HOLD Rating as per Large Cap 12 month investment period

Q2FY19 RESULT UPDATE Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 RETAIL EQUITY RESEARCH HDFC NBFC BSE CODE: 500010 NSE CODE: HDFC Bloomberg CODE: HDFC:IN SENSEX: 36,170 HOLD Rating as per Large Cap 12 month investment period CMP Rs. 1,956 TARGET Rs. 2,112 RETURN 8% 30 th November, 2018 Growth momentum continues HDFC is a leading provider of Housing Finance in India with a network of 326 offices catering to over 2,400 towns & cities spread across the country. AUM continued to grow at a strong pace of 17% YoY mainly led by 18% YoY growth in individual segment (73% of total loans). Net interest income grew at a healthy pace of 16% YoY (in line with our expectation) as NIM remained broadly stable at 2.8%. We expect adjusted net profit to increase at 17% CAGR over FY18-20E backed by higher NII ( 16% CAGR) coupled with lower operating expenses. We expect asset quality of developer loan portfolio to remain stable and project Gross NPA at ~1.3% and Nil Net NPA over FY18-20E. We believe that HDFC will be among the first companies to wade out of the current liquidity tightness given the company s flexible borrowing profile, higher credit rating and stable asset liability management. We changed rating to HOLD from BUY with a revised upward TP of Rs2,112 (SOTP valuation). Healthy traction in AUM continues HDFC s Assets under management (AUM) continued to grow at a strong pace of 17% YoY mainly led by 18% YoY growth in individual segment (73% of total AUM). Non-Individual loan book grew by 14% YoY driven by lease rental discounting ( 32% YoY). Securitized loans grew at a decent pace of 16% YoY. Given the company s second highest market share in individual housing loans, we expect AUM to grow at a CAGR of 18% over FY18-20E. We expect retail loan growth to remain in the range of 18-20% YoY while developer loan growth could be more calibrated due to liquidity constraints. Operating performance intact HDFC s net interest income (NII) grew at a healthy pace of 16% YoY (in line with our expectation) on the back of decent loan growth coupled with broadly stable net interest margin (NIM). NIM declined by 5 bps YoY to 2.8%. Other income grew at a robust pace of 94% YoY mainly led by profit from stake sale in HDFC AMC (Rs.1,000cr). Provisions increased by 4.2x YoY as the company utilised its one-off gain towards general provision. Hence, net profit increased by 17% YoY which was in line with our expectation. Going forward, we expect adjusted net profit to increase at 17% CAGR over FY18-20E backed by higher NII ( 16% CAGR) coupled with lower operating expenses. Stable asset quality Asset quality remained largely stable as Gross non-performing asset (NPA) ratio improved by 5 bps sequentially to 1.1%. Gross NPA ratio in corporate segment declined by 14 bps QoQ to 2.2% while in individual loans it stayed steady QoQ at 0.7%. Notably, HDFC has a miniscule exposure to IL&FS (Rs400cr) and it is also in the form of lease rental discounting. We expect overall asset quality in its developer loan portfolio to remain stable in the medium term despite a weak market condition. Further, given HDFC s conservative lending policy along with 100%+ provision coverage ratio (PCR), we remain relatively comfortable on overall asset quality profile of the company and expect Gross NPA ratio to be at ~1.3% and nil Net NPA by FY20E. Outlook & Valuation We believe that amid rising interest rates and liquidity tightening, housing finance companies (HFCs) could face pressure on margins. However, HDFC continues to remain our top pick within housing finance companies (HFCs) given its competitive edge over its peers backed by strong growth in business, flexible borrowing profile, stable margin and well-managed asset quality. Further, HDFC, being a market leader in retail lending space, has successful sailed through sector headwinds in the past. Going forward, HDFC will continue to command premium valuations given its consistent track record in earnings and business growth. However, it leaves limited upside at current valuation, hence, we changed rating to HOLD from BUY with a revised upward target price of Rs2,112 based on sum of the parts (SOTP) methodology where we value its standalone business at Rs1,192 (P/ABV of 2.9x for FY20E) and subsidiaries at Rs920. Company Data Market Cap (cr) Rs. 331,776 Outstanding Shares (cr) 169.7 Free Float 100% Dividend Yield 1.0 52 week high Rs. 2,051 52 week low Rs. 1,642 6m