financials monthly update - august 2011

8/4/2019 Financials Monthly Update - August 2011

1/28

Please refer to important disclosures at the end of this report 1

Slower growth pointing to peaking of interest rates

Rising global growth concerns and declining fiscal stimulus measures in

developed economies (on concerns of expanding fiscal deficits and unsustainable

public debt to GDP) are likely to keep commodity and energy prices in check at

least in the short term. Moreover, with signs of a slowdown on the domestic

growth front, evident from slowing GDP growth rates, tepid IIP growth,

moderating trend in PMI, declining vehicle sales and cement dispatches growth

rates, we believe policy rates are close to their peak. Although recent indications

from the RBI suggest another 25bp hike in the repo rate in the upcoming

monetary policy review, we believe the RBI may pause after that hike.

Further rate hikes could increase asset quality risks

Our base case, looking at declining credit growth and improving liquidity, is that

lending and deposit rates have largely peaked. However, further rate hikes by the

RBI (post an expected 25bp hike in the repo rate on 16th September, 2011) could

increase asset quality risks for the whole banking sector. Hence, amongst mid

caps we prefer banks with a more conservative asset-quality profile (i.e., relatively

lower yield on advances, lower infra exposure and switchover to system-based

recognition system nearly complete).Switch strategy HDFC Bank to Axis BankHDFC Banks fundamentals and earnings outlook remain strong, but at 3.1x

FY2013E ABV, we believe the stock is fairly valued. Axis Bank is trading at

attractive valuations of 1.7x FY2013E ABV almost at 46% discount to HDFC

Bank vs. an average discount of 32% since July 2006. While the banks ALM

position vis--vis HDFC Bank is currently a disadvantage, however with the

interest rate cycle close to peak, in our view the bank will also benefit more once

interest rates cool off a bit in CY2012. We believe such a large discount for Axis

Bank to HDFC Bank is unjustified, considering its similar earnings quality and

profitability. We have valued Axis Bank at 2.5x FY2013E ABV to arrive at a targetprice of `1,555.Switch strategy UCO Bank to United Bank of India

United Bank of India (UTDBK) is trading at 0.6x FY2013E P/ABV, one of the

lowest in the industry. Considering similar RoAs (0.6% over

FY201113) for both UTDBK and UCO, superior CASA deposit franchise for

UTDBK and higher relative contraction in NIMs expected for UCO over

FY201113, we recommend a switch from UCO (0.8x FY2013 P/ABV) to UTDBK.

We value UTDBK at 0.8x FY2013E P/ABV, implying an upside of 30.0%;hence,we recommend a Buy rating on the stock with a target price of `97.BOM Sound fundamentals, attractive valuation Recommend Buy

We like Bank of Maharashtra (BOM) due to its sustainable and healthy CASAfranchise, improving asset quality, lower exposure to riskier sectors and attractive

valuations. Return ratios are expected to improve on the back of steady

risk-adjusted NIMs, reduction in operating expenses and gradual improvement in

fee income. Hence, we recommend Buy on the stock with a target price of `61.

Banking indicatorsParticulars (%)Latest yoy credit growth 20.6

Latest yoy deposit growth 17.9

Latest credit-to-deposit ratio 73.4

Monthly avg. LAF borrowings (`cr) 37,345

Monthly avg. 1-year G-Sec yield 8.3

Monthly avg. 10-year G-Sec yield 8.3

Monthly avg. 3-month CP rate 9.4

Monthly avg. 12-month CP rate 10.0Source: RBI, Bloomberg, Angel Research

Policy ratesParticulars (%)Repo rate 8.00

Reverse repo rate 7.00

MSF rate 9.00

Cash reserve ratio (CRR) 6.00

Statutory liquidity ratio (SLR) 24.00

Source: RBI, Angel Research

Economic CalendarEvent Date Survey PriorRBI policy review 16-Sep

- Repo 8.25 8.00

- Reverse repo 7.25 7.00

- CRR 6.00 6.00

Source: Bloomberg, Angel Research

Vaibhav Agrawal022 3935 7800 Ext: 6808

[email protected]

Shrinivas Bhutda022 3935 7800 Ext: 6845

[email protected]

Varun Varma022 3935 7800 Ext: 6847

[email protected]

