banks nbfcs sector update feb 22 2012

8/2/2019 Banks NBFCs Sector Update Feb 22 2012

1/13

Banks & NBFCs

Sector Outlook Neutral

Sector Report

-40%

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F eb -1 1 Ma y- 11 Au g- 11 N ov -1 1

Ban kex Sensex

1

Market data

BSE Sensex 18429

BSE Bankex 12839

NSE Nifty 5607

Ganeshram [email protected]+91 44 4344 0031

Jyothi Kumar [email protected]+91 44 4344 0033

Abhinesh [email protected]+91 44 4344 0006

Date Feb 22, 2012

Performance (%)

1m 3m 12m

Sensex 13 11 -1

Bankex 24 24 1

No more mispriced high conviction ideas; Tactical relative bets hold the key

With many Banks and NBFCs up 40%-65% YTD, the disproportionately skewed return-risk ideas are off the table. The

What you pay vis--vis What you get in return equation is well balanced with most of the stocks close to top quartile

multiples on a historical traded basis. A few mid caps have not rallied as much and we still see value in them.

While asset quality pangs have not yet shown early signs of receding, we are cognizant that there are macro tailwindsesp. improving sentiment on infrastructure sector and the interest rate cycle. As a result, the drivers of Bank and NBFC

stocks viz, loan growth, margins, asset quality, bond portfolio returns and book values could improve disproportionatelyduring FY13 and stocks could get re-rated further upwards. However, we believe that absolute return Buys are no longerjustifiable, and our focus shifts to identifying relative outperformers.

Likely headwinds and tailwinds during FY13:

Asset Quality holds the key - While the jury is out on whether recent GoI policy measures on the power sector couldcreate positive momentum and limit the pain, we think restructuring power sector loans could still be a reality given

practical challenges in enforcing the directions immediately. Even if the Infrastructure sector sees the painameliorating, we continue to see structural issues affecting other sectors such as Textiles, Agri, CRE and Metals

sectors. Avoid most PSU banks. Doubts remain on the credibility of the ABVs. We prefer Infra NBFCs to PSUBanks as a better bet on possible asset quality improvement. Buy PSU banks if they are trading below 1xFY13E stress tested ABV. Retail asset biased Pvt banks remain well insulated.

Fiscal Deficit and Market Borrowing: Our numbers suggest that net GoI market borrowings for FY13 in excess of

Rs. 4.5tn will be negative for bond yields and systemic liquidity.

The extent of RBI easing could get curtailed: In line with consensus, we too expect a further 100-150 bps of RBI

policy easing (CRR + rate cuts) over the ensuing 12 months. However, the rising crude oil prices and possible fuelprice hikes may deter rate cuts to that extent. Notwithstanding these issues we see the yield curve steepening andhence prefer wholesale liability biased Pvt banks/ NBFCs as we see them having better NIM expansion.

Momentum on Equity raising: We have shied away from recommending financials to merely play the bump-up onABVs due to equity raise esp. on fundamentally less favored stocks. However, its impact on stock prices cannot be

ignored. With strong FII flows and momentum picking up in the equity markets, many banks should be looking to shoreup their capital base, due to which currently stretched multiples could be a mirage. Pvt banks should benefit.

Other issues: Pension liabilities as a headwind, which have dropped off markets radar, could come back to hauntPSU banks. Basel III, IFRS rules and regulatory norms esp. on provisions for restructured loans could cause pain.

To play these themes, our model financials portfolio would be ICICI Bank, HDFC Bank, Kotak Bank, Indusind

Bank, Yes Bank, KVB, ING Vysya Bank, Corporation Bank, IDFC and PFC. We think this portfolio is wellpositioned to reap the upside and hedged against downside risks and should outperform the benchmark.

Sector Strategy Note
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


2/13

Banks & NBFCs


Sector Report

2

Company View Rating

Axis Bank Advances are up only 4.5% YTD, making a loan growth target of 20% for FY12 a stretch unless chunky loans are given-one ofour key concerns

Foresee pressure on NIMs in 4QFY12 as a significant portion of incremental loans need to be lent to agri/PSL.

Shift towards BBB and lesser rated corporates could impact asset quality.