average volume (cr) 0.3 Beta 0.8 Face value Rs. 2 Shareholding % Q4FY18 Q1FY19 Q2FY19 Promoters 0.0 0.0 0.0 FII s 74.0 72.9 72.2 MFs/Insti 12.6 16.0 16.5 Public 13.4 11.1 11.4 Others - - - Total 100.0 100.0 100.0 Price Performance 3 Month 6 Month 1 Year Absolute Return 0.3% 8.0% 14.8% Absolute Sensex -6.6% 3.5% 7.6% Relative Return* 6.9% 4.5% 7.2% *over or under performance to benchmark index 2250 2050 1850 1650 1450 1250 HDFC Sensex (rebased) Standalone (Rs. cr) FY18 FY19E FY20E Net Interest Income 11,493 13,248 15,498 Growth (%) 12% 15% 17% NIM (%) 3.1 3.0 3.0 Pre Pro Profit 15,719 14,403 16,958 Growth (%) 38% -8% 18% Adj. Net Profit 12,164 9,617 11,323 Growth (%) 63% -21% 18% Adj. EPS 72.6 56.7 66.7 Growth (%) 55% -22% 18% P/E 26.9 34.5 29.3 P/BV 5.3 5.1 4.8 P/ABV 5.3 5.1 4.8 RoE (%) 24.1 15.2 16.8 RoA (%) 3.3 2.2 2.2

Quarterly Financials (Standalone) Profit & Loss Account (Rs. cr) Q2FY19 Q2FY18 YoY Growth % Q1FY19 QoQ Growth % Interest Income 10,071 8,149 23.6 9,236 9.0 Interest Expense 7,045 5,534 27.3 6,353 10.9 Net Interest Income 3,026 2,614 15.7 2,883 5.0 Non-Interest Income 1,186 612 93.7 716 65.6 Total Net Income 4,212 3,227 30.5 3,599 17.0 Operating Expenses 322 225 43.3 510 (36.8) Employee Cost 128 105 21.8 324 (60.7) Other Operating Exp. 194 120 62.1 185 4.9 Total Income 11,257 8,761 28.5 9,952 13.1 Total Expenditure 7,367 5,759 27.9 6,862 7.3 Pre-Provisioning profit 3,890 3,002 29.6 3,090 25.9 Provisions 401 95 322.4 20 1937.1 Profit Before Tax 3,489 2,907 20.0 3,070 13.7 Tax 1,022 806 26.8 880 16.1 Net Profit 2,467 2,101 17.4 2,190 12.7 EPS - Diluted (Rs) 14.5 13.2 10.4 13.0 12.0 Business Performance (Rs cr) Q2FY19 Q2FY18 YoY Growth % Q1FY19 QoQ Growth % AUM 430,200 367,512 17.1 419,500 2.6 Loans 379,786 324,077 17.2 372,700 1.9 Borrowings 343,172 300,296 14.3 332,526 3.2 Key Ratios (%) Q2FY19 Q2FY18 YoY bps Q1FY19 QoQ bps Net Interest Margin 2.8 2.9 (5) 2.8 3 Cost of Borrowing 8.3 7.5 79 7.8 56 Yield on AUM 9.5 9.0 46 9.0 46 Cost to Income 7.6 7.0 68 14.2 (651) Debt to Equity 4.8 7.4 (252) 0.0 485 Capital Adequacy 18.4 15.1 330 16.3 210 Tier I Capital 17.1 12.6 450 15.0 210 Gross NPA 1.1 1.1 (1) 1.2 (5) Credit Cost 0.4 0.1 27 0.0 35 RoE (Ann.) 14.4 20.4 (602) 13.7 68 RoA (Ann.) 2.3 2.3 (0) 2.1 18 Change in estimates Old estimates New estimates Change % Year / Rs cr FY19E FY20E FY19E FY20E FY19E FY20E Net Interest Income 13,199 15,361 13,248 15,498 0.4 0.9 Pre-Provisioning Profit 13,810 16,257 14,403 16,958 4.3 4.3 Net Profit 9,574 11,272 9,617 11,323 0.5 0.4 EPS (Rs) 59.9 70.6 56.7 66.7-5.4-5.5 Source: Company, Geojit Research Sum of the parts (SOTP) valuation Particulars Basis Multiple Year Value/Share HDFC (standalone) ABV 2.8x FY20E 1,192 HDFC Bank ABV 3.8x FY20E 725 Gruh Finance ABV 10.0x FY20E 70 Life Insurance Current Market Price 241 General Insurance Stake Sale to Ergo 16 Asset Management Current Market Price 97 20% holding discount to subsidiaries 230 Target Price 2,112

Standalone Financials Profit & Loss Account Interest Income 28,450 31,202 33,728 39,314 46,331 Interest Expense 19,375 20,896 22,235 26,066 30,833 Net Interest Income 9,076 10,306 11,493 13,248 15,498 % Change 9.4 13.6 11.5 15.3 17.0 Non-Interest Income 2,506 1,958 5,184 2,582 2,885 Net Income 11,582 12,263 16,676 15,830 18,383 Operating Expenses 759 837 958 1,427 1,425 Total Income 30,957 33,160 38,911 41,896 49,216 Total Expenditure 20,133 21,733 23,193 27,493 32,258 Pre-Provisioning Profit 10,823 11,427 15,719 14,403 16,958 % Change 23.1 5.6 37.6 (8.4) 17.7 Provisions 715 700 455 971 1,144 Profit Before Tax 10,108 10,727 15,264 13,432 15,814 Tax 3,015 3,284 3,100 3,815 4,491 Tax Rate (%) 30 31 20 28 28 Net Profit 7,093 7,443 12,164 9,617 11,323 % Change 18.4 4.9 63.4 (20.9) 17.7 No. of Shares (cr) 158 159 168 170 170 EPS (Rs) 44.9 46.8 72.6 56.7 66.7 % Change 18.0 4.3 54.9 (21.9) 17.7 Balance Sheet Liabilities Capital 316 318 335 339 339 Reserves & Surplus 33,805 39,328 61,067 64,846 69,425 Borrowings 237,639 279,732 319,912 383,730 460,508 Provisions 4,964 2,513 5,274 3,074 3,626 Other Liabilities 12,028 14,468 15,086 16,817 19,839 Total Liabilities 288,753 336,358 401,674 468,805 553,738 Assets Cash & Bank Balances 5,305 6,319 1,371 1,566 2,648 Investments 15,345 20,410 30,533 28,891 34,083 Advances 263,853 306,308 365,545 431,212 508,703 Fixed Assets 665 642 644 644 644 Other Assets 3,585 2,679 3,581 6,492 7,659 Total Assets 288,753 336,358 401,674 468,806 553,738 Ratios EPS 44.9 46.8 72.6 56.7 66.7 DPS 17.0 3.0 3.5 20.7 24.0 BV 216.0 249.6 366.4 384.2 411.2 ABV 216.0 249.6 366.4 384.2 411.2 Valuation (%) P/E 43.6 41.7 26.9 34.5 29.3 P/BV 9.1 7.8 5.3 5.1 4.8 P/ABV 9.1 7.8 5.3 5.1 4.8 Div. Yield 0.9 0.2 0.2 1.1 1.2 Spreads (%) Yield on Funds 10.4 9.9 9.1 9.0 9.0 Cost of Funds 8.7 8.1 7.4 7.4 7.3 Capital (%) CAR 16.6 14.5 19.2 17.4 15.7 Tier I 13.2 11.8 17.3 15.5 13.8 Tier II 3.4 2.7 1.9 1.9 1.9 Asset (%) GNPA 0.7 0.8 1.1 1.2 1.3 NNPA 0.0 0.0 0.0 0.1 0.3 Management (%) Debt/Equity 7.0 7.1 5.2 5.9 6.6 Cost/ Income 6.6 6.8 5.7 9.0 7.8 Earnings (%) NIM 3.3 3.3 3.1 3.0 3.0 ROE 21.8 20.2 24.1 15.2 16.8 ROA 2.6 2.4 3.3 2.2 2.2