FinancialsMonthly Update

Monthly Update | August 2011

September 13, 2011


2/28

Financials | August 2011

September 13, 2011 2

Slower growth pointing to peaking of interest ratesRising global growth concerns and declining fiscal stimulus measures in developed

economies (on concerns of expanding fiscal deficits and unsustainable public debt

to GDP) are likely to keep commodity and energy prices in check at least in theshort term. Moreover, with signs of a slowdown on the domestic growth front,

evident from slowing GDP growth rates, tepid IIP growth, moderating trend in PMI,

declining vehicle sales and cement dispatches growth rates, we believe policy rates

are close to peak. Although recent indications from the RBI suggest another 25bp

hike in the repo rate in the upcoming monetary policy review, we believe the RBI

may pause after that hike.

Liquidity remains comfortable as deposit growth stays strongCredit growth trends for SCBs remained moderate with incremental credit in

FY2012 YTD remaining at broadly the same levels as last year. At the same time,

deposit mobilisation has picked up (incremental YTD deposits up over 67% yoy)

due to the effect of higher interest rates. Incremental CD ratio in FY2012 YTD (up

to August 26) declined to 35% from 60% in the last year. Consequently, systemic

liquidity conditions have improved, with LAF borrowings averaging ~`45,000cr in

FY2012 YTD as against ~`1,20,000cr in FY2011. Hence, unlike six months back,

when deposit and lending rates were also going up due to extreme tight liquidity

conditions, now the only upward pressure on broader lending rates is coming from

the monetary policy side, which too we believe is close to peak.

Exhibit 1:Credit and deposit growth trends


Exhibit 2:LAF borrowings coming off


Further rate hikes could increase asset quality risksOur base case, looking at declining credit growth and improving liquidity, is that

lending and deposit rates have largely peaked. However, further rate hikes by the

RBI (post an expected 25bp hike in the repo rate on 16th September, 2011) could

increase asset quality risks for the whole banking sector.

While PSU banks saw an increase in their NPA ratios over the last 2 quarters due

to the effect of part-migration to system-based NPA recognition, 2QFY2012 (which

is the mandated timeline for the full switch-over) could see further rise in slippages

as most PSU banks are left with transition of smaller accounts (below

`25lakh50lakh, including agriculture accounts).

The incremental increase in base rates by banks, trailing the hikes in repo rates byRBI over the last year (increase in base rates of average 250300bp) coupled with

the slowdown in economic activity over the same period (drop in GDP by more

than 100bp) is likely to have made debt servicing more challenging for borrowers,

-

7.0

14.0

21.0

28.0

35.0

Sep-08

Dec-08

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Credit growth Deposit growth(%)

(2,000)

(1,500)

(1,000)

(500)

-

500

1,000

Oct-10

Nov-10

Dec-10

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

Aug-11

Sep-11

(` bn)


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especially for SMEs, which are relatively more affected by short-term changes in

economic cycles.

Sectors such as power, textiles, real estate and infrastructure have been facing

headwinds for quite some time now, which has hampered profitability in theseindustries. The power sector has been facing problems in the form of lack of

adequate fuel supply linkages, deteriorating condition of State Electricity Boards

(SEBs) and various regulatory and environmental clearances related issues. Cotton

prices have more than halved over the past few months, leading to sharp inventory

losses for textile firms. Also, with global growth slowing down, export-related

sectors such as gems and jewellery and textiles are likely to be negatively

impacted. Hence, amongst mid caps we prefer banks with a more conservative

asset-quality profile (i.e., lower yield on advances, lower infra exposure and

switchover to system-based recognition system nearly complete).

