financials - hdfc securities · financials : 3qfy19e results preview 3qfy19e: corp heavy banks play...

Financials

3QFY19E Results Preview

8 Jan 2019

Darpin Shah [email protected] +91-22-6171-7328

Madhukar Ladha [email protected] +91-22-6171-7323

Keshav Binani [email protected] +91-22-6171-7325

2

FINANCIALS : 3QFY19E RESULTS PREVIEW

Looking better 3QFY19 is expected to be predominantly good for banks. With system credit growth at 15% YoY (Dec-18), we expect large banks to register higher loan growth. Meanwhile, NIM tailwinds are expected to play out, driven by an increase in pricing power and lower slippages. As bond yields have fallen, treasury gains will accrue. On the asset quality front, stress accretion will reduce (except IL&FS). Credit costs may remain high for corporate heavy banks and PCR will continue to improve. The change in guard at the RBI will impact liquidity and PSB reforms (e.g. PCA) and must be watched closely. We expect a lacklustre festive season for Auto OEMs to translate into slower disbursal growth for vehicle financiers. Given the steep rise in CoF (post IL&FS) and a large fixed rate book, NIM compression for asset financiers is imminent. Stable asset quality in certain segments may well be the only silver lining. We expect the HFCs in our coverage (LICHF and Repco) to report a mixed qtr. While business momentum will sustain, NIMs/spreads will come under pressure. Asset quality is a key monitorable, given LAP/CRE exposures for some players.

Public sector banks (PSBs)

Akin to the previous qtr, we expect stress accretion for PSBs to reduce with the exception of the singular case of IL&FS - uncertainty prevails regarding its recognition. We thus expect provisions to remain elevated in spite of MTM write-backs and high PCRs.

We expect SBIN to witness an uptick in loan growth aided by buyouts. Further, slower opex growth and MTM write-backs will drive SBIN’s profits. BOB is expected to report healthy growth (higher teens) in domestic loans, NIM improvement and a further dip in GNPAs. However, the MTM dispensation utilised in 1Q will keep earnings

under check sequentially. The spotlight will be on the recognition of and provision against IL&FS, buy-out fuelled growth and NCLT resolutions in the qtr.

Private sector banks

Private banks are expected to perform sequentially better in 3QFY19. We expect healthy loan growth to continue into 3Q, boosted by portfolio buyouts.

Profitability is expected to improve, driven by NIM tailwinds due to the return of pricing power and lower interest reversals, treasury gains and lower stress accretion.

We expect the performance gap across the corporate-retail lending spectrum to reduce this quarter as asset quality improves for corporate heavy banks on account of lower stress accretion.

NBFCs

After registering strong all-around performance for the last several qtrs, 3Q is expected to be subdued for vehicle financiers. We expect slower disbursals growth (except MMFS) and compression in spreads. Consequently, core earnings’ growth will remain muted. However, asset quality is expected to remain stable.

Comments on liquidity, business momentum, and rise in CoF will be keenly monitored.

HFCs

As certain competitors remained shackled for funds, we expect LICHF, with its pedigree to report higher growth. In spite of the recent rate hike, we expect spreads to remain under check due to the rise in CoF.

For REPCO, we expect a marginal uptick in AUM and improvement in asset quality. The progress of resolutions under SARFAESI and that of developer loans will be keenly eyed for Repco and LICHF respectively.

3


Life Insurance

Overall 3QFY19 looks likely to be a stable quarter with some growth

moderation post Oct-18 as private sector individual NBP growth

decelerated to 2% YoY in Nov-18 after a strong Oct-18 (+20% YoY).

FY19TD (till Nov’18) private players individual NBP/APE growth is at

+15/10% YoY vs. +34/35% in the same period in FY18. FY19TD NBP

growth for private companies in the group segment has been much

stronger at 40% YoY as a result of pick-up in the credit protect

business.

On the investments portfolio equity markets performance remains

subdued with Nifty returning -1.3% in the quarter; however stress in

fixed income markets eased as funding for NBFCs resumed and yields

on government bonds declined post RBI’s intervention. Declining

yields will support EVs.

IPRU in its pre-results release has reported 9MFY19 total APE decline

of ~4.2%. In contrast to IPRU, SBILIFE continues to deliver strong

growth despite a high base; we expect 9MFY19 total APE growth of

11% for the company. HDFC Life and MAXL are expected to report

9MFY19 APE growth of 14.1% and 22.8% respectively.

Broking

3Q for broking companies is expected to be average as retail

participation in cash segment was lower (-400/-100bps YoY/QoQ) due

to elevated market volatility. Market ADTVs (ex. prop) for the quarter

are up 59.3/3.0% YoY/QoQ. Yields are expected to be flat as there is

no major change in trading volume mix.

