore) Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Exhibit 14: Market share in average daily volume surges in Q3FY15 (reported) The market share of Kotak Securities stood at 2.7% in (%) Q2FY15 but is still far from 5% of FY FY09 Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Source: Company quarterly earnings update, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 9

10 It recorded a profit of 160 crore in FY14, a decline from highs of 255 crore in FY07. Declining cash volumes and also lower yield on turnover remain key reasons. Profit of 66 crore was higher in Q2FY15 on strong daily volume of 6623 crore, up 10% QoQ. Kotak Mahindra Old Mutual Life Insurance is a 74:26 JV between Kotak Mahindra Bank and Old Mutual Life. Kotak Life had managed to capture market share of ~3%. It recorded 74% CAGR in annualised premium equivalent (APE) over FY Post FY09, after which growth collapsed, annualised premium equivalent (APE) has been hovering around 1000 crore till now. Annual profits touched around 239 crore as on FY14 growing from 14 crore in FY09. The life insurance performance has stabilised with lower growth now. FY14 new business premium de-grew 20% YoY to 479 crore with APE decline 10% YoY. Q3FY15 PAT was at 51 crore led by strong 17% individual premium growth. On APE 1/10th) basis, share of Kotak Bank for FY14 is at 29% Exhibit 15: Life insurance business statistics on APE basis market share is 29% Premium ( crore) Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Renewal Indvl Regular group Single New Business Premium APE Solvency Ratio (%) PAT Source: Company quarterly earnings update, ICICIdirect.com Research Kotak Mahindra Asset Management Kotak AMC has grown its average AUM at 21% CAGR to crore by FY Its share of equity in total has been rising gradually from 14% in FY09 to 24% in FY14. This has helped in improving profitability to 41 crore in FY14 vs. 12 crore in FY13. However, even at current AUM of crore, 9MFY15 is still in loss. Kotak Mahindra Capital (KMCC) The Kotak Mahindra Group carries on its investment banking business through Kotak Mahindra Capital Company (KMCC), a subsidiary of Kotak Mahindra Bank (KMB). Kotak bought the 25% stake held by Goldman Sachs in KMCC in May 2006 by paying 210 crore, making it a 100% subsidiary. KMCC has a strong presence in managing equity issuances and advising on M&A transactions and has benefited largely from the boom in investment banking activity in India. The company de-merged its principal and trading investments division (including primary dealership) in March 2007 (to free up surplus capital) and now primarily operates as a full service investment bank, offering advisory and transactional services. It earned revenue of 85 crore and PAT of 14 crore in FY14. In Q3FY15, it reported a loss of 6 crore. ICICI Securities Ltd Retail Equity Research Page 10

11 Outlook and valuation KMB has been trading at rich valuations consistently due to its superior return ratios with FY14 RoA of 1.7%. It earns highest NIM in the industry. The bank is expected to realise huge profits of ~ crore over the next three years from its stressed asset book, which we have not yet factored in our estimates. This bank depicts its strong operational business model and management having full control via consistent performance. RBI s mandate to bring down promoter stake from 40% to 20% by FY18 has kept the stock in the limelight with continuous dilution at higher prices. With ING Vysya Bank merger, the bank brought down promoter stake from 40% to 34% and also added value and geographical synergies in the company. We roll over to FY17 factoring in current Kotak group valuation on SOTP basis at 1370 (4.5x FY16E standalone ABV for bank). However, addition of ING Vysya incremental BV and assigning KMB multiple, we add 135 to the SOTP. We maintain HOLD rating with a revised target price of Exhibit 16: DuPont Analysis (Bank standalone) FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E Net interest income/ avg. total assets Non-interest income/ avg. total assets Non-operating profit/ avg. total assets Operating expenses/ avg. total assets Operating profit/ avg. total assets Provisions/ avg. total assets Return on avg. total assets Leverage Return on equity Exhibit 17: Valuation FY14 FY15E FY16E FY17E EPS ( ) Growth (%) P/E (x) ABV P/ABV (x) GNPA (%) RoNA (%) RoE (%) Exhibit 18: Valuation ( ) Company Value / share KMB 1027 Kotak Life 49 Kotak Mahindra Prime 187 Kotak Mahindra Capital 11 Kotak Securities 67 Kotak AUM Adding ING Vysya incremental 30 in ABV 135 SOTP target 1505 ICICI Securities Ltd Retail Equity Research Page 11