Exhibit 3:Status of migration to system-based NPA recognitionBank Status as of 1QFY2012Bank of Baroda Fully done

Bank of Maharashtra Fully doneCorporation Bank Fully done

IDBI Bank Fully done

Indian Bank Fully done

J&K Bank Fully done

State Bank of India Fully done

Vijaya Bank

Canara Bank Above `2lakhs

Bank of India Above `5lakhs

Union Bank Above `5lakhsUnited Bank Above `5lakhsOriental Bank Above `10lakhs

Punjab Natl. Bank Above `10lakhs

Andhra Bank `25lakhs

Syndicate Bank Above `25lakhs

Allahabad Bank `50lakhs

Dena Bank Above `50lakhs

IOB Above `50lakhs

UCO Bank Above `50lakhs

Central Bank Nothing till now

Source: Company, Angel Research

Exhibit 4:Banks with higher exposure to the infra sector

Source: Company, Angel Research; Note: As a % of funded exposure

Exhibit 5:Banks with higher exposure to the power sector


27.6

27.2

27.1

23.6

22.7

22.6

21.8

21.5

20.3

18.8

-

5.0

10.0

15.0

20.0

25.0

30.0

DE

NA

IDBI

U

CO

PSB

CANBK

BOM

CRPBK

SND

BK

UTDBK

O

BC

21.5

20.2

14.8

13.3

12.4

11.5

11.1

10.9

10.6

10.3

0.0

5.0

10.0

15.0

20.0

25.0

AND

BK

DE

NA

BOM

CAN

BK

UCO

UTD

BK

IDBI

O

BC

CRPBK

VIJBK

Slippages of public sector banks have

surged recently due to implementation

of system-based NPA recognition

platform. Our preferred picks have

already completed the switchover or are

close to completion.


4/28



RBI releases draft guidelines on new banking licensesThe RBI, on August 29, released its much awaited draft guidelines on new banking

licenses in the private sector. The key highlight is that corporates and NBFCs have

not been explicitly excluded from the possible contenders. However, entities/groups

that have significant (10% or more) income or assets or both from/in real estate

and capital market activities taken together in the last three years shall not be

eligible to promote banks. Existing NBFCs, if considered eligible, can also be

permitted to either promote a new bank or convert themselves into banks.

Key features of the draft guidelines are as follows:

Eligible promoters:Promoter/promoter groups with diversified ownership, soundcredentials and integrity that have a successful track record for at least 10 years in

running their businesses shall be eligible to promote banks. Entities/groups having

significant (10% or more) income or assets or both from real estate constructionand/or broking activities individually or taken together in the last three years will

not be eligible. Ownership and management will also have to separate and

distinct in the applying promoters/promoter groups.

Corporate structure: New banks will be set up only through a wholly ownedNon-Operative Holding Company (NOHC) to be registered with the RBI as an

NBFC, which will hold the bank as well as all other financial companies in the

promoter group. The objective is that the holding company should ring fence the

regulated financial services activities of the group, including the new bank, from

other activities of the group i.e., commercial, industrial and financial activities not

regulated by financial sector regulators. The NOHC will be registered as an NBFCwith the RBI and will be governed by a separate set of prudential guidelines. The

NOHC will not be permitted to borrow funds for investing in companies held by it.

It will just be a vehicle to hold the investments in all regulated financial sector

entities on behalf of the promoters/promoter groups for regulatory and prudential

comfort.

Minimum capital requirement: Minimum capital requirement has been set at`500cr against general expectations of `1,000cr (for filtering out serious players).

Subject to this, actual capital to be brought in will depend on the business plan of

the promoters. NOHC shall hold minimum 40% of the paid-up capital of the bank

for a period of five years from the date of licensing of the bank. Shareholding byNOHC in excess of 40% shall be brought down to 40% within five years, to 20%

within 10 years and to 15% within 12 years from the date of licensing of the bank

and retained at that level thereafter.

Foreign shareholding:The aggregate non-resident shareholding from FDI, NRIsand FIIs in new private sector banks shall not exceed 49% for the first five years

from the date of licensing of the bank. No non-resident shareholder, directly or

indirectly, individually or in groups, will be permitted to hold 5% or more of the

paid-up capital of the bank. After the expiry of five years from the date of licensing

of the bank, foreign shareholding would be as per the extant policy. Currently,

foreign shareholding in private sector banks is allowed up to a ceiling of 74% ofthe paid-up capital.


5/28



Corporate governance: At least 50% of the directors of the NOHC should beindependent directors. The corporate structure should be such that it does not

impede effective supervision of the bank and the NOHC on a consolidated basis

by the RBI.Business model:Should be realistic and viable and should address how the bankproposes to achieve financial inclusion.