Distribution income is expected to fall as a result of restriction in up-

front distribution commission brought about by regulatory changes

implemented effective 22nd Oct, 2018. Impact on revenues will be

material as most companies recognize this income upfront.

Asset Management

Despite strong average monthly SIP inflows i.e. Rs 80bn in 3QFY19 vs.

Rs 76.5bn in 2QFY19, AUM growth is expected to be sub-dued as

equity markets remained tepid (3QFY19 Nifty return -1.3% ).

As a result of the turmoil in liquid markets caused by the IL&FS

default and a funding crisis for few other ‘suspect papers’ of other

NBFCs, liquid funds witnessed large outflows (Rs 2.1tn) during

September. Liquidity conditions have improved since then and

Industry liquid fund AUMs stood at Rs 5.9tn as at end Nov-18 vs. Rs

3.9tn in Sep-18 with inflows of (Rs 1.9tn in Oct-Nov, 2018).

Due to regulatory changes income statements of AMCs will not be

strictly comparable as under the new SEBI rules companies are not

allowed to pay up-front commissions and all expenses relating to the

schemes have to be charged directly to the schemes. These changes

will result in a reduction of both topline and expenses of AMCs.

Looking better (contd..)

4


View

Banks

We maintain our constructive thesis on retail-heavy banks, given the

huge opportunity, under penetration and consistent performance.

We continue to prefer KMB (despite the uncertainty over the

reduction of promoter stake), DCBB and CUBK. Amongst the Corp

heavy banks, we prefer ICICIB and AXSB given lower stress accretion,

improving asset quality, NIM tailwinds, and change in the top mgt.

NBFCs

As funding becomes scarce and more expensive, NBFCs’ growth and

margins will bear the brunt in the near term. Stability in asset quality,

however, will provide some comfort. Portfolio securitisation/ sell

downs to banks are expected to return to vogue and will be keenly

eyed. We prefer CIFC and MMFS amongst the asset financiers given

their strong parentage and demonstrable focus on growth.

Life insurance

We remain positive on the long term prospects of life insurers.

However, strong sales growth (+26% p.a.) in the last two fiscals has

set the companies up in a difficult position as a result of the high base.

For FY19E, we expect individual NBP growth at around 11-14% and

individual APE growth at 8-10%. At CMP, SBILIFE is our top pick with a

TP of Rs 735 (+22%). MAXF also adequately builds in risks and offers

meaningful upside potential- TP Rs 595 (+37%).

Broking

ISEC’s financial performance shall remain under some pressure in the

short term as markets are expected to be tepid. Distribution

revenues will be challenged owing to recent regulatory changes. Any

improvement in yields will be a positive surprise. We have a BUY

rating on with a TP of Rs 328 (+24%).

Asset management

As we approach general elections, volatility is expected to remain

high. We believe that a significant fall in asset prices or monthly

inflows remains a key risk for asset managers.

Additionally, regulatory reductions in TERs will be implemented from

FY20 and the ability of asset managers to pass on these reductions

remains key for earnings and valuations to sustain and worth tracking.

Given lower penetration of mutual funds and rising financialisation of

savings, we like RNAMC due to its leadership position in retail assets.

We have a BUY rating on the stock with a TP of 227 (+46%).

Looking better (contd..)

5


3QFY19E: Strong growth in earnings for PSBs

COMPANY 3QFY19E

OUTLOOK WHAT’S LIKELY KEY MONITORABLES

SBIN GOOD

Core earnings to grow at ~16% YoY (+~4% QoQ) as loan growth and NIMs begin to look upwards.

Sequentially flattish Non int inc as the base qtr included profits from the sale of stake in subsidiaries.

Strong core earnings and slower opex growth will drive PPOP growth at ~21%

We expect SBIN to report a PAT of ~Rs 23bn as a result of MTM reversals and lower LLP YoY (albeit higher QoQ)

Comments on funding to NBFCs.

Progress of the resolution of NCLT exposures and provisions for the same.

Outlook on asset quality, growth and margins.

Recognition of and provision against its exposure to the beleaguered infra finance co.

BOB GOOD

GNPAs are expected to decline as a result of lower slippages and stable recoveries/ upgrades.

Domestic book growth (higher teens) will be largely driven by retail and SME book growth; overseas book growth to remain muted.

NII growth (+10%) led by healthy loan growth and lower interest reversals.

Lower MTM, higher treasury gains and dip in LLPs will drive PAT growth YoY

Outlook for the integration post merger

Asset quality : Divergence (if any) and slippages from the watchlist.

Progress of NCLT exposures and provisions for the same.