Rating driven by comfort on valuations rather than on loan book, target multiple 2.2x FY13E ABV

ADD

OUTPERFORM

TP: Rs. 1,350

Bank ofBaroda

Bobs low proportion of wholesale liabilities (~23%) and large overseas book (31%) would mean margins are unlikely to improvein a hurry

Restructured assets spike a concern, slippages from this portfolio accounted for a third of overall slippages in 3QFY12

View the spike in RA and 15% qoq rise in GNPAs as the first signs of an impending downturn in asset quality

Value the bank at 1.1x FY13E ABV, would wait for betterment in asset quality before recommending a buy

REDUCE

UNDERPERFORM

TP: Rs. 770

Bank of India Margins to remain flat in 4QFY12 as deposit growth catches up; PSL lending will also play a part

Restructured assets at 5.9% far from comforting; more in the pipeline. Stressed assets at 8.7% continue to be the dominantconcern

Other income continues to remain low at 0.8% of assets, 16% qoq forex income de-growth discomforting

Continue to be negative on the bank, target multiple at 1x FY13E ABV

SELL

UNDERPERFORM

TP: Rs. 316

Canara Bank Overall loan book grew only by 0.6% qoq, however infrastructure advances grew 4.3% qoq, heightening concerns on an alreadyskewed loan book

Low margins a concern in the absence of pricing power

Restructured assets account for 4.4% of the loan book, our concerns are with low slippages from this portfolio (11%), which webelieve is unsustainable

Maintain sell with a target multiple of 1x FY13E Abv

SELL

UNDERPERFORM

TP: Rs. 462

CorporationBank

Priority sector loans at 31%, agri loans at 7% are much below prescribed mandatory limit. Focus on these areas is likely toimpact NIMs in 4QFY12

Favourable ALM profile, large proportion of wholesale funding (35%) positives as the rate cycle turns

Rating driven by comfort on valuations rather than on loan book, target multiple 1x FY13E ABV

BUY

OUTPERFORM

TP: Rs. 604

View on Stocks


3/13

Banks & NBFCs


Sector Report

3

View on Stocks

Company View Rating

City UnionBank

Comfort on asset quality continues as restructured assets are low at 2.5% of advances; 88% of the book has completed one yearof principal repayment after the moratorium period

Other income has fared well, averaging 1.2% of assets, which we expect to continue

Business growth expected to remain strong

Maintain outperform rating, valuing CUB at a target multiple of 1.4x FY13E ABV

ADD

OUTPERFORM

TP: Rs.51

Federal Bank Profitability has improved at the expense of growth and asset quality has deteriorated again this quarter after the improving trendseen over the past two quarters

Repricing of NRE term deposits in FY13would effectively increase the cost on deposits by ~20bps, which along with a shift to aless risky, low margin corporate loan segment would mean the bank is unlikely to benefit from a reversal in the rate cycle.

Foresee no sustainable turnaround in asset quality in the near term

Value the bank at a target multiple of 1.1x FY13E ABV

REDUCE

UNDERPERFORM

TP: Rs. 386

HDFC Bank NIMs to hold firm led by a shift to fixed rate loans

Shift to retail loans in place with our broader thesis

Comfort on asset quality continues, restructured advances at 0.4% amongst the lowest

Credit growth to continue beating the system

Value the bank at a target multiple of 3.7x FY13E ABV

ADD

OUTPERFORM

TP: Rs. 543

ICICI Bank Nearly 50% of incremental growth has come from Overseas business where margins are improving

CASA ratio has improved for the bank owing to lower growth abetting margins. Current rate of CASA generation should keeppace with the loan growth ensuring stable to improving spreads at the margin

Growth in retail portfolio can help in improving leverage

Maintain BUY on the bank valuing the business at 2.2X FY13 consolidated ABV

BUY

OUTPERFORM

TP: Rs. 1176

Indian Bank Favorable ALM profile (mismatch at a low 1.6% of deposits), low proportion of wholesale funding (16%), to help the bank maint ainNIMs

T1 CAR at 11.2% more than sufficient to last into FY14

Asset quality to be stable; expect no major accretion to restructured assets

Value the bank at a target multiple of 1x FY13E ABV

ADD

OUTPERFORM

TP: Rs. 258


4/13

Banks & NBFCs


Sector Report

4

View on Stocks

Company View Rating

IndianOverseas Bank

Stressed asset portfolio at 10.6% extremely worrying

Whopping 51% credit growth since Sep 10vs 27% for the system compounded with capital adequacy problems

Shortfalls in counter cyclical provisioning buffer and takeover of SSK bank to be provided in 4QFY12