Other conditions: The exposure of the bank to any entity in the promoter group shall not

exceed 10% and the aggregate exposure to all the entities in the group

shall not exceed 20% of the paid-up capital and reserves of the bank.

The bank shall get its shares listed on the stock exchanges within two yearsof licensing.

The bank shall open at least 25% of its branches in unbanked ruralcentres (population up to 9,999 as per 2001 census).

The bank shall be required to maintain a minimum capital adequacy ratioof 12% for a minimum period of three years after the commencement of

its operations subject to such higher percentage as may be prescribed by

the RBI from time to time.

Existing NBFCs, if considered eligible, may be permitted to either promotea new bank or convert themselves into banks.

Our viewAt the time the discussion paper had been released, we had taken the view that

diversified shareholding could be used as one of the criteria by RBI to issue

banking licenses. In-line with this view, diversified ownership has been listed as

one of the pre-requisites for applicants in the current guidelines, but the term has

not been clearly defined, leaving some ambiguity about the eligible players. In our

view, if diversified shareholding was to be interpreted as not more than 26%

promoter shareholding, then amongst the large, reputed corporates (with deep

enough pockets to promote a bank) that have also expressed interest in applying

for a license, L&T group appears to be one of the few logical contenders.

Taking into account the criteria regarding diversified ownership as well as RBIsstated intention to issue limited number of licenses based on strict selection criteria,

which may include discretionary criteria over and above what is explicitly defined in

the current guidelines, we do not expect more than three to four licenses to be

issued at this stage. While the entry of new players is bound to increase the

competitive intensity in the sector, keeping in mind that large private banks still

have relatively small market share and the bulk of the market share (65-70%) is

still with PSU banks, we believe the addressable opportunity is large enough for

private sector banks as a group and the entry of 3-4 players would not be

significantly disruptive.


6/28



RBI releases report of the working group on NBFC sectorThe RBI has proposed new regulations for NBFCs, mostly centered on minimising

regulatory arbitrage opportunities available to NBFCs as compared to banks. One

of the major changes proposed by the RBI is bringing capital adequacy

requirements and asset classification and provisioning norms for NBFCs in-line

with the banks.

Exhibit 6:Proposed changes for NBFCs by the working group panelRegulations Applicable ProposedCapital adequacy requirement 15% 12% tier-1 itself

NPA classification 180 days 90 days

Asset classification Provisioning requirements (%)Standard asset 0.25 0.25-2

Substandard asset 10 15

Doubtful asset 20-100 25-100

Loss Asset 100 100


Some of the other major recommendations that were made by the workinggroup: Merger of loan and investment companies into a single category Risk weights for NBFCs may be raised to 150% for capital market exposure

and 125% for capital real estate exposure.

Liquidity ratio to be introduced for all registered NBFCs, such that cash bankbalances and holdings of government securities cover the gaps between

cumulative outflows and inflows for the first 30 days.

Similar regulations as banks for NBFCs while lending to stock brokers andmerchant bankers and while engaging in margin financing.

Higher legal powers relating to management in the hands of the RBI, whileregulating NBFCs, similar to those available under the Banking Regulation

Act.

Additional disclosures (such as PCR ratio, liquidity ratio and off-balance sheetexposures) to be made mandatory for NBFCs.


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Exhibit 7:Major financial entities and their current capital positionsNBFC Capital Adequacy Ratio (%) Tier-I Capital (%)HDFC# 14.0 12.2

Power Fin. Corp. 18.9 Not AvailableRural Elec. Corp. 18.4 Not Available

LIC Housing Fin. 14.9 8.6

IDFC 24.5 21.9

Shriram Trans. 24.9 24.9

IFCI 18.0 18.0

Dewan Housing# 19.4 13.9

M&M Financial 20.3 17.0

Chola Investments 16.7 10.8

Source: Company, Angel Research; Note: #HFCs not covered under these proposals,though similar

norms getting introduced for them by NHB going forward cannot be ruled out

The proposed recommendations if implemented will increase the NPA book and

provisioning requirements for NBFCs. Also, although most larger NBFCs currently

have tier-1 CAR more than 12%, however if 12% becomes the minimum norm, it

can be expected that most NBFCs would look to maintain at least 13-15% to be

comfortable on the capital adequacy front, hence reducing the outlook for their

sustainable leverage and RoE potential.