Outlook for growth and margins.


6


3QFY19E: Corp heavy banks play catch-up

COMPANY 3QFY19E


KMB GOOD

Core earnings to grow at ~16% YoY led by 22% loan

growth and NIM compression (YoY).

PPOP to grow at ~18% after factoring in an 18% rise in

opex.

We have conservatively factored in higher provisions

(albeit down QoQ led by lower investment related

provisions).

Consequently, net earnings to grow at ~14% QoQ.

Outlook on growth

Comments on the mandated reduction in

promoter stake.

Performance and contribution of subsidiaries.

Comments on macro economic conditions.

ICICIBC GOOD

Enhanced loan growth (+14% YoY) and NIMs should drive

NII by ~20/7% YoY/QoQ.

~14% QoQ rise in non int. inc. (incl. treasury gains) and

slower opex growth (3%) are expected to drive PPOP

18/14% YoY/QoQ

Slippages are expected to moderate QoQ (2Q incl. ~Rs

12bn due to the impact of forex fluctuations).

After factoring in a dip in provisions (~5% QoQ) we expect

net earnings to grow ~75% QoQ (flat YoY as base qtr saw a

tax write-back of Rs 1.62bn)

Movement in impaired assets, the watchlist and

the BB and below rated exposures as well as the

progress of resolutions

Divergence from asset quality reporting (if any)

Commentary on growth (Quantum of buyout

portfolios) and margins

AXSB GOOD

We expect NII to grow by ~15% YoY (+4% QoQ) with ~13%

loan growth (+4% QoQ) and stable NIMs.

~5% QoQ rise in opex will keep PPOP growth muted at

~4.5% despite QoQ rise in non int. inc

Reversals in MTM provisions and lower LLPs (superior

PCR), will drive profitability. PAT is expected to grow at

~46% YoY (+34% QoQ).

Strategic changes under the reign of the new

MD & CEO

Asset quality i.e. divergence (if any), movements

in the ‘below investment grade’ book.

Outlook for loan growth and margins.

7


3QFY19E : Retail banks: steady performance

COMPANY 3QFY19E


IIB AVG

Core earnings growth (21%) will lag loan growth (30%+) due to pressure on NIMs.

Non int inc is expected to grow ~6% QoQ on the back of higher treasury gains and traction in fees.

We have conservatively factored in elevated provisions (2.05x QoQ).

PAT is expected to shrink by ~38/37% YoY/QoQ.


Outlook for growth and yields in the retail business

Comments on the integration of Bharat Financial Services

CASA traction .

Asset quality divergence (if any)

RBK GOOD

NII growth of ~30% YoY to be driven by ~32% YoY jump in advances and stable NIMs

Healthy other income growth to continue, driven by treasury gains and fee income traction.

We expect opex to remain elevated (+28%) YoY as the bank continues to invest in technology and branches.

After factoring in higher provisions, PAT is expected to grow at 35% YoY.

Evolution of the cards business (contribution in fees) and retail profitability.

Change in the loan book mix.

Outlook for SA and NIM movement.

Progress towards vision 2020.

Fund raising plans.

FB GOOD

~14% YoY growth in NII, primarily driven by loan growth of ~22% YoY

Flattish PPOP (QoQ) led by higher opex and stable non interest income.

We have factored in a sequential dip in provisions leading to a 25% QoQ rise in net earnings.

Changes in the asset quality of the Corp and MSME books.

Update on the progress of new retail products i.e. CV, cards etc.

NIM movement & efficiency ratios.

8


3QFY19E : Retail banks will be steady

COMPANY 3QFY19E


CUBK GOOD

NII growth will remain low (~11% YoY) owing to pressure on NIMs despite ~17% YoY loan growth.

Rise in treasury gains and controlled opex will lead to a 4% QoQ rise in PPOP.

With lower stressed exposures, we expect provisions to dip YoY.

Consequently, net earnings should grow by ~15% YoY.

Outlook for growth.

Movement of the C-I Ratio

Provisions on SRs.

Status of the singular exposure of ~Rs 800mn under the watchlist.

KVB AVG

NII growth is expected to remain muted due to sluggish business growth (despite the sequential pickup).

Non Interest Income growth of ~15% QoQ to be lead by higher treasury gains (loss in 2Q)

PPOP is expected to grow by ~8% QoQ after factoring in a ~4% QoQ rise in opex

Elevated provisioning (+25 QoQ) is expected to continue, given the reported PCR is only ~59%.

On a lower base, PAT is expected to grow 20% YoY

Slippages from the SME book and other stressed assets.

Any updates on new product launches in the retail sector and growth of the granular businesses.