Remain pessimistic about the banks prospects, value the bank at a target multiple of 0.8x FY13E ABV

SELL

UNDERPERFORM

TP: Rs. 90

IndusInd Bank 69% of incremental loan book has come from high yielding consumer finance loan book which may not be case going forwardresulting in incrementally lower yields. Fall in the yields can be partially mitigated by increase in SA deposits

Strengthening retail liabilities should keep fee income growth healthy

Potential capital raise increase the book value which can keep the momentum going

Valuations at 2.9X FY13ABV largely reflecting the improved fundamentals; cut rating from BUY to UNDERPERFORM

ADD

OUTPERFORM

TP: Rs. 345

ING Vysya

Bank

ING Vysyas ~45% of wholesale liabilities are likely to reprice quicker than assets, bringing in healthy NIMs

Core fee income improved 4% qoq, and continues to be the best amongst peers logging 1.6% of average assets, which weexpect to continue

Asset quality and CIR expected to hold steady at current levels

Value the bank at 1.4x FY13E ABV

BUY

OUTPERFORMTP: Rs. 412

Karur VysyaBank

Comfort on asset quality driven by continuing low slippages and benign restructured assets

Concentration risk has declined substantially; top 20 advances now amount to 11.23% of the portfolio against 20.4% in 4QFY11

Healthy levels of capital, favorable cost s tructure other positives

Maintain buy with a target multiple of 1.6x FY13E ABV

BUY

OUTPERFORM

TP: Rs. 464

KotakMahindra Bank

Strong SA generation post de-regulation can help in maintaining the margins

Turn around in capital markets (contributed 6% of Q3FY12 PAT compared to 15% in FY11 PAT) can provide the delta in earnings

May not be beneficiary from potential capital raise as the bank has Tier-1 CAR of 15.6%

Valuations expensive but expect; Maintain Outperform

ADD

OUTPERFORM

TP: Rs. 592


5/13

Banks & NBFCs


Sector Report

5

View on Stocks

Company View Rating

PunjabNational Bank

Stressed assets at 8.8%, far from comforting.

Rising exposures to power, CRE, metals and mining additional concern

Decline in CASA a key challenge, weakness to continue

PNB has the highest impact to ABV in our stress case scenario, maintain sell with a target multiple of 1.1x FY13E ABV

SELL

UNDERPERFORM

TP: Rs. 892

South IndianBank

Comfort on asset quality continues, driven both by low slippages and benign restructured assets

Expect moderate compression in margins in 4QFY12 as deposits accrue and PSL obligations are met

Fee income continues to be lackluster and is expected to remain so; play on capital raise

Maintain outperform with a target multiple of 1.5x FY13E ABV

ADD

OUTPERFORM

TP: Rs. 30

State Bank of

India

Remain positive on the banks pricing power driven by sheer size and low cost liability franchise

Concerns center on asset quality; disappointingly delinquencies are spread across sectors, making a s ignificant turnaround inasset quality unlikely

Credit costs, slippages to remain high in 4QFY12

Retain sell with a target multiple of 1.2x FY13E ABV

SELL

UNDERPERFORMTP: Rs. 1714

Union Bank ofIndia

Further restructuring of ~Rs12bn in the pipeline for 4QFY12, NPV sacrifice in 3QFY12 disconcerting

RA slippages low at 12%, see possibility of increase in slippage to 15%

Low proportion of wholesale liabilities (23%) and large corporate focused loan book mix to result in relatively flat margins goingforward

Maintain sell with a target multiple of 1x FY13E ABV

SELL

UNDERPERFORM

TP: Rs. 203

Yes Bank Among the biggest beneficiaries of falling interest rates and de-regulation of savings rate.

Profitable growth challenges emerging forcing the bank to adopt intermediation route

Chunky advisory related fee income contributed to 44% of the fee income in 9MFY12 whose growth momentum may notcontinue.

Valuations at 2.2X FY13ABV, given the weak liability franchise leave minimal margin for error; downgrade to OUTPERFROM

ADD

OUTPERFORM

TP: Rs. 380


6/13

Banks & NBFCs


Sector Report

6

View on Stocks

Company View Rating

HDFC Liabilities of HDFC geared up to benefit from lower interest rate scenario with term loans at just 20% of outside liabilities

Weakening demand in key markets like Chennai is translating to slower off take of loans. Housing loans portfolio of banks hasslowed down to12.1% yoy growth as of end Dec 2011 compared to 15% in Dec,2010.