HFCs face tighter regulations as NHB raises provisioningrequirementsThe National Housing Bank (NHB) has increased the provisioning requirements for

housing finance companies (HFCs). The new norms are expected to be

implemented in a phased manner. Earlier HFCs only had to provide 0.4%

provisions on total outstanding amount of non-housing loans. According to the

new norms, the standard asset provisioning of 0.4% has been extended to housing

loans also, which comprise the majority of the loan book for HFCs.

Exhibit 8:Increase in provisioning requirements for HFCsRegulations Earlier CurrentAsset classification Provisioning requirements (%)Standard asset (housing loans) Nil 0.4

Substandard asset 10 15

Doubtful 20-50 25-100

Loss Asset 100 100

Source: NHB, Angel Research

The new provisioning requirements are in-line with what the RBI has in place for

the banking sector and is expected to hit the profitability of all HFCs. While HDFC

would be expected to provide for ~`500cr of standard asset provisioning in

FY2012, LIC Housing Finance (LICHF) would be expected to provide ~`250cr for

standard asset provisioning in FY2012. However, both HDFC and LICHF have

extra provisions which are expected to minimize the overall impact.


8/28



Switch strategy HDFC Bank to Axis Bank

Unjustified discount

HDFC Banks fundamentals and earnings outlook remain strong, but at 3.1xFY2013E ABV, we believe the stock is fairly valued. Axis Bank is trading at

attractive valuations of 1.7x FY2013E ABV almost at 46% discount to HDFC Bank

(which would be even higher post capital raising) vs. an average discount of 32%

since July 2006. While the banks ALM position vis--vis HDFC Bank is currently a

disadvantage, however with the interest rate cycle close to peak, in our view the

bank will also benefit more once interest rates cool off a bit in CY2012. We believe

such a large discount for Axis Bank to HDFC Bank is unjustified, considering its

similar earnings quality and profitability. We have valued Axis Bank at 2.5x

FY2013 P/ABV to arrive at a target price of `1,555

Exhibit 9:Axis Bank Discount to HDFC bank (%)


Exhibit 10:Price band (Axis Bank)


Book-accretive dilution on cards for Axis Bank in next 12-18 months

Axis Bank's tier-I capital adequacy dipped to 9.4% as of FY2011 from 11.2% in

FY2010 due to strong credit growth witnessed during the year. Going forward

also, we expect management to meet its guidance for healthy growth of ~1.4x the

industry growth. This is likely to result in a need to raise capital in the next 12-18

months, as per our calculations. (Axis Bank had last raised capital in 2QFY2010

when its tier-I CAR was 9.4%). Dilution is likely to be book-accretive and will aid in

further enhancing the bank's credit market share going forward.

Exhibit 11:Credit growth and tier-I CAR scenario analysis (Axis Bank)Expected credit growth each year (%)

Tier-I CAR (%) 15 20 25 30 35FY2012E 9.10 9.06 9.01 8.98 8.93FY2013E 8.81 8.70 8.58 8.46 8.33


(60.0)

(45.0)

(30.0)

(15.0)

-

Aug-06

Feb-07

Aug-07

Feb-08

Aug-08

Feb-09

Aug-09

Feb-10

Aug-10

Feb-11

Aug-11

(%)

0

500

1,000

1,500

2,000

2,500

Apr-06

Jan-07

Oct-07

Jul-08

Apr-09

Jan-10

Nov-10

Aug-11

Price (`) 0.8x 1.5x

2.2x 2.9x 3.6x


9/28



Strong CAR and branch expansion to support faster market share gains

Axis Bank has expanded its branch network at a robust 33.4% CAGR during

FY2004-11, well above HDFC Bank's 26.2% CAGR (after adjusting for CBoP

acquisition) and ICICI Bank's 23.8% CAGR (after adjusting for Sangli Bank andBank of Rajasthan acquisition). Axis Bank has also increased its ATM network by

almost eight-fold over the past eight years to 6,270 ATMs. This has resulted into

multi-fold increase in the bank's CASA market share to 4.2% as of FY11, with

growth in FY11 on a daily avg. basis also at ~35%. Moreover, in FY11 alone, Axis

Bank opened 407 branches (41.4% yoy growth). Accordingly going forward, we

believe Axis Bank will resume gaining CASA market share (30-50bp every year),

especially as further network expansion (250+ additions p.a.) remains strong.