Insights on new initiatives

DCBB GOOD

Core earnings growth (15%) to be driven by 24%+ loan growth as NIMs compress.

Flattish non int inc and slower opex growth (8%) will lead to 19% YoY rise in PPOP

After factoring in flattish provisions we expect a PAT growth of 31%

Outlook for ROAA for reporting periods beyond FY19

Comments on margins and inter bank deposits accepted.

Measure to improve oplev.

Outlook for the LAP business (growth, asset quality and competition).

9


3QFY19E : Growth to sustain for AUSFB

COMPANY 3QFY19E


AUSFB GOOD

Healthy AUM growth will drive core earnings growth (+40%

YoY) .

Opex is expected to increase further (+5% QoQ) due to

ramp up in the banking services.

With stable asset quality, provisions are expected to remain

flat QoQ .

PAT is expected to grow by~13% QoQ (+30% YoY).

CASA build-up

Commentary on growth (esp. for MSME and CV)

Opex trajectory

10


3QFY19E : Muted performance for VF NBFCs

COMPANY 3QFY19E


MMFS GOOD

Healthy and broad based YoY growth in disbursals to

continue in 3Q; resulting in robust AUM growth (20%+)

NII is expected to grow by ~9% YoY.

Provisions are expected to remain flat YoY (dip QoQ)

PAT to grow by ~11% YoY.

Comments on the rise in CoF and quatum of

funds raised.

Comments on growth and collection efficiency .

Comments on the Rural economy.

Performance of the housing finance subsidiary .

SHTF AVG

AUM is expected to grow at <20% YoY as disbursal growth

slows down.

Sequentially flat NII (+22% YoY) as spreads shrink

Opex to gradually rise (increase in branches and

employees over the last few qtrs).

After factoring in provisions growth of 17%, PAT is

expected to grow at +20% YoY.

Comments on margins with rising interest rates.

Comments on the rural economy.

Comments on changes in the funding profile.

Growth guidance .

Comments on the possibility of a merger.

CIFC GOOD

On a higher base, VF disbursals are expected to grow in

the mid-teens; while a gradual uptick in the HE disbursals

is likely to continue.

Healthy AUM growth (27% YoY) and NIM compression

with lead to flattish core earnings.

PPOP growth is expected at 12% YoY after factoring in a

decline in opex.

Drop in provisions will lead to 25% YoY rise in PAT.

Growth outlook for the VF business.

Comments on the HE (LAP) business regarding

disbursals, AUM growth, margins and asset

quality.

Improvement in operational efficiency .

11


3QFY19E : Steady performance for HFCs

COMPANY 3QFY19E


LICHF AVG

NII to grow at 12% YoY with steady AUM growth (~16%).

Spreads are expected to be marginally lower on a

sequential basis.

PAT is expected to grow by 13% YoY with a sharp drop in

opex, despite the rise in provisions (flat QoQ).

Comments on competition, growth and NIMs.

Resolutions in the developer book.

Repayment rates.

REPCO AVG

Core earnings to grow <10% YoY as AUM growth (12%)

remains sluggish and NIMs remain under pressure.

Improvement in asset quality is expected on the back of

resolutions through SARFAESI in addition to seasonal

trends.

Net earnings to grow by 28% YoY (down ~6% QoQ ).

Comments on the current liquidity situation

and rise in the CoF.

Outlook on growth and competition.

Comments on margins.

Recoveries through SARFAESI and the status of

residual stock .

12


9MFY19E : Industry growth moderating for life insurers

COMPANY 9MFY19E


HDFC Life GOOD

APE to grow by 14% YoY driven by growth in single

premium ULIP, annuity, and credit protect business.

VNB margins expected to be flattish at 24.2% given

increased sales of annuity products.

Competitive landscape in credit protect.

Commentary on annuity products.

Persistency trend.

Additional margin levers.

ICICI Pru Life MUTED

APE decline of 7.0% due to high base (9MFY18 was +25%

YoY) and volatile equity markets.

ULIP growth has picked up as a result of launch of monthly

premium pay option.

VNB margin is expected to come in at ~17.5%.

New ULIP sales.

Share of protection.

Persistency trend especially for ULIP.

Channel and product mix.

Max Life GOOD

9MFY19 APE growth expected at ~23% YoY.

Stable VNB margins of 20.5% (+30bps YoY/10 bps QoQ).

Growth in proprietary channels.

Persistency trend.

Comments on Axis Bank partnership.

Change in strategy for credit protect.

SBI Life GOOD

Higher base (9MFY18 was +39% YoY) is an enviable base

to grow on. Expect APE growth to slow to ~+11.0% YoY.

9MFY19 Adj. VNB margin to be 19.3% compared to 18.4%

in FY18.