Warrants of ~3.7% of equity base are due for conversion by Aug 2012 at 16% lower price which can have a bearing on the stockprice

Retain OUTPERFORM on the stock as we view the stock as a good defensive bet .

ADD

OUTPERFORM

TP: Rs. 742

IDFC Management did right job of protecting balance sheet by judicious growth & P&L by selling investments

Loan growth fears receding with more opportunities in roads and refinancing coming up

Management commentary turning positive with improving incremental news flow in power sector

Valuations not completely reflecting the positive news flow at 1.5x FY13E ABV; Maintain Outperform

ADD

OUTPERFORM

TP: Rs. 160

LT FinanceHolding

Margin expansion on cards with possible lowering of system level interest rates

Asset side of balance sheet suffers from lack of Product Leadership. No product has more than 25% contribution in L&T

Finance while the largest sector contributes to only 20% of loan book for L&T Infra.

Lending subsidiaries with separate capital requirements for each of them and lack of fungibility to reallocate capital can createcapital allocation problems

Retain UNDERPERFORM with a target multiple of 1.5x FY13E ABV

REDUCE

UNDERPERFORM

TP: Rs. 43

LIC HousingFinance

Weakening demand in key markets like Chennai is translating to slower off take. Housing loans portfolio of banks has sloweddown to12.1% yoy growth as of end Dec 2011 compared to 15% in Dec,2010.

Increasing competition & lower switching cost for customers can mean lower benefit from margin expansion.

Regulatory changes can result in higher capital requirement reducing structural leverage and using up any new capital that isinfused.

Maintain SELL due to business challenges with a target multiple of 1.8XFY13ABV

SELL

UNDERPERFORM

TP: Rs. 212

MahindraFinance

Anecdotal indicate slow down in rural economy as NREGA allocations, rate of MSP increases slowdown

Live regulatory risks which can lead to margin compression and higher non-growth capital requirement .

Increasing competitive intensity in the CV segment forcing the company to absorb incremental borrowing costs

Margin expansion factored in from 9.2% in Q3FY12 to 9.8% for FY13.

Valuations not factoring in the current risks; Maintain SELL with a TP of Rs 555 valuing business at 1.8XABV

SELL

UNDERPERFORM

TP: Rs. 555


7/13

Banks & NBFCs


Sector Report

7

View on Stocks

Company View Rating

MuthootFinance

Potential capital raise can bump up the book value of the stock while maintaining healthy leverage given 40-45% growthguidance

Volume growth for gold at the lowest in the last 4 quarters at ~1.5% in Q3FY12 but value growth continues to remain robust

Potential headwinds from regulatory backlash like SLR on retail-NCD can marginally impact the return ratios

Maintain BUY with a target multiple of 2.0x FY13E ABV

BUY

OUTPERFORM

TP: Rs. 232

PFC Sanctions have come down dramatically by 27% for 9 month comparable period; In generation segment for 9MFY12 sanctionswere down by 31% yoy; In our view ,building sanction book is not difficult if environment improves

Incremental positive news flow to the sec tor to help rerating

Credit costs to remain subdued if coal supply related concerns get alleviated

Retain BUY with a target multiple of 1.5x FY13E ABV

BUY

OUTPERFORM

TP: Rs. 262

REC Sanctions volume remained strong despite significant headwinds to sector; For 9MFY12 sanctions were just 7% lower thancomparable 9month period in the previous year

Management hints potential head winds on asset quality on account of two projects which account for 1.2% of loan book.Including these assets, total loans under stress within the private sector lending is 15% of the assets

Current valuations given the recent run-up do not provide sufficient upside to push absolute BUY. Momentum can still play outfor the stock. Downgrade to OUTPERFORM

ADD

OUTPERFORM

TP: Rs. 249

ShriramTransport

Lower growth with dwindling yields to put pressure on earnings momentum.

Despite lower growth & conservative lending ,optically asset quality will still deteriorate if migration from 180 to 90 DPD happens.

Prone to other regulatory risks like SLR requirement on retail NCD which form13.5% of liabilities as of Q3FY12

Current valuations do not factor in reflect any of our concerns, we retain our SELL stance on the stock.

