Financials The wait for recoveries is getting longer

INSTITUTIONAL EQUITY RESEARCH Financials The wait for recoveries is getting longer 4 October 2018 INDIA Financials Q2FY19 Results Preview Our banking universe will see +11% yoy ( 4% qoq) growth in net interest income, driven by improvement in credit growth and stability in NIMs. Within this, retail banks will continue to report strong performance with NII growth of +19% yoy. Pre provision profit decline at 18% yoy ( 10% qoq) due to a fall in non interest income. Rising G Sec yields in Q2 should lead to moderate trading income. Preprovision profit for retail banks is likely to see a growth of +20% yoy (7% qoq). Slippage to remain in line with 1Q19, but would come mainly from corporate accounts while retail and agri slippages should moderate. This, along with absence of any major recovery, should keep GNPA elevated. We expect GNPA (%) to decline marginally (by 14ps) qoq in Q2 at 9.14% for the system. Higher provisions (with aging of NPAs) and absence of any major recovery in the quarter will keep the pressure on bottom lines, turning them negative in some cases. However, retail banks are likely to report strong PAT growth of +21% yoy. NII growth of housing finance companies will be stable at +16% yoy due to resilient NIM and strong growth in AUM. Earnings growth for NBFCs that we cover will be higher at 36% driven by a favourable base and higher growth. Manish Agarwalla (+ 9122 6246 4125) Pradeep Agrawal (+ 9122 6246 4113) Sujal Kumar (+ 9122 6246 4114) Business growth gaining some momentum driven by services and retail Services (NBFCs) and retail (unsecured) keep driving credit growth. Working capital loan is still seeing higher demand due to rising commodities prices, while hardening of interest rates is resulting in some shift from credit substitutes to the loan portfolio. Deposit growth rate continues to see robust recovery from low levels in 2QFY18. MCLR rates have increased by ~10bps on average, while fixed deposit rates have increased by 5 10bps. Treasury contribution to decline Muted corporate banking activity will have a bearing on fee based income. Bond yields have been relatively flat, compared to 50bps increase in 1QFY19. Fee income for retail banks will see some seasonal impact. Slippage should remain in line with 1QFY19, but we expect higher slippages from corporates. Slippages from retail and agri should moderate. In absence of any major recovery, Gross NPA in our view should remain in line with 1Q19. Two notable recoveries in this quarter were Amtek Auto (Rs 122bn; haircut of 65%) and Adhunik Metaliks (Rs 50bn; haircut 92%). We expect GNPA (%) to decline marginally (14bps) qoq to ~9.14% in Q2FY19 for the system. We see NII growth for NBFCs under our coverage at a moderate 12% yoy, led by margin contraction, even as AUM growth remains healthy. While gold loan NBFCs are likely to see continued improvement in growth, asset financing NBFCs will grow by a healthy 20 25%. Sustained uptrend in demand for commercial vehicles helped vehicle asset financiers, especially CIFC and Shriram Transport Finance. Improvement in rural cash flow has lent stability to asset quality, and is positive for ruralfocussed NBFCs, especially MMFS and Magma. Earnings growth for NBFCs that we cover will be higher at 37% driven by a favourable base and higher growth. Top result picks: Banks: ICICI Bank, HDFC Bank NBFCs: Cholamandalam Finance, Shriram Transport Page 1 PHILLIPCAPITAL INDIA RESEARCH