Exhibit 12:Strong CASA market share gains in FY2002-11 (Axis Bank)


Fee income continues to drive higher profitability for Axis Bank

Fee income contribution for Axis Bank across a spectrum of services has been a

meaningful 2.0% of assets (almost twice the level in PSBs) over FY2009-11. In

FY2011 as well, Axis Bank witnessed healthy growth in most segments, including

corporate (68%), treasury (78%) and retail (45%), and the momentum is expected

to continue going forward. (We have built in a 30.6% CAGR over FY2011-13),

taking the contribution to 2.1% of assets by FY2013.

Exhibit 13:Other income growth at 46% CAGR in FY07-11 (Axis Bank)


0.0

1.0

2.0

3.0

4.0

5.0

0

300

600

900

1,200

1,500

FY2002

FY2003

FY2004

FY2005

FY2006

FY2007

FY2008

FY2009

FY2010

FY2011

AXSB branches AXSB CASA Market Share (% , RHS)

-

0.5

1.0

1.5

2.0

2.5

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

F

Y2005

F

Y2006

F

Y2007

F

Y2008

F

Y2009

F

Y2010

F

Y2011

FY

2012E

FY

2013E

Core Non-Inte rest Income (LHS ) As % of As se ts (RHS)(`cr) (%)


10/28



Profit & loss statement Axis Bank

Y/E March (` cr) FY2010 FY2011 FY2012E FY2013ENet Interest Income 5,004 6,563 7,582 9,528- YoY Growth (%) 35.8 31.1 15.5 25.7

Other Income 3,946 4,632 5,368 6,658- YoY Growth (%) 39.2 17.4 15.9 24.0

Operating Income 8,950 11,195 12,951 16,186- YoY Growth (%) 37.3 25.1 15.7 25.0

Operating Expenses 3,710 4,779 5,824 7,326- YoY Growth (%) 29.8 28.8 21.9 25.8

Pre - Provision Profit 5,241 6,416 7,127 8,859- YoY Growth (%) 43.1 22.4 11.1 24.3

Provision and Cont. 1,389 1,280 1,040 1,280- YoY Growth (%) 58.5 (7.9) (18.7) 23.0

Profit Before Tax 3,851 5,136 6,087 7,580- YoY Growth (%) 38.3 33.3 18.5 24.5

Provision for Taxation 1,337 1,747 1,975 2,459- as a % of PBT 34.7 34.0 32.4 32.4

PAT 2,515 3,388 4,112 5,120- YoY Growth (%) 38.5 34.8 21.3 24.5

Balance sheet Axis Bank

Y/E March (` cr) FY2010 FY2011 FY2012E FY2013EShare Capital 405 411 424 424

Reserve & Surplus 15,639 18,588 22,025 25,961

Deposits 141,300 189,238 234,655 290,972

- Growth (%) 20.4 33.9 24.0 24.0

Borrowings 10,014 19,275 23,824 29,448

Tier-2 Capital 7,156 6,993 8,602 10,666

Other Liabilities & Provisions 6,134 8,209 10,473 13,346

Total Liabilities 180,648 242,713 300,003 370,818Cash in Hand and with RBI 9,482 13,886 15,253 18,913

Bal. with banks, money at call 5,722 7,522 9,000 11,125

Investments 55,975 71,992 92,137 113,235

Advances 104,341 142,408 175,162 217,200

- Growth (%) 27.9 36.5 23.0 24.0

Fixed Assets 1,222 2,273 2,725 3,268

Other Assets 3,906 4,632 5,725 7,077

Total Assets 180,648 242,713 300,003 370,818

Key ratios Axis Bank

Y/E March FY2010 FY2011 FY2012E FY2013EProfitability ratios (%)NIMs 3.1 3.2 2.9 2.9