SELL

UNDERPERFORM

TP: Rs. 470


8/13

Banks & NBFCs


Sector Report

5 year trading history (Banks)

Bank CMP

52 wk

high

Correction

from peak

1 yr

return

FY12E

P/ABV

FY13E

P/ABV

Valuation metrics over the past 5 yrs (one yr fwd multiples)

% Premium/(Discount) to

FY13E

P/ABV

CurrentDiscount to

HDFC B

Mean disc

FY07-08 (bps)

Mean discFY09-12

(bps

Highest

P/ABV

Least

P/ABV

MeanP/ABVduring

FY07-08

Mean P/ABV

during FY09-12

P/ABV abovewhich it has

traded 75% of

daysAXSB 1,288 1,461 -12% -6% 2.42 2.06 4.74 0.74 2.94 2.20 1.96 1.56 1.12 1.07 5%

BOB 868 1,007 -14% -5% 1.47 1.24 1.90 0.51 1.01 1.16 0.86 2.38 2.98 2.11 30%

BOI 397 499 -20% -13% 1.55 1.26 2.28 0.88 1.51 1.47 1.24 2.36 2.50 1.80 1%

CBK 554 668 -17% -7% 1.42 1.20 2.23 0.56 1.37 1.12 0.96 2.42 2.62 2.15 20%

CRPBK 512 658 -22% -12% 1.00 0.84 1.65 0.41 1.15 0.92 0.77 2.78 2.84 2.35 8%

CUBK 48 51 -4% 14% 1.60 1.30 2.28 0.49 1.25 1.22 1.01 2.32 2.81 2.05 23%

FB 451 480 -6% 15% 1.43 1.29 1.63 0.44 1.12 0.99 0.83 2.33 2.81 2.05 35%

HDFCB 532 538 -1% 26% 4.22 3.62 5.37 1.75 4.06 3.27 3.10 - - - 14%

ICICIBC 991 1,139 -13% -8% 2.45 2.22 4.59 0.74 3.11 2.19 2.07 1.40 0.95 1.08 7%

INBK 247 265 -7% 16% 1.17 0.96 1.95 0.43 1.36 0.97 0.87 2.66 2.65 2.30 9%

IOB 110 164 -33% -18% 0.97 0.86 2.46 0.47 1.62 1.03 0.87 2.76 2.38 2.24 -1%

IIB 315 334 -6% 41% 3.37 2.91 4.06 0.56 2.43 2.04 1.58 0.71 1.63 1.23 45%

VYSB 360 382 -6% 7% 1.42 1.26 2.80 0.64 2.04 1.34 1.20 2.36 2.02 1.93 5%

KVB 388 479 -19% -6% 1.57 1.34 2.21 0.64 1.50 1.30 1.14 2.28 2.56 1.97 15%

KMB 576 579 -1% 40% 4.34 3.63 11.26 0.83 6.41 3.18 3.05 (0.00) (2.35) 0.09 16%

PNB 1,072 1,235 -13% -4% 1.57 1.28 2.24 0.61 1.50 1.44 1.22 2.34 2.47 1.83 5%

SIB 28 28 0% 27% 1.63 1.39 2.06 0.36 1.23 1.03 0.82 2.24 2.83 2.24 40%

SBIN 2,452 2,960 -17% -15% 2.70 2.08 4.16 0.85 2.39 2.19 1.63 1.54 1.69 1.08 21%

UNBK 267 360 -26% -26% 1.56 1.32 2.37 0.72 1.28 1.43 1.06 2.30 2.72 1.84 20%

YES 369 375 -2% 32% 2.75 2.24 5.20 0.47 4.02 2.06 1.91 1.38 0.04 1.21 15%


9/13

Banks & NBFCs


Sector Report

5 year trading history (NBFCs)

Bank CMP

52 wk

high

Correction

from peak

1 yr

return

FY12E

P/ABV

FY13E

P/ABV

Valuation metrics over the past 5 yrs (one yr fwd multiples)

% Premium/(Discount) to

FY13E

P/ABV

CurrentDiscount to

HDFC

Mean disc

FY07-08 (bps)

Mean discFY09-12

(bps)