Group business NBP growth to continue to be strong.

Adj. VNB margin improvement given growth in

group business.

Channel and product mix.

Persistency trend especially for ULIP products.

13


3QFY19E: Volatility hits retail participation

COMPANY 3QFY19E


ISEC AVG

ISEC’s broking revenues to remain under pressure as

markets were volatile in 3QFY19, leading to reduced retail

participation and lower delivery volumes.

MF distribution revenues will be impacted due to

restriction in up-front commission payments to

distributors wef 22nd Oct, 2018.

Costs trajectory and management commentary

on the same.

Broking market share and yields .

Probable impact due to TER reduction.

14


3QFY19E: Mixed bag for AMCs

COMPANY 3QFY19E


HDFC AMC GOOD

QoQ flat revenues at Rs 4.8bn due to sub-dued markets and change in regulatory regime.

Overall AUM growth shall remain healthy (13.5% QoQ), lead by flows in liquid funds as liquid fund AUMs increased 93.9 % QoQ.

Expect QoQ fall in blended revenue yields to 0.59bps (-7bps QoQ) as share of liquid AUM increases.

Operating profits to grow at ~9% QoQ with a marginal dip in equity AUM.

Yields in a no-upfront commission payment environment.

Reduction in expenses due to regulatory change and it’s consequential impact on net yields.

Scale up of off-shore business.

Commentary on sharing of reduction in TER with distributors.

RNAMC AVG

Expect equity AUM to remain flat as markets remained sub-dued for the quarter.

Staff costs will remain elevated as employee addition expenses at branches and higher provisioning on phantom shares continues.

Expect moderation as RNAMC slowed branch addition pace and marketing and publicity expenses reduced post IPO year.

Brokerage expenses are also expected to be lower as regulatory changes took effect.

Yields in a no-upfront commission payment environment .

Branch additions during the quarter and outlook on further branch additions.

Commentary on sharing of reduction in TER with distributors.

Any change in value/terms of ICDs to ADAG companies.

15


Financial Summary

Source: Banks, HDFC sec Inst Research

Rs bn NII PPOP APAT

3QFY19E YoY (%) QoQ (%) 3QFY19E YoY (%) QoQ (%) 3QFY19E YoY (%) QoQ (%)

Public Sector Banks

SBIN 216.5 15.8 3.6 142.3 21.1 2.3 22.6 NA 139.2

BOB 48.1 9.5 7.1 34.0 (6.8) 10.4 7.8 601.7 84.4

Aggregate 264.6 14.6 4.2 176.3 14.5 3.8 30.4 NA 122.2

Private Sector Banks

KMB 27.7 15.7 3.0 21.4 17.7 2.2 13.0 23.5 13.9

ICICIBC 68.4 19.9 6.6 59.9 18.4 14.0 15.9 (3.6) 75.1

AXSB 54.5 15.2 4.2 42.8 11.0 4.5 10.6 46.1 34.4

IIB 23.0 21.3 4.3 20.6 23.8 3.4 5.8 (37.6) (36.5)

RBK 6.1 29.8 2.3 4.6 38.3 2.7 2.2 34.7 8.9

FB 10.8 13.7 5.6 7.1 26.3 1.7 3.3 28.2 25.3

CUB 4.0 10.7 1.5 3.1 3.4 3.5 1.8 14.6 5.6

KVB 5.9 5.9 2.7 3.9 (7.7) 7.5 0.9 19.9 2.4

DCBB 2.9 15.0 2.2 1.5 18.5 (0.6) 0.7 30.6 1.4

Aggregate 203.3 17.4 4.7 164.8 16.6 7.1 54.3 7.02 19.2

Small Finance Banks

AU 3.5 40.3 9.4 1.9 27.1 10.9 1.0 30.3 12.5

NBFCs

SHTF 20.9 22.1 1.2 16.2 19.9 (0.4) 6.0 21.2 (1.5)

MMFS 11.7 8.9 (0.1) 7.6 5.2 (3.8) 3.8 10.6 (1.1)

CIFC 7.5 (5.9) 2.3 5.3 12.3 1.2 3.1 24.5 1.0

Aggregate 40.0 11.9 1.0 29.0 14.3 (1.0) 12.9 18.6 (0.8)

HFCs

LICHF 10.1 12.3 (0.4) 9.5 17.8 (1.5) 5.5 12.8 (3.3)

REPCO 1.2 8.3 0.6 1.0 3.5 (0.1) 0.6 28.2 (6.1)

Aggregate 11.2 11.9 (0.3) 10.5 16.3 (1.4) 6.2 14.2 (3.6)

16


Financial Summary

COMPANY APE (Rs bn) VNB Margin (%) VNB (Rs bn)