Sector Trends Credit and deposit growth 30 80 Credit growth breakup 30 25 20 78 76 74 25 20 15 15 10 5 0 Sep 12 Feb 13 Jul 13 Dec 13 May 14 Oct 14 Mar 15 Aug 15 Jan 16 Jun 16 Nov 16 Apr 17 Sep 17 Feb 18 Jul 18 72 70 68 66 64 10 5 0 5 10 Aug/12 Nov/12 Feb/13 May/13 Aug/13 Nov/13 Feb/14 May/14 Aug/14 Nov/14 Feb/15 May/15 Aug/15 Nov/15 Feb/16 May/16 Aug/16 Nov/16 Feb/17 May/17 Aug/17 Nov/17 Feb/18 May/18 Aug/18 Deposit (%) Credit (%) CD ratio (rhs) Agriculture Industry Retail Services Source: Company, PhillipCapital India Research CP and CDs outstanding (Rs bn) MFs investment in spread products as a % of total debt AUMs 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Dec/15 Feb/16 Apr/16 Jun/16 Aug/16 Oct/16 Dec/16 Feb/17 Apr/17 Jun/17 Aug/17 Oct/17 Dec/17 Feb/18 Apr/18 Jun/18 Aug/18 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 79.2 85.0 83.3 80.4 70.6 10.5 11.0 10.1 9.1 14.2 38.1 33.7 30.0 3 33.2 9.3 11.8 7.5 30.2 33.3 23.2 24.1 15.3 Sep/17 Dec/17 Mar/18 Jun/18 Aug/18 CP Outstanding CD Outstanding CP CDs Corporate Debt PSU Bonds Source: RBI, SEBI, PhillipCapital India Research Weighted average lending rate on fresh loans 12.5 Weighted average lending rate on outstanding loans 14 12.0 11.5 13 11.0 12 10.5 10.0 11 9.5 9.0 8.5 10 9 Sep/14 Dec/14 Mar/15 Jun/15 Sep/15 Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Mar/17 Jun/17 Sep/17 Dec/17 Mar/18 Jun/18 8 Public Sector Banks Private Sector Banks Public Sector Banks Private Sector Banks Source: RBI, PhillipCapital India Research Page 2 PHILLIPCAPITAL INDIA RESEARCH

Weighted average term deposit rate 9.5 9.0 8.5 7.5 7.0 6.5 6.0 5.5 5.0 Mar/13 Jul/13 Nov/13 Mar/14 Jul/14 Nov/14 Mar/15 Jul/15 Nov/15 Mar/16 Jul/16 Nov/16 Mar/17 Jul/17 Nov/17 Mar/18 Jul/18 SBI term deposit rate vs. corporate bond rate 13.0 12.0 11.0 10.0 9.0 7.0 6.0 5.0 4.0 Jul/07 Mar/08 Nov/08 Jul/09 Mar/10 Nov/10 Jul/11 Mar/12 Nov/12 Jul/13 Mar/14 Nov/14 Jul/15 Mar/16 Nov/16 Jul/17 Mar/18 Public Sector Banks Private Sector Banks SBI TD Rate (1 2 Yr) Corp Bond (AAA 1 Yr) Source: Company, PhillipCapital India Research Median MCLR (%) Bank wise MCLR change in bps (since Dec 2017) 10.0 90 80 85 80 75 9.5 70 68 9.0 60 55 5450 8.5 50 40 35 40 30 25 30 20 7.5 Apr 2016 Jun 2016 Aug 2016 Oct 2016 Dec 2016 Feb 2017 Apr 2017 Public Jun 2017 Aug 2017 Source: RBI, Company, PhillipCapital India Research Oct 2017 Dec 2017 Private Feb 2018 Apr 2018 Jun 2018 Aug 2018 10 0 Laxmi Vilas Yes Bank Indusind DCB RBL Karur Vysya SBI IDFC UBI ICICI Dena Axis Kotak South Indian OBC HDFC Andhra Canara CBI IDBI P&S PNB Federal Allahabad BoI Indian IOB Syndicate United BoB Corp Karnataka Vijaya 20 15 Bank valuation (P/Adj BV vs. ROE) Bank valuation (P/Adj BV vs. ROA) P/Adj BV 3.5 3.0 2.5 2.0 1.5 1.0 0.5 CBK PNB HDFC IIB Kotak Axis DCB Yes ICICI SBI BOB INBK P/Adj BV 3.5 3.0 2.5 2.0 1.5 1.0 0.5 CBK PNB SBI Axis DCB BOB INBK IIB Kotak Yes ICICI HDFC 2.0 3.0 13.0 1 RoE Source: Company, PhillipCapital India Research 0.5 0.5 1.0 1.5 2.0 2.5 RoA Page 3 PHILLIPCAPITAL INDIA RESEARCH

Earnings Estimates Sector snapshot based on coverage universe (Rs mn) Sep 18E Jun 18 qoq (%) Sep 17 yoy (%) BANKS NII 6,60,121 6,84,670 4% 5,92,370 11% Pre provision Profit 4,59,963 5,08,605 10% 5,60,854 18% PAT 86,249 39,063 120.8% 1,12,559 23% NBFCs NII 73,223 70,622 4% 64,711 13% Pre provision Profit 48,590 46,905 4% 43,327 12% PAT 24,011 22,572 6% 17,635 36% HFCs NII 66,690 67,368 1% 57,571 16% Pre provision Profit 56,616 63,317 11% 56,786 0% PAT 45,540 43,086 6% 37,990 20% Source: Company, PhillipCapital India Research Estimates Earnings estimates Banks Axis Bank Net Interest income 49,028 51,668 5.1% 45,396 % Loan growth will be driven by retail loan; corporate loan growth will Pre provision Profit 34,786 