12 Company snapshot 1,600 Target ,400 1,200 1, Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 Source: Bloomberg, Company, ICICIdirect.com Research Key events Date Event Mar-03 Promoter stake was at 63% in the bank, post incorporation in 2002 May-05 Announced bonus shares May-07 In peak market, capital market related businesses were doing well and getting higher valuation multiples. Bank's market cap share in total market used tobe less FY08 Announced stock split, FV reduced to 5 from 10 Jun-09 Anand Mahindra ceased to be a promoter of the bank Feb-11 Bank aspired to be national, inorganic (route) is something that was on radar also. Thereafter, the stock saw a new rally and is rising continuously Oct-11 Savings rate de-regulated by RBI, Kotak Bank offered higher interest rate of 6% above 1 lakh and 5% below 1 lakh vs the floor of 4%. This has been very helpful in saving balance increase as it started adding crore in a quarter post this hike. Mar-12 Asset quality maintained even with a large commercial vehicle and construction equipment portfolio Jul-12 RBI asked promoters of Kotak Mahindra Bank to cut their stake in the bank to 20% from 45 % by With expectation of continuous dilution at higher multiple of BV, stock price remained on an uptrend May-13 G-sec yields spiked post Fed announcement on May 22 of its intention to taper QE and tight liquidity measures by RBI of MSF rate hike etc, impacted banks, particularly wholesale funded however Kotak Bank although being lower on CASA remained resilient Oct-13 Post liquidity tightening measures like MSF reversed by RBI, stock saw respite Nov-14 Announced merger with ING Vysya Bank in ratio of 725 shares of Kotak bank for 1000 shares of ING Vysya Bank Jan-15 Merger approved by shareholders Top 10 Shareholders Rank Name Latest Filing Date % O/S Position (m) Change (m) 1 Kotak (Uday Suresh) 31-Dec Capital International, Inc. 31-Dec CPP Investment Board 31-Dec Sumitomo Mitsui Banking Corp 31-Dec First State Investment Management (UK) Limited 31-Dec Caladium Investments Pte. Ltd. 31-Dec Mahindra (Anuradha) 31-Dec Matthews International Capital Management, L.L.C. 31-Dec Genesis Group Trust Employee Benefit Plans 30-Sep The Vanguard Group, Inc. 31-Dec Source: Reuters, ICICIdirect.com Research Recent Activity ( crore and shares in mn) Shareholding Pattern (in %) Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Promoter FII DII Others Buys Sells Investor name Value Shares Investor name Value Shares First State Investment Management (UK) Limited Kotak (Uday Suresh) CPP Investment Board BlackRock Institutional Trust Company, N.A Capital International, Inc ICICI Prudential Asset Management Co. Ltd Franklin Advisers, Inc Lyxor Asset Management Matthews International Capital Management, L.L.C Kotak Mahindra Asset Management Company Ltd Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 12

13 Financial summary Profit and loss statement Crore (Year-end March) FY14 FY15E FY16E FY17E Interest Earned Interest Expended Net Interest Income growth (%) Non Interest Income Net Income Operating expense Gross profit Provisions Taxes Net Profit growth (%) EPS Key Ratios (Year-end March) FY14 FY15E FY16E FY17E Valuation No. of Equity Shares EPS ( ) BV ( ) BV-ADJ ( ) P/E P/BV P/ABV Yields & Margins (%) Yield on avg earning assets Avg. cost on funds Net Interest Margins Avg. Cost of Deposits Yield on average advances Quality and Efficiency (%) Cost / Total net income Credit/Deposit ratio GNPA NNPA ROE ROA Balance sheet Crore (Year-end March) FY14 FY15E FY16E FY17E Sources of Funds Capital ESOPS Reserves and Surplus Networth Deposits Borrowings Other Liabilities & Provisions Total Applications of Funds Fixed Assets Investments Advances Other Assets Cash with RBI & call money Total Growth ratios (Year-end March) FY14 FY15E FY16E FY16E Total assets Advances Deposits Total Income Net interest income Operating expenses Operating profit Net profit Book value EPS ICICI Securities Ltd Retail Equity Research Page 13

14 ICICIdirect.com coverage universe (Banks) CMP M Cap EPS ( ) P/E (x) P/ABV (x) RoA (%) RoE (%) Sector / Company ( ) TP( ) Rating ( Cr) FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E FY14 FY15E FY16E Bank of India (BANIND) Buy 17, Bank of Baroda (BANBAR) 1,125 1,250 Buy 47, Dena Bank (DENBAN) Hold 3, Punjab National Bank (PUNBAN) Buy 7, State Bank of India (STABAN) Buy 2,43, Syndicate Bank (SYNBN) Hold 7, Axis Bank (UTIBAN) Buy 1,29, City Union Bank (CITUNI) Hold 4, DCB Bank (DCB) Buy 3, Federal Bank (FEDBAN) Buy 12, HDFC Bank (HDFBAN) 1,024 1,036 Hold 2,44, IndusInd Bank (INDBA) Buy 44, Jammu & Kashmir Bank(JAMKAS) Hold 7, Kotak Mahindra Bank (KOTMAH) 1,391 1,505 Hold 1,06, South Indian Bank (SOUIN0) Hold 3, Yes Bank (YESBAN) Buy 35, ICICI Securities Ltd Retail Equity Research Page 14

15 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1 st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 15

16 ANALYST CERTIFICATION We /I, Kajal Gandhi, CA, Vasant Lohiya, CA and Sheetal Ashar, CA Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & conditions and other disclosures: ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. 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Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months. ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. It is confirmed that Kajal Gandhi, CA, Vasant Lohiya, CA and Sheetal Ashar, CA, Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ICICI Securities or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report. It is confirmed that Kajal Gandhi, CA, Vasant Lohiya, CA and Sheetal Ashar, CA, Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report. ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. 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