Recommendation Summary (last 3 years) Dates Rating Target 2200 30 January 2015 BUY 1,455 05 January 2017 BUY 1,400 2000 03 February 2017 HOLD 1,510 1800 25 May 2017 BUY 1,710 16 November 2017 BUY 1,859 1600 04 April 2018 BUY 2,051 30 November 2018 HOLD 2,112 1400 1200 1000 800 Nov-15 May-16 Nov-16 May-17 Nov-17 May-18 Nov-18 Source: Bloomberg, Geojit Research Investment Rating Criteria Large Cap Stocks; Buy - Upside is 10% or more. Hold - Upside or downside is less than 10%. Reduce - Downside is 10% or more. Neutral - Not Applicable *Initiating Coverage Mid Cap and Small Cap; Buy - Upside is 15% or more. Accumulate - Upside between 10% - 15%. Hold - Absolute returns between 0% - 10%. Reduce/Sell - Absolute returns less than 0%. Neutral - Not Applicable To satisfy regulatory requirements, we attribute Accumulate as Buy and Reduce as Sell. The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being upgraded to BUY or downgraded to a HOLD, REDUCE or SELL. Neutral - The analyst has no investment opinion on the stock under review. Geojit Financial Services Limited has outsourced the preparation of this research report to DION Global Solutions Limited whose relevant disclosures are available hereunder. However, Geojit s research desk has reviewed this report for any untrue statement of material fact or any false or misleading information. General Disclosures and Disclaimers CERTIFICATION I, Kaushal Patel, employee of Dion Global Solutions Limited (Dion) is engaged in preparation of this report and hereby certify that all the views expressed in this research report (report) reflect my personal views about any or all of the subject issuer or securities. Disclaimer This report has been prepared by Dion and the report & its contents are the exclusive property of the Dion and the client cannot tamper with the report or its contents in any manner and the said report, shall in no case, be further distributed to any third party for commercial use, with or without consideration. Geojit Financial Services Limited has outsourced the assignment of preparation of this report to Dion. Recipient shall not further distribute the report to a third party for a commercial consideration as this report is being furnished to the recipient solely for the purpose of information. Dion has taken steps to ensure that facts in this report are based on reliable information but cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this report. It is hereby confirmed that wherever Dion has employed a rating system in this report, the rating system has been clearly defined including the time horizon and benchmarks on which the rating is based. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this report is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. Dion has not taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. This report is not to be relied upon in substitution for the exercise of independent judgment. Opinions or estimates expressed are current opinions as of the original publication date appearing on this report and the information, including the opinions and estimates contained herein, are subject to change without notice. Dion is under no duty to update this report from time to time. Dion or its associates including employees engaged in preparation of this report and its directors do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of securities, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. The investments or services contained or referred to in this report may not be suitable for all equally and it is recommended that an independent investment advisor be consulted. In addition, nothing in this report constitutes investment, legal, accounting or tax advice or a representation that any investment or strategy is suitable or appropriate to individual circumstances or otherwise constitutes a personal recommendation of Dion.