Cost to Income ratio 41.4 42.7 45.0 45.3

ROA 1.5 1.6 1.5 1.5

ROE 19.2 19.3 19.8 21.0

B/S ratios (%)CASA ratio 46.7 41.1 40.6 40.2

Credit/Deposit ratio 73.8 75.3 74.6 74.6

CAR 14.7 11.8 11.5 11.2

- Tier-I 10.4 8.8 8.4 8.0

Asset Quality (%)Gross NPAs 1.3 1.1 1.0 0.8

Net NPAs 0.4 0.3 0.2 0.2

Slippages 2.2 1.4 1.0 1.1

Loan loss prov. /avg. assets 0.8 0.5 0.2 0.3

Provision coverage 68.2 74.3 77.8 77.5

Per Share Data (`)EPS 62.1 82.5 96.9 120.7

ABVPS (75% cover for NPAs) 393.8 462.5 529.0 621.8

DPS 12.0 14.0 19.5 24.0

Key ratios Axis Bank

Y/E March FY2010 FY2011 FY2012E FY2013EValuation RatiosPER (x) 16.9 12.7 10.9 8.7

P/ABVPS (x) 2.7 2.3 2.0 1.7

Dividend Yield 1.1 1.3 1.9 2.3

DuPont AnalysisNII 3.0 3.1 2.8 2.8

(-) Prov. Exp. 0.8 0.6 0.4 0.4

Adj NII 2.2 2.5 2.4 2.

Treasury 0.4 0.2 0.1 0.1

Int. Sens. Inc. 2.7 2.7 2.5 2.5

Other Inc. 2.0 2.0 1.9 1.9

Op. Inc. 4.6 4.7 4.4 4.4

Opex 2.3 2.3 2.1 2.2

PBT 2.3 2.4 2.2 2.3

Taxes 0.8 0.8 0.7 0.7

ROA 1.5 1.6 1.5 1.5Leverage 12.5 12.1 13.1 13.7

ROE 19.2 19.3 19.8 21.0


11/28



Profit & loss statement HDFC Bank


Other Income 3,983 4,335 5,355 6,795- YoY Growth (%) 14.8 8.8 23.5 26.9



Pre - Provision Profit 6,430 7,725 9,197 11,527- YoY Growth (%) 23.5 20.2 19.1 25.3

Provision and Cont. 2,141 1,907 1,575 1,620- YoY Growth (%) 12.2 (10.9) (17.4) 2.9Profit Before Tax 4,289 5,819 7,623 9,908- YoY Growth (%) 30.0 35.7 31.0 30.0

Provision for Taxation 1,340 1,892 2,479 3,222- as a % of PBT 31.3 32.5 32.5 32.5

PAT 2,949 3,926 5,144 6,686- YoY Growth (%) 31.3 33.2 31.0 30.0

Balance sheet HDFC Bank

Y/E March (` cr) FY2010 FY2011 FY2012E FY2013EShare Capital 458 465 465 465

Reserve & Surplus 21,065 24,914 28,868 34,040

Deposits 167,404 208,586 262,819 333,780

- Growth (%) 17.2 24.6 26.0 27.0

Borrowings 7,012 7,447 10,346 13,012

Tier-2 Capital 5,904 6,947 8,059 9,429



Bal. with banks, money at call 14,459 4,568 8,622 10,843

Investments 58,608 70,929 94,193 115,819

Advances 125,831 159,983 201,578 256,004

- Growth (%) 27.3 27.1 26.0 27.0

Fixed Assets 2,123 2,171 2,618 3,194

Other Assets 5,955 14,601 18,156 22,833

Total Assets 222,459 277,353 344,879 433,727

Key ratios HDFC Bank



ROA 1.5 1.6 1.7 1.7

ROE 16.1 16.7 18.8 20.9



CAR 15.7 14.6 13.0 12.3

- Tier-I 12.0 11.0 9.9 9.3


Net NPAs 0.3 0.2 0.2 0.2

Slippages 2.6 1.1 1.2 1.2





DPS 2.4 3.3 4.4 5.6

Key ratios HDFC Bank


P/ABVPS (x) 5.0 4.3 3.7 3.1



(-) Prov. Exp. 1.1 0.8 0.5 0.4

Adj NII 3.1 3.5 3.5 3.