Highest

P/ABV

Least

P/ABV

MeanP/ABVduring

FY07-08

Mean P/ABV

during FY09-12

P/ABV abovewhich it has

traded 75% of

daysHDFC 714 738 -3% 11% 5.68 4.94 8.47 2.23 5.50 5.64 5.00 - -1%

IDFC 151 167 -10% 6% 1.77 1.61 5.02 0.84 3.25 1.90 1.55 3.34 2.5 3.7 4%

LICHF 271 281 -3% 38% 2.70 2.25 3.12 0.51 1.13 1.74 1.10 2.69 4.4 3.9 105%

LTFH 53 55 -4% 1.96 1.79 3.15

MMFS 754 840 -10% 2% 2.87 2.45 3.35 1.08 2.05 1.91 1.50 2.49 3.5 3.7 63%

MUTH 173 218 -21% 2.13 1.54 3.40

PFC 214 282 -24% -11% 1.40 1.23 3.10 0.78 1.97 1.57 1.20 3.71 3.5 4.1 3%

REC 242 270 -10% 7% 1.70 1.50 2.92 1.52 0.08 1.52 1.10 3.73 4.6 4.1 11%

SHTF 593 850 -30% -21% 2.21 1.87 4.07 1.10 2.34 2.25 1.70 3.07 3.2 3.4 10%


10/13

Banks & NBFCs


Sector Report

Bank

Net Interest Income, Rs. bn Operating Profits, Rs. bn PAT, Rs. bn Gross NPA FY11-13E CAGR NIM

FY11 FY12E FY13E FY1 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E NII PAT ABV FY11 FY12E FY13E

AXIS 66 82 98 64 76 87 34 42 48 1.1% 1.2% 1.2% 22% 19% 17% 3.4% 3.4% 3.4%

BOB 88 102 126 70 88 101 42 47 53 1.4% 1.5% 1.7% 20% 12% 20% 3.0% 2.8% 2.8%

BOI 78 78 96 54 62 72 25 24 33 2.2% 2.6% 2.3% 11% 15% 13% 2.8% 2.3% 2.5%

CANARA 78 78 95 61 61 72 40 34 44 1.5% 1.7% 1.6% 10% 4% 15% 2.8% 2.4% 2.5%

CORP B 30 31 38 27 27 32 14 15 18 0.9% 1.2% 1.0% 12% 13% 16% 2.6% 2.3% 2.5%

CUB 4 5 7 4 5 6 2 3 4 1.2% 1.2% 1.2% 26% 27% 25% 3.6% 3.6% 3.6%

FED 17 20 21 14 15 17 6 8 8 3.6% 4.0% 3.6% 11% 20% 11% 4.0% 3.9% 3.5%

HDFC B 105 122 151 77 91 108 39 53 62 1.1% 1.0% 1.2% 20% 25% 17% 4.9% 4.7% 4.8%

IB 41 48 56 33 37 44 17 20 24 1.0% 1.3% 1.3% 18% 18% 18% 4.0% 3.8% 3.8%

ICICI 90 104 124 90 98 117 52 60 70 4.6% 3.8% 3.5% 17% 17% 8% 2.7% 2.6% 2.7%

INDUSIND 14 17 21 11 14 18 6 8 10 1.0% 1.0% 1.0% 25% 29% 16% 3.8% 3.7% 3.9%

ING 10 12 14 6 7 9 3 4 5 2.3% 1.9% 1.8% 20% 30% 19% 3.1% 3.2% 3.2%

IOB 42 50 63 29 35 41 11 8 14 2.8% 3.0% 2.7% 23% 15% 8% 2.9% 2.8% 2.9%

KMB 22 25 33 13 16 20 8 11 13 2.1% 1.5% 1.2% 21% 27% 18% 5.6% 4.6% 4.6%

KVB 8 9 12 6 7 10 4 5 6 1.3% 1.4% 1.4% 26% 21% 21% 3.3% 3.1% 3.2%

PNB 118 137 163 91 103 126 44 48 58 1.8% 1.9% 1.6% 17% 15% 22% 3.9% 3.7% 3.7%

SBIN 325 435 509 253 305 357 83 112 168 3.3% 4.8% 4.2% 25% 43% 14% 3.2% 3.8% 3.8%

SIB 8 10 13 5 7 8 3 4 4 1.1% 0.9% 1.0% 26% 23% 18% 3.0% 3.0% 3.1%

UBI 62 70 78 43 51 55 21 17 23 2.4% 3.1% 2.7% 12% 6% 7% 3.2% 3.1% 3.1%

YES 12 17 23 12 16 20 7 10 13 0.2% 0.2% 0.3% 36% 31% 23% 2.9% 2.7% 3.0%

Valuation Matrix Banks


11/13

Banks & NBFCs


Sector Report

Bank

RoE RoA ABV/share Rs. P/ABV (x) CMP Shares M.Cap Target Rating

FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E FY12E FY13E (Rs.) (mn) Rs. bn P/ABV(x)Price(Rs.) Absolute Relative