9MFY19E YoY (%) 9MFY19E YoY (bps)# 9MFY19E YoY (%)

Insurance

HDFC Life 40.1 14.1 24.2 200 9.7 24.4

ICICI Prudential 53.4 -4.2 17.5 100 9.4 1.6

Max Life 23.6 22.8 20.5 30 4.8 24.6

SBI Life 64.9 11.0 19.3 90 12.5 16.4

Aggregate 182.0 8.0 20.0 124 36.4 15.1

#Change in VNB margins is calculated with FY18 margin as the base Source: Insurance companies, HDFC sec Inst Research

17


Financial Summary

Source: Company, HDFC sec Inst Research

Revenue (Rs. mn) EBITDA (Rs. mn) APAT (Rs. mn)

3QFY19E YoY (%) QoQ (%) 3QFY19E YoY (%) QoQ (%) 3QFY19E YoY (%) QoQ (%)

Broking

ICICI Securities 4,366 -7.9 1.3 1,967 -15.8 -4.7 1,306 -14.7 -2.7

Asset Management

HDFC AMC 4,862 NA 1.2 3,162 NA 10.8 2,448 NA 9.3

RNAMC 3,672 -10.2 -6.1 1,339 -1.1 -2.9 1,156 -11.1 2.3

Aggregate 8,534 NA -2.0 4,501 NA 6.3 3,605 NA 6.9

18


Change in Estimates

Source: Company, HDFC sec Inst Research

Rs mn FY19E FY20E FY21E

Old New Change Old New Change Old New Change

NII 91,247 91,247 0.0% 115,836 115,836 0.0% 143,495 143,495 0.0%

PPOP 81,672 81,672 0.0% 103,347 103,347 0.0% 129,112 129,112 0.0%

PAT 41,133 34,314 -16.6% 53,642 47,444 -11.6% 69,197 65,157 -5.8%

Adj. BVPS (Rs) 432.8 403.7 -6.7% 513.3 484.4 -5.6% 603.0 582.1 -3.5%

Rs bn FY19 FY20 FY21

Old New Change Old New Change Old New Change

APE 85.4 74.0 -13.3% 95.7 83.0 -13.2% 108.4 94.1 -13.2%

VNB 14.9 13.0 -13.3% 16.9 14.7 -13.2% 19.4 16.8 -13.2%

VNB Margin 17.5% 17.5% 0.0% 17.7% 17.7% 0.0% 17.9% 17.9% 0.0%

EV 212.2 210.4 -0.8% 240.6 236.9 -1.5% 272.6 267.1 -2.0%

IIB

IPRU Life

19


Peerset Comparison

Source: HDFC sec Inst Research, #Adjusted for subsidiaries

MCap (Rs bn)

CMP (Rs)

Rating TP

(Rs)

ABV (Rs) P/E (x) P/ABV (x) ROAE (%) ROAA (%)

FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E

PSU Banks

SBIN # 2,639 296 BUY 363 135 170 197 33.3 8.0 5.3 1.39 1.10 0.94 2.3 9.2 12.6 0.14 0.55 0.76

BOB 324 122 NEU 127 108 143 171 16.1 6.8 5.0 1.13 0.86 0.71 4.5 10.1 12.4 0.27 0.58 0.72

Pvt Banks

KMB # 2,379 1,248 BUY 1,415 207 237 273 37.0 29.1 23.7 4.71 4.02 3.41 13.2 14.2 14.9 1.73 1.76 1.74

ICICIBC # 2,363 368 BUY 428 127 146 169 49.2 13.8 9.7 2.12 1.76 1.42 3.5 10.0 12.3 0.38 1.17 1.40

AXSB 1,662 637 BUY 741 227 269 306 33.3 17.9 13.6 2.81 2.37 2.09 7.5 12.7 14.9 0.68 1.12 1.29

IIB 935 1,558 BUY 1,952 404 484 582 27.3 19.7 14.4 3.86 3.22 2.68 13.8 16.7 19.6 1.38 1.54 1.71

RBL 241 574 BUY 638 169 192 220 27.8 20.8 15.6 3.40 2.99 2.61 12.3 14.7 17.3 1.23 1.29 1.34

FB 185 94 NEU 92 57 64 73 16.5 12.4 9.8 1.65 1.47 1.29 8.9 10.9 12.6 0.75 0.84 0.90

CUB 139 190 BUY 236 60 70 82 20.3 17.1 14.5 3.15 2.71 2.32 15.2 15.5 15.7 1.58 1.58 1.55

KVB 74 92 BUY 119 57 64 69 27.4 10.3 8.5 1.62 1.44 1.33 4.3 11.1 12.9 0.39 0.95 1.04

DCBB 54 173 BUY 215 87 98 111 17.2 13.4 10.9 1.99 1.77 1.56 10.5 12.2 13.4 0.93 0.98 1.00

SFB

AU SFB 185 616 NEU 667 100 131 154 46.6 33.6 23.6 6.14 4.72 4.00 14.3 15.3 17.5 1.64 1.70 1.90

NBFCs

MMFS # 287 467 BUY 500 141 162 180 19.5 15.9 13.6 3.18 2.78 2.60 14.5 16.0 17.4 2.39 2.46 2.53

SHTF 267 1,176 BUY 1,604 604 711 832 11.4 9.5 8.1 1.95 1.65 1.41 16.3 17.1 17.3 2.47 2.56 2.51

CIFC 187 1,199 BUY 1,625 354 433 522 15.6 12.9 10.7 3.39 2.77 2.30 21.1 21.4 21.4 2.73 2.78 2.85

HFCs

LICHF 242 479 BUY 534 273 318 369 10.1 9.1 8.0 1.76 1.51 1.30 17.5 16.9 16.9 1.30 1.26 1.24

REPCO 26 418 BUY 583 223 260 302 10.8 9.7 8.5 1.87 1.61 1.38 16.8 16.1 15.9 2.27 2.21 2.18

20


Peerset Comparison

Bloomberg Ticker IPRU MAXF SBILIFE HDFCLIFE

Rating BUY BUY BUY Not Rated

Current market price Rs 320 434 605 393

Market Capitalisation Rs bn 460 117 605 723

Target price Rs 378 595 735 NA

Upside/(Downside) % 18 37 22 NA

Particulars FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E

Profitablity

VNB Margin % 17.5 17.7 17.9 20.8 21.0 21.2 19.4 19.6 19.7 24.2 25.0 25.0

Total RoEV % 16.5 16.4 16.5 20.6 20.8 20.8 17.3 19.8 19.2 20.1 20.3 19.9

Operating RoEV % 16.5 16.4 16.5 20.6 20.8 20.8 17.3 19.8 19.2 20.1 20.3 19.9

Non-operating RoEV % 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

RoE % 24.1 20.7 20.5 25.7 25.7 25.4 20.1 20.3 20.5 22.2 22.4 23.2

Valuation at CMP

P/EV x 2.2 1.9 1.7 1.9 1.7 1.5 2.6 2.2 1.8 4.0 3.4 2.8

P/EVOP x 14.9 13.3 11.8 12.9 11.2 9.8 17.3 13.0 11.3 23.6 19.7 16.6

Implied P/VNB x 19.2 15.2 11.4 21.0 17.1 14.0 19.6 15.1 11.3 34.0 25.9 19.6

Implied P/VIF x 6.2 5.6 5.0 4.8 4.0 3.4 8.0 6.8 5.7 13.1 11.2 9.5

P/B x 27.2 28.4 25.9 21.7 18.5 15.6 43.4 36.3 30.3 63.8 53.8 44.4

P/E x 2.2 1.9 1.7 1.9 1.7 1.5 2.6 2.2 1.8 4.0 3.4 2.8

P/AUM x 14.9 13.3 11.8 12.9 11.2 9.8 17.3 13.0 11.3 23.6 19.7 16.6

Valuation at TP

P/EV x 2.6 2.3 2.0 2.7 2.3 2.0 3.1 2.6 2.2 NA NA NA

P/EVOP x 17.5 15.7 13.9 17.7 15.4 13.4 21.0 15.8 13.8 NA NA NA

Implied P/VNB x 25.6 20.8 16.4 30.9 25.6 21.3 26.5 21.2 16.6 NA NA NA

Implied P/VIF x 4.1 3.7 3.3 5.0 4.3 3.7 5.4 4.6 4.0 NA NA NA

P/B x 7.3 6.6 6.0 6.6 5.5 4.6 9.8 8.3 7.0 NA NA NA

P/E x 32.1 33.5 30.6 29.8 25.3 21.4 52.7 44.1 36.8 NA NA NA

P/AUM x 0.3 0.3 0.3 0.2 0.2 0.1 0.5 0.4 0.4 NA NA NA

Source: HDFC sec Inst Research

21


Peerset Comparison

Bloomberg Ticker

IPRU MAXF SBILIFE HDFCLIFE

Particulars FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E

Key parameters

APE Rs bn 74 83 94 38 44 51 97 110 125 66 78 92

VNB Rs bn 13 15 17 8 9 11 19 22 25 16 20 24

Total EVOP Rs bn 31 35 39 15 18 20 35 46 53 31 37 43

Operating EVOP Rs bn 31 35 39 15 18 20 35 46 53 31 37 43

Non- operating EVOP

Rs bn 0 0 0 0 0 0 0 0 0 0 0 0

EV Rs bn 210 237 267 85 98 114 234 278 328 181 215 256

Net worth Rs bn 74 82 91 35 41 49 75 89 106 55 65 76

Net Profit Rs bn 17 16 18 8 9 11 14 17 20 11 13 16

AUM Rs bn

1,600 1,842 2,111 631 736 858 1,401 1,707 2,065 1,261 1,496 1,773

Growth YOY

APE % (5.0) 12.1 13.3 17.5 16.0 15.0 14.0 13.2 13.2 22.0 19.0 17.0

VNB % 0.8 13.4 14.5 21.0 17.2 16.1 20.3 14.4 13.8 24.5 22.9 21.4