REGULATORY DISCLOSURES: Dion is engaged in the business of developing software solutions for the global financial services industry across the entire transaction lifecycle and interalia provides research and information services essential for business intelligence to global companies and financial institutions. Dion is listed on BSE Limited (BSE) and is also registered under the SEBI (Research Analyst) Regulations, 2014 (SEBI Regulations) as a Research Analyst vide Registration No. INH100002771. Dion s activities were neither suspended nor has it defaulted with requirements under the Listing Agreement and / or SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 with the BSE in the last five years. Dion has not been debarred from doing business by BSE / SEBI or any other authority. In the context of the SEBI Regulations, we affirm that we are a SEBI registered Research Analyst and in the course of our business, we issue research reports /research analysis etc that are prepared by our Research Analysts. We also affirm and undertake that no disciplinary action has been taken against us or our Analysts in connection with our business activities. In compliance with the above mentioned SEBI Regulations, the following additional disclosures are also provided which may be considered by the reader before making an investment decision: 1. Disclosures regarding Ownership Dion confirms that: (i) It/its associates have no financial interest or any other material conflict in relation to the subject company (ies) covered herein at the time of publication of this report. (ii) It/its associates have no actual / beneficial ownership of 1% or more securities of the subject company (ies) covered herein at the end of the month immediately preceding the date of publication of this report. Further, the Research Analyst confirms that: (i) He, his associates and his relatives have no financial interest in the subject company (ies) covered herein, and they have no other material conflict in the subject company at the time of publication of this report. (ii) He, his associates and his relatives have no actual/beneficial ownership of 1% or more securities of the subject company (ies) covered herein at the end of the month immediately preceding the date of publication of this report. 2. Disclosures regarding Compensation: During the past 12 months, Dion or its Associates: (a) Have not managed or co-managed public offering of securities for the subject company (b) Have not received any compensation for investment banking or merchant banking or brokerage services from the subject company (c) Have received compensation for products or services other than investment banking or merchant banking or brokerage services from the subject (d) Have not received any compensation or other benefits from the subject company or third party in connection with this report. 3. Disclosure regarding the Research Analyst s connection with the subject company: It is affirmed that I, Kaushal Patel, employed as Research Analyst by Dion and engaged in the preparation of this report have not served as an officer, director or employee of the subject company 4. Disclosure regarding Market Making activity: Neither Dion /its Research Analysts have engaged in market making activities for the subject company. Copyright in this report vests exclusively with Dion. Please ensure that you have read the Risk Disclosure Documents for Capital Market and Derivatives Segments as prescribed by the Securities and Exchange Board of India before investing. Geojit Financial Services Ltd. (formerly known as Geojit BNP Paribas Financial Services Ltd.), Registered Office: 34/659-P, Civil Line Road, Padivattom, Kochi-682024, Kerala, India. Phone: +91 484-2901000, Website: www.geojit.com. For investor queries: customercare@geojit.com, For grievances: grievances@geojit.com, For compliance officer: compliance@geojit.com. Corporate Identity Number: L67120KL1994PLC008403, SEBI Stock Broker Registration No INZ000104737, Research Entity SEBI Reg No: INH200000345, Investment Adviser SEBI Reg No: INA200002817, Portfolio Manager: INP000003203, Depository Participant: IN-DP-325-2017, ARN Regn.Nos:0098, IRDA Corporate Agent (Composite) No.: CA0226.