Treasury 0.2 (0.0) (0.0) 0.0

Int. Sens. Inc. 3.3 3.4 3.5 3.6

Other Inc. 1.8 1.8 1.7 1.7

Op. Inc. 5.0 5.2 5.3 5.3

Opex 2.9 2.9 2.8 2.8

PBT 2.1 2.3 2.5 2.5

Taxes 0.7 0.8 0.8 0.8

ROA 1.5 1.6 1.7 1.7Leverage 11.1 10.7 11.4 12.2

ROE 16.1 16.7 18.8 20.9


12/28



Switch strategy UCO Bank to United Bank of India

Stronger CASA franchise

United Bank of India (UTDBK) has a favourable deposit franchise, reflected in itsstrong CASA ratio of 40.2% (as of 1QFY2012). The banks majority branches are

located in rural and semi-urban areas (~60% of total branches) and concentrated

in the eastern and northeastern states (~80% of total branches), leading to

relatively higher sustainability of low-cost deposits compared to other PSU banks.

UTDBKs traction in CASA deposits has aided the bank in maintaining its CASA

market share of 1.7% over FY2008-11. Conversely, UCO Bank, also a major

player in the east, scores low on the CASA front with a weak CASA ratio of 24.2%

(as of 1QFY2012).

Lower bulk deposits and higher CASA ratio leading to superior

NIMs for UTDBK

Reported NIMs for UTDBK were on the lower end (2.48% in 4QFY2010), however

measures taken by the management in the form of shedding high-cost bulk

deposits (22.0% in 1QFY2012 as against 27.0% a year ago), strong improvement

in CASA ratio by 210bp from 38.1% in 4QFY2010 to 40.2% in 1QFY2012,

shedding of low-yielding loans (~`1,700cr during FY2011) and a substantial

increase in CD ratio (a 664bp increase in FY2011) resulted in a sharp increase in

reported NIM by 54bp from 2.48% in 4QFY2010 to 3.02% in 1QFY2012. UCO

Bank has also been active in shedding bulk deposits (`18,000cr in 1QFY2012),

however total bulk and CDs still comprise ~44.8% of overall deposits, thereby

making it relatively more prone to contraction in NIMs during high interest ratecycles. Consequently, for UCO Bank, we expect a 70bp decline in NIM over

FY2011-13 as compared to a relatively marginal 24bp decline in NIM for UTDBK

over the same period.

Exhibit 14:Strong CASA ratio (UTDBK)


Exhibit 15:Marginal fall in NIMs expected (UTDBK)


39.3

39.7

40.2

40.8

40.2

23.0

23.9

23.1

21.8

24.2

10.0

18.0

26.0

34.0

42.0

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12

UTDBK UCOBK (%)

2.1 2.1

2.72.5 2.4

1.7

1.9

2.6

2.0 1.9

1.0

1.5

2.0

2.5

3.0

FY09 FY10 FY11 FY12E FY13E

UTDBK UCOBK


13/28



Fee income set to improve for UTDBK

Historically, UTDBKs fee income has been the lowest amongst its peers primarily

on account of relatively lower fee structure, which was not aligned with prevailing

market rates. However, in 1QFY2012, the bank revised its fee structure, which isexpected to drive momentum in fee income growth going forward.

Switch over to system-based NPA recognition mostly complete

As of 1QFY2012, UTDBK has switched over accounts above `5lakhs (higher than

most PSU banks) to system-based NPA recognition compared to `50lakh for UCO

Bank. With the mandated time line for the transition being 2QFY2012, UCO Bank

could surprise negatively on the slippages front in the next quarter.

Outlook and valuation

UTDBK is trading at 0.6x FY2013E P/ABV, one of the lowest in the industry.Considering similar trending RoAs (0.6% over FY2011-13) for both UTDBK and

UCO Bank, superior CASA deposit franchise for UTDBK and higher relative

contraction in NIMs expected for UCO Bank over FY2011-13, we recommend a

switch from UCO Bank (0.8x FY2013 P/ABV) to UTDBK. We value UTDBK at 0.8x

FY2013E P/ABV, implying an upside of 30.0%; hence, we recommend a Buy ratingon the stock with a target price of `97.Exhibit 16:P/ABV band (UTDBK)


0

20

40

60

80

100

120

140

160

Mar-10

Jul-10

Nov-10

Mar-11

Jul-11

Nov-11

Mar-12