43,721 20.4% 37,773 7.9% remain muted PAT 3,207 7,011 na 4,324 25.8% NIM to remain under pressure as 1QFY19 was optically high due to NIM (%) 3.30 3.46 0.16 3.45 0.15 recovery from Bhusan Steel. Benefit from higher MCLR will only start EPS (Rs) 1.2 2.7 54.3% 1.8 30.8% to come in from 3QFY19 GNPA% 6.4 6.5 0.1 5.9 0.5 Credit cost to remain elevated due to increase in NPAs from the NNPA% 3.1 3.1 0.0 3.1 0.1 watch list and below investment grade portfolio. Slippages 52826 43370 21.8% 89360 40.9% No major recovery in 2QFY19 Bank of Baroda Net Interest income 41,670 43,811 4.9% 37,205 12.0% Stability in overseas loans book and growth in domestic loans book Pre provision Profit 27,692 30,056 7.9% 30,416 9.0% to push overall loan book growth PAT 5,385 5,283 1.9% 3,551 51.6% Slippage to moderate in Q2FY19 qoq. However, recovery/upgrade NIM (%) 2.35 2.65 0.3 2.31 0.04 to remain modest in absence of any major resolutions EPS (Rs) 2.0 2.0 1.9% 1.5 32.1% Moderate rise in G Sec yield during the quarter to result in limited GNPA% 12.1 12.5 0.4 11.2 0.9 MTM impact on investment book NNPA% 5.3 5.4 0.1 5.1 0.3 Slippages 40,000 47,330 15.5% 34,510 15.9% Canara Bank Net Interest income 30,060 38,829 22.6% 27,834 % Weak credit growth and lower NIM to keep NII subdued Pre provision Profit 16,617 29,328 43.3% 24,798 33.0% NIM to decline in absence of any major recovery in the quarter PAT (4,306) 2,815 na 2,602 265.5% Low specific coverage will warrant high provision for NPA, which will NIM (%) 2.30 2.52 0.22 2.34 0.04 continue to drag the bottom line EPS (Rs) (5.9) 3.8 253.0% 4.4 234.8% Moderate rise in G Sec yield during the quarter to result in limited GNPA% 10.7 11.1 0.4 10.5 0.2 MTM impact on investment book NNPA% 6.6 6.9 0.3 7.0 0.4 Slippages 35,000 42,050 16.8% 33,670 4.0% DCB Bank Net Interest income 2,878 2,730 5.4% 2,481 16.0% High base of margin in Q2FY18 will moderate NII growth to some Pre provision Profit 1,346 1,414 4.8% 1,244 8.2% PAT 664 695 4.5% 589 12.7% NIM (%) 3.90 3.90 0 4.22 0.32 EPS (Rs) 2.1 2.3 4.9% 1.9 11.9% GNPA% 1.9 1.9 0.1 1.8 0.1 NNPA% 0.8 0.7 0.1 0.9 0.1 Slippages 950 1,071 11.3% 779 22.0% extent Trading gain to remain under pressure due to rising yield Operating leverage at play with expansion of balance sheet Stability in asset quality to keep credit cost under check Page 4 PHILLIPCAPITAL INDIA RESEARCH

HDFC Bank Net Interest income 1,16,050 1,08,136 7.3% 97,521 19.0% Credit growth to remain strong aided by retail unsecured loan and Pre provision Profit 94,055 86,478 8.8% 78,179 20.3% commercial vehicles. Stable NIM to provide strong NII growth PAT 50,799 46,015 10.4% 41,510 22.4% NIM to remain under pressure as benefits of higher MCLR into Loan NIM (%) 4.20 4.20 0 4.30 0.10 yield will only start to kick in from 3QFY19 EPS (Rs) 18.8 17.7 6.1% 16.1 16.7% However, NIM will get support from Rs 240bn QIP during the GNPA% 1.4 1.3 0.1 1.3 0.1 quarter NNPA% 0.4 0.4 0.0 0.4 0.0 Stable asset quality and credit cost will continue to aid profitability Slippages 30,000 35,500 15.5% 24,700 21.5% Opex growth will continue to be lower than balance sheet growth ICICI Bank Net Interest income 59,945 61,019 1.8% 57,091 5.0% Loan growth will be driven by retail loans Pre provision Profit 48,501 58,084 16.5% 69,865 30.6% NII growth to remain under pressure due to moderate credit growth PAT 2,001 (1,196) 267.3% 20,582 90.3% and lower NIMs NIM (%) 3.10 3.19 0.09 3.27 0.17 NIMs to remain under pressure as 1QFY19 NIMs were optically EPS (Rs) 0.3 (0.2) 267.3% 3.2 90.3% higher because of recovery from Bhusan Steel GNPA% 8.7 8.8 0.1 7.9 0.9 High credit cost to keep bottom line