AXIS 19.3% 20.3% 19.4% 1.6% 1.6% 1.5% 453 531 624 2.4 2.1 1288 411 529 2.2 1,350 ADD O-PF

BOB 24.3% 21.2% 19.8% 1.3% 1.2% 1.1% 483 590 700 1.5 1.2 868 393 341 1.1 770 REDUCE U-PF

BOI 17.8% 14.4% 17.0% 0.8% 0.6% 0.8% 248 256 316 1.5 1.3 397 547 217 1.0 316 SELL U-PF

CANARA 26.4% 17.9% 19.4% 1.3% 1.0% 1.1% 352 390 462 1.4 1.2 554 443 245 1.0 462 SELL U-PF

CORP B 21.9% 19.9% 20.0% 1.1% 1.0% 1.1% 455 514 611 1.0 0.8 512 148 76 1.0 604 BUY O-PF

CUB 24.4% 24.7% 23.5% 1.7% 1.8% 1.8% 24 30 37 1.6 1.3 48 405 20 1.4 51 ADD O-PF

FED 12.0% 14.0% 14.1% 1.2% 1.3% 1.3% 287 316 351 1.4 1.3 451 171 77 1.1 386 REDUCE U-PF

HDFC B 16.7% 19.1% 19.0% 1.6% 1.7% 1.6% 108 126 147 4.2 3.6 532 2,326 1,238 3.7 543 ADD O-PF

IB 22.9% 22.1% 22.3% 1.5% 1.5% 1.5% 184 211 258 1.2 1.0 247 430 106 1.0 258 ADD O-PF

ICICI 9.7% 10.6% 11.4% 1.3% 1.4% 1.4% 457 494 535 2.0 1.9 991 1,152 1,142 2.2 1,176 BUY O-PF

INDUSIND 19.3% 18.9% 20.0% 1.4% 1.5% 1.5% 81 93 108 3.4 2.9 315 466 147 3.2 345 ADD O-PF

ING 13.4% 13.9% 13.1% 0.9% 1.0% 1.1% 201 254 286 1.4 1.3 360 121 44 1.4 412 BUY O-PF

IOB 14.8% 9.7% 15.4% 0.7% 0.4% 0.6% 111 113 128 1.0 0.9 110 619 68 0.7 90 SELL U-PF

KMB 14.4% 14.4% 15.5% 1.9% 1.8% 1.7% 110 129 152 4.5 3.8 576 737 425 3.9 592 ADD O-PF

KVB 22.1% 20.2% 20.9% 1.7% 1.5% 1.5% 199 246 290 1.6 1.3 388 107 41 1.6 464 BUY O-PF

PNB 24.5% 21.7% 22.0% 1.3% 1.2% 1.2% 567 683 837 1.6 1.3 1072 317 340 1.1 892 SELL U-PF

SBIN 12.6% 15.9% 20.0% 0.7% 0.9% 1.1% 829 875 1,081 2.7 2.1 2452 635 1,557 1.6 1,714 SELL U-PF

SIB 18.5% 20.7% 20.4% 1.0% 1.1% 1.0% 14 17 20.1 1.6 1.4 28 1,130 32 1.5 30 ADD O-PF

UBI 21.0% 14.4% 17.7% 1.0% 0.7% 0.8% 177 172 203 1.6 1.3 267 524 140 1.0 203 SELL U-PF

YES 21.1% 23.3% 23.7% 1.5% 1.5% 1.5% 109 134 165 2.8 2.2 369 347 128 2.3 380 ADD O-PF

Valuation MatrixBanks (contd)


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Valuation Matrix NBFCs

NBFC

Net Interest Income, Rs. bn Operating Profits, Rs. bn PAT, Rs. bn Gross NPA FY11-13E CAGR NIM

FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E NII PAT ABV FY11 FY12E FY13E