Total EVOP % (18.4) 11.8 12.7 18.4 15.5 15.3 11.8 32.5 15.1 4.0 19.9 17.1

Operating EVOP % (15.9) 11.8 12.7 18.4 15.5 15.3 11.8 32.5 15.1 14.1 19.9 17.1

Non- operating EVOP

% (100.0) NM NM (100.0) NM NM (100.0) NM NM (100.0) NM NM

EV % 12.0 12.6 12.7 14.8 15.2 15.5 16.1 18.6 18.0 18.8 19.2 19.0

Net worth % 12.8 10.9 10.8 19.0 19.2 19.5 18.1 18.3 18.5 17.1 17.2 17.8

Net Profit % 3.9 (4.0) 9.6 28.9 17.6 18.2 21.2 19.6 19.7 3.3 18.5 21.3

AUM % 14.7 15.1 14.6 20.8 16.7 16.7 20.5 21.9 21.0 18.3 18.6 18.5


22


Valuation


MCap (Rs bn)

CMP (Rs)

Rating TP

(Rs)

P/E (x) P/ABV (x) EPS (Rs) ABV (Rs) ROAE (%)


Broking

ISEC 85 263 BUY 328 15.2 14.2 12.5 6.9 5.8 4.9 17.3 18.6 21.1 38.5 45.7 54.5 53.8 44.2 42.2

MCap (Rs bn)

CMP (Rs)

Rating TP/FV

(Rs)

P/E (x) Mkt Cap/AUM (%) EPS (Rs) AUM (Rs bn) ROIC (%)


AMC

HDFC AMC 322 1,509 NR 1,708 37.4 32.3 27.6 10.4 9.0 7.8 40.3 46.6 54.7 3,106 3,560 4,119 416.5 590.2 854.9

RNAMC 96 156 BUY 227 20.2 17.0 14.1 3.9 3.4 3.0 7.8 9.2 11.1 2,495 2,812 3,205 103.0 151.3 214.6

23


Rating Definitions

BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period

NEUTRAL : Where the stock is expected to deliver (-) 10% to 10% returns over the next 12 month period

SELL : Where the stock is expected to deliver less than (-) 10% returns over the next 12 month period

Disclosure: We, Darpin Shah, MBA, Madhukar Ladha, CFA & Keshav Binani, CA, 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. HSL has no material adverse disciplinary history as on the date of publication of this report. 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. Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest. Any holding in stock –No HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475. Disclaimer: This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document 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. This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HSL or its affiliates to any registration or licensing requirement within such jurisdiction. If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This document may not be reproduced, distributed or published for any purposes without prior written approval of HSL. Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk. It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HSL may from time to time solicit from, or perform broking, or other services for, any company mentioned in this mail and/or its attachments. HSL and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. HSL, its directors, analysts or employees 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 shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc. HSL and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report, or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report. HSL 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. HSL or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from t 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 in the normal course of business. HSL 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 HSL nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. HSL may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research Report. HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066 Compliance Officer: Binkle R. Oza Email: [email protected] Phone: (022) 3045 3600 HDFC Securities Limited, SEBI Reg. No.: NSE-INB/F/E 231109431, BSE-INB/F 011109437, AMFI Reg. No. ARN: 13549, PFRDA Reg. No. POP: 04102015, IRDA Corporate Agent License No.: HDF 2806925/HDF C000222657, SEBI Research Analyst Reg. No.: INH000002475, CIN - U67120MH2000PLC152193 Mutual Funds Investments are subject to market risk. Please read the offer and scheme related documents carefully before investing.

mailto:[email protected]



24


HDFC securities Institutional Equities Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel, Mumbai - 400 013 Board : +91-22-6171 7330 www.hdfcsec.com

http://www.hdfcsec.com/

financials - hdfc securities · financials : 3qfy19e results preview 3qfy19e: corp heavy banks play...

Documents