under pressure NNPA% 4.0 4.2 0.2 4.4 0.4 Asset quality to remain elevated in absence of any major recovery Slippages 50,000 40,360 23.9% 46,740 7.0% Indian Bank Net Interest income 17,907 18,070 0.9% 15,437 16.0% Credit growth to gain momentum driven by the RAM segment Pre provision Profit 12,780 12,976 1.5% 13,756 7.1% NIM to decline in absence of a major recovery that had boosted PAT 4,335 2,093 107.1% 4,515 4.0% 1QFY19 NIMs NIM (%) 2.85 3.09 0.2 2.85 0.00 Moderate rise in G Sec yield during the quarter to result in limited EPS (Rs) 9.0 4.4 107.1% 9.4 4.0% MTM impact on investment book. GNPA% 6.7 7.2 0.5 6.7 0.0 In absence of any major recovery, asset quality to remain under NNPA% 3.5 3.8 0.3 3.4 0.1 pressure Slippages 9,500 14,420 34.1% 3,562 166.7% Indusind Bank Net Interest income 22,398 21,224 5.5% 18,210 23.0% Loan growth to surpass industry growth by a huge margin. Pre provision Profit 19,292 19,111 0.9% 16,335 18.1% Commercial vehicles to see strong traction PAT 10,581 10,357 2.2% 8,801 20.2% Margin to remain under pressure as benefit of higher MCLR will start NIM (%) 3.80 3.92 0.12 4.00 0.20 to kick in from 3QFY19 EPS (Rs) 17.6 17.2 2.0% 14.7 19.7% Collection efficiency across retail products satisfactory GNPA% 1.1 1.2 0.0 1.1 0.06 Expect update on the merger progress NNPA% 0.5 0.5 0.0 0.4 0.07 Slippages 5,180 4,750 9.1% 4,980 4.0% Kotak Mahindra Bank Net Interest income 26,999 25,829 4.5% 23,127 16.7% Loan growth will continue to be strong aided by corporate and CV Pre provision Profit 21,393 20,325 5.3% 17,248 24.0% segments PAT 11,783 10,249 15.0% 9,943 18.5% Savings deposits should continue to see strong traction NIM (%) 4.30 4.30 0.38% 4.33 0.8% NII growth driven by credit growth and stable NIMs EPS (Rs) 6.19 5.37 15.2% 5.22 18.6% Asset quality to remain stable GNPA% 2.16 2.17 0.5% 2.47 12.6% Key things to look out for: Update on strategy, growth appetite, and NNPA% 0.86 0.86 0.1% 1.26 31.7% impact of Aadhar verdict on digital strategy Slippages 4,959 3,840 29.1% 5,993 17.3% Punjab National Bank Net Interest income 38,546 46,919 17.8% 40,152 4.0% NII to decline qoq due to decline in margins. Q1FY19 saw margins Pre provision Profit 22,777 41,947 45.7% 32,791 30.5% PAT (9,778) (9,400) 4.0% 5,606 274.4% NIM (%) 2.20 2.50 0.3 2.35 0.15 EPS (Rs) (3.5) (3.4) 4.0% 2.6 234.5% GNPA% 18.3 18.3 0.1 13.3 5.0 NNPA% 10.3 10.6 0.3 8.4 1.9 Slippages 40,000 73,630 45.7% 34,590 15.6% increase due to strong recovery NIM to decline in absence of any major recovery, which had boosted 1QFY19 NIMs Credit cost to remain elevated due to high level of GNPA Moderate mark to market loss on investment book to provide some earnings support Bank to report loss due to high provisions Page 5 PHILLIPCAPITAL INDIA RESEARCH

State Bank of India Net Interest income 2,06,303 2,17,984 5.4% 1,85,859 11.0% Low single digit loan growth book along with lower NIM to drive NII Pre provision Profit 1,22,056 1,19,731 1.9% 1,99,991 39.0% PAT 2,636 (48,759) na 15,816 83.3% NIM (%) 2.60 2.80 7.1% 2.43 7.0% EPS (Rs) 0.3 (5.5) 105.4% 1.8 83.9% GNPA% 10.7 10.7 0.5% 9.8 9.3% NNPA% 5.3 5.3 0.7% 5.4 3.2% Slippages 14,000 14,349 2.4% 10,627 31.7% Union Bank Margin to remain under pressure as 1QFY19 NIM was higher because of strong recovery Slippage will mainly come from the watch list Asset quality to remain elevated in absence of any major recovery Moderate rise in G Sec yield during the quarter to result in limited MTM impact on investment book Net Interest income 24,136 26,261 8.1% 23,207 4.0% Flat credit growth on a yoy basis and weak NIM to keep NII subdued Pre provision Profit 15,091 20,888 27.8% 19,390 22.2% Asset quality to remain elevated in absence of any major recovery PAT (3,927) 1,295 na (15,308) 74.3% High provision for NPA to erode profitability NIM (%) 2.15 2.34 0.19 2.08 0.07 EPS (Rs) (3.4) 1.1 403.2% (21.1) 84.1% GNPA% 16.0 16.0 0.0 12.4 3.7 NNPA% 8.7 8.7 0.0 6.7 2.0 Slippages 30,000 46,520 35.5% 26,860 11.7% Yes Bank Net Interest income 24,201 22,191 9.1% 18,851 28.4% Bank has reported Advance and Deposit growth of 61% and 41% Pre provision Profit 23,575 24,547 4.0% 19,067 23.6% PAT 12,871 12,604 2.1% 10,027 28.4% NIM (%) 3.29 3.30 0.6% 3.70 0.41 EPS (Rs) 5.6 5.5 2.2% 4.3 30.3% GNPA% 1.36 1.31 5.0% 1.8 0.5 NNPA% 0.60 0.59 1.4% 1.0 0.4 Slippages 7,515 5,603 34.1% 71,246 89.5% respectively NII growth driven by credit growth and stable NIMs NIM to remain stable; we expect NIMs to start rising from FY20 Slightly higher slippages; credit cost to remain stable Key thing to look out for: Divergence and update on management transition Earnings estimates Housing Finance Companies HDFC Limited Net Interest income 30,259 31,224 3.1% 27,707 9.2% Company to adopt Ind AS accounting standards. Our estimates are Pre provision Profit 24,219 30,895 21.6% 29,352 17.5% PAT 24,203 21,900 10.5% 20,996 15.3% EPS (Rs) 14.4 13.0 10.5% 13.2 9.2% based on Indian GAAP Loan growth driven corporate segment. Sold loan of Rs 60.6bn to HDFC Bank Asset quality to remain stable Things to watch out would be management commentary on inorganic acquisition LIC Housing Finance Net Interest income 9,852 9,800 0.5% 8,875 11.0% Company to adopt Ind AS accounting standard. Our estimates are Pre provision Profit 9,332 9,492 1.7% 8,059 15.8% based on Indian GAAP PAT 5,832 5,679 2.7% 4,891 19.2% Loan growth of 15% to be driven non housing loans EPS (Rs) 11.6 11.3 2.7% 9.7 19.2% Favourable base to reflect NII growth after three quarter of underperformance Asset quality likely to remain stable Repco Home Finance Net Interest income 1,158 1,143 1.3% 1,093 6.0% Company to adopt Ind AS accounting standard. Our estimates are Pre provision Profit 985 969 1.7% 1,009 2.4% PAT 617 609 1.3% 558 10.5% EPS (Rs) 9.9 9.7 1.3% 8.9 10.5% based on Indian GAAP Disbursement to improve yoy on a low base; Loan growth to pick up sequentially NIM will remain stable as increase in yields offsets a rise in the cost of funds Indiabulls Housing Fin Net Interest income 17,264 16,892 2.2% 13,890 24.3% Company to adopt Ind AS accounting standard. Our estimate are based Pre provision Profit 15,208 14,674 3.6% 12,955 17.4% on Indian GAAP PAT 10,929 10,547 3.6% 8,611 26.9% Strong growth in loan book of 28% yoy to be driven by core home EPS (Rs) 25.7 24.7 4.0% 20.3 26.9% loans NIM to remain stable as home loan segment witnessed some upward rate adjustment Page 6 PHILLIPCAPITAL INDIA RESEARCH

Dewan Housing Finance Net Interest income 8,157 8,309 1.8% 6,006 35.8% Company to adopt Ind AS accounting standards. Our estimates are Pre provision Profit 6,872 7,288 5.7% 5,411 27.0% based on Indian GAAP PAT 3,959 4,350 9.0% 2,933 35.0% Loan growth to be driven by non housing loans, share of housing loans EPS (Rs) 12.6 13.9 8.8% 9.4 35.0% may come down marginally NIM to remain stable as home loan segment witnessed some upward rate adjustment Stable asset quality Source: Company, PhillipCapital India Research Estimates Earnings estimates NBFC Bharat Financials Net Interest income 3,933 3,280 19.9% 2,800 40.5% Company to adopt Ind AS accounting standards. Our estimates are Pre provision Profit 2,398 2,009 19.4% 1,695 41.5% PAT 1,484 1,419 4.6% 1,185 25.2% EPS (Rs) 10.7 9.5 12.1% 8.6 24.4% based on Indian GAAP Disbursement gaining