HDFC 45.3 49.5 65.8 49.4 53.5 68.0 35.3 38.5 49.3 0.8% 0.8% 0.8% 21% 18% 10% 3.7% 3.4% 3.8%

IDFC 16.4 20.9 23.4 20.2 25.4 28.4 12.8 16.3 17.4 0.2% 0.3% 0.3% 19% 16% 10% 4.4% 4.3% 4.1%

LICHF 13.7 13.6 18.7 13.9 13.6 18.4 9.7 8.8 11.2 0.5% 0.6% 0.7% 17% 7% 16% 3.1% 2.4% 2.7%

LTFH 10.7 12.5 17.6 7.2 8.6 12.5 3.9 4.0 7.0 1.1% 2.4% 2.5% 29% 34% 22% 7.5% 6.0% 6.4%

MMFS 13.1 16.1 22.1 8.6 10.7 15.7 4.6 5.8 6.9 4.4% 4.2% 5.5% 30% 22% 15% 10.7% 9.3% 9.8%

MUTH 12.7 23.0 33.7 7.9 14.5 22.2 4.9 9.3 13.8 0.3% 0.6% 0.8% 63% 67% 70% 10.8% 11.3% 11.9%

PFC 34.7 44.3 55.3 35.5 40.9 55.8 26.2 30.4 39.8 0.2% 1.1% 0.9% 26% 23% 16% 3.8% 3.9% 4.0%

REC 34.1 40.1 48.6 34.8 38.8 47.5 25.7 28.3 32.6 0.0% 0.5% 0.4% 19% 13% 13% 4.5% 4.3% 4.4%

SHTF 31.0 32.2 37.1 24.0 26.2 29.4 12.3 12.5 15.8 2.6% 3.3% 5.0% 9% 13% 21% 9.5% 8.4% 8.4%

NBFC

RoE RoA ABV/share Rs. P/ABV (x) CMP Shares M.Cap Target Rating

FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E FY12E FY13E (Rs.) (mn) Rs. bnP/ABV

(x)Price(Rs.) Absolute Relative

HDFC 21.7% 21.3% 24.3% 2.5% 2.3% 2.6% 118 124 143 5.7 5.0 714 1,474 1,053 5.2 742 ADD O-PF

IDFC 14.0% 13.6% 13.0% 3.2% 3.1% 2.9% 77 83 93 1.8 1.6 151 1,508 227 1.7 160 ADD O-PF

LICHF 26.5% 19.8% 21.3% 2.1% 1.5% 1.6% 87 98 118 2.8 2.3 271 475 129 1.8 212 SELL U-PF

LTFH 15.0% 10.6% 13.7% 2.6% 1.8% 2.3% 20 27 29 2.0 1.8 53 1,715 90 1.5 43 REDUCE U-PF

MMFS 22.0% 21.4% 21.7% 3.5% 3.1% 3.0% 232 263 308 2.9 2.5 754 104 78 1.8 555 SELL U-PF

MUTH 51.5% 41.6% 36.2% 3.7% 4.1% 4.5% 40 81 117 2.1 1.5 173 372 64 2.0 232 BUY O-PF

PFC 18.3% 16.7% 17.6% 2.9% 2.7% 3.0% 131 154 175 1.4 1.2 214 1,320 282 1.5 262 BUY O-PF

REC 21.5% 20.6% 20.7% 3.4% 3.1% 3.0% 129 145 166 1.7 1.5 242 987 239 1.5 249 ADD O-PF

SHTF 28.1% 23.2% 23.9% 2.9% 2.5% 2.9% 214 258 313 2.3 1.9 593 226 134 1.5 470 SELL U-PF


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Analyst Certification

The Research Analyst(s) who prepared the research report hereby certify that the views expressed in this research report accu rately reflect the analyst(s) personal views about the subjectcompanies and their securities. The Research Analyst(s) also certify that the Analyst(s) have not been, are not, and will not be receiving direct or indirect compensation for expressing thespecific recommendation(s) or view(s) in this report.

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representation or warranty, express or implied, as to the accuracy, completeness or fairness of the information and opinions contained in this document. Spark Capital Advisors (India) PrivateLimited, its affiliates, and the employees of Spark Capital Advisors (India) Private Limited and its affiliates may, from time to time, effect or have effected an own account transaction in, or dealas principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or otherbusiness from, any company referred to in this report. This report has been prepared on the basis of information, which is al ready available in publicly accessible media or developed throughthe independent analysis of Spark Capital Advisors (India) Private Lim ited

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Absolute Rating Interpretation

BUY Stock expected to provide positive returns of > 15% over a 1-year horizon

ADD Stock expected to provide positive returns of

banks nbfcs sector update feb 22 2012

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