momentum Stable margin to aid NII growth Credit cost at normalised level Shriram Transport Fin Net Interest income 18,731 18,403 1.8% 16,324 14.7% Pre provision Profit 14,424 14,142 2.0% 13,162 9.6% NII growth to remain healthy led by 22% growth in disbursement PAT 6,027 5,717 5.4% 4,791 25.8% Operating profit growth broadly in line with top line growth NIM (%) 7.3 7.5 0.21 7.8 0.48 Earnings growth to remain healthy at 25%yoy EPS (Rs) 26.6 25.2 5.4% 21.1 25.8% NIMs to see contraction over the previous quarter Cholamandalam Fin. Net Interest income 8,276 7,952 4.1% 7,392 12.0% Higher AUM growth to drive NII growth Pre provision Profit 5,639 5,370 5.0% 4,304 31.0% PAT 3,048 2,853 6.8% 2,273 34.1% Healthy balance sheet growth to drive 31% growth in operating profit NIM (%) 7.1 7.2 0.16 8.3 1.22 Asset quality to remain stable EPS (Rs) 19.5 18.2 6.8% 14.5 34.1% NIMs to see marginal contraction, led by higher cost of funds Mah & Mah Finance Net Interest income 11,663 10,771 8.3% 9,110 2% Strong growth in disbursements to drive growth in NII Pre provision Profit 7,535 7,060 6.7% 5,636 33.7% Lower opex increase will lead to higher operating profit growth at 34% PAT 3,373 2,691 25.4% 780 332.5% PAT growth aided by low base NIM (%) 7.8 7.6 0.24 7.4 0.40 Asset quality to remain stable EPS (Rs) 5.5 4.4 25.4% 1.4 297.7% Shriram City Union Fin Net Interest income 9,604 9,377 2.4% 8,725 10.1% Stable AUM growth and stable NIMs to drive NII growth Pre provision Profit 5,843 5,685 2.8% 5,412 % Operating profit growth to be in line with NII growth PAT 2,407 2,296 4.9% 1,985 21.3% NIMs to remain stable at 13.2% NIM (%) 13.2 13.2 0.04 14.3 1.06 Asset quality to remain stable EPS (Rs) 36.5 34.8 4.9% 30.1 21.3% Manappuram Finance Net Interest income 6,509 6,415 1.5% 5,833 11.6% Lower NIMs to keep NII growth moderate Pre provision Profit 3,344 3,248 3.0% 2,877 16.2% Recent Kerala floods may have some impact on asset quality PAT 2,040 2,000 2.0% 1,593 2% NIM (%) 15.3 15.4 0.14 17.0 1.70 Rising share of lower yielding products and higher cost of funds EPS (Rs) 2.4 2.4 2.0% 1.9 2% driving margin contraction Muthoot Finance Net Interest income 11,151 11,213 0.6% 11,496 3.0% Higher base to impact NII growth Pre provision Profit 7,449 7,577 1.7% 8,695 14.3% Earnings growth to be higher aided by lower credit cost PAT 4,857 4,916 1.2% 4,540 7.0% NIMs to see contraction as the share of lower yielding products rises NIM (%) 14.3 14.9 0.65 16.6 2.31 and as cost of funds rises EPS (Rs) 12.1 12.3 1.2% 11.4 6.8% Magma Finance Net Interest income 3,355 3,211 4.5% 3,032 10.7% NII growth to inch upwards as balance sheet starts growing again Pre provision Profit 1,957 1,812 % 1,545 26.6% With operating leverage kicking in, operating profit growth to inch higher PAT 775 681 13.8% 489 58.6% Favourable base to drive strong earnings growth NIM (%) 8.1 8.1 0.00 7.8 0.35 NIMs to remain stable EPS (Rs) 3.3 2.9 13.8% 2.1 58.6% Source: Company, PhillipCapital India Research Estimates Page 7 PHILLIPCAPITAL INDIA RESEARCH

Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year. Rating Criteria Definition BUY >= +15% Target price is equal to or more than 15% of current market price NEUTRAL 15% > to < +15% Target price is less than +15% but more than 15% SELL <= 15% Target price is less than or equal to 15%. FINANCIALS Q2FY19 PREVIEW Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives, and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may, may not match, or may be contrary at times with the views, estimates, rating, and target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd. This report is issued by PhillipCapital (India) Pvt. Ltd., which is regulated by the SEBI. PhillipCapital (India) Pvt. 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Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst s personal views about all of the subject issuers and/or securities, that the analyst(s) have no known conflict of interest and no part of the research analyst s compensation was, is, or will be, directly or indirectly, related to the specific views or recommendations contained in this research report. Additional Disclosures of Interest: Unless specifically mentioned in Point No. 9 below: 1. The Research Analyst(s), PCIL, or its associates or relatives of the Research Analyst does not have any financial interest in the company(ies) covered in this report. 2. The Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the company (ies)covered in this report as of the end of the month immediately preceding the distribution of the research report. 3. The Research Analyst, his/her associate, his/her relative, and PCIL, do not have any other material conflict of interest at the time of publication of this research report. 4. The Research Analyst, PCIL, and its associates have not received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in this report, in the past twelve months. 5. The Research Analyst, PCIL or its associates have not managed or co managed in the previous twelve months, a private or public offering of securities for the company (ies) covered in this report. 6. PCIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in connection with the research report. 7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report. 8. The Research Analyst and PCIL has not been engaged in market making activity for the company(ies) covered in the Research report. 9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report: Sr. no. Particulars Yes/No 1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for No investment banking transaction by PCIL 2 Whether Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of No the company(ies) covered in the Research report 3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No 4 PCIL or its affiliates have managed or co managed in the previous twelve months a private or public offering of securities for the No company(ies) covered in the Research report 5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months No Page 8 PHILLIPCAPITAL INDIA RESEARCH

Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it, or its affiliates/employees, may have positions in, purchase or sell, or be materially interested in any of the securities covered in the report. Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or political factors. Past performance is not necessarily indicative of future performance or results. Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material, and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current. Without limiting any of the foregoing, in no event shall PCIL, any of its affiliates/employees or any third party involved in, or related to computing or compiling the information have any liability for any damages of any kind including but not limited to any direct or consequential loss or damage, however arising, from the use of this document. Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorised use or disclosure is prohibited. No reprinting or reproduction, in whole or in part, is permitted without the PCIPL s prior consent, except that a recipient may reprint it for internal circulation only and only if it is reprinted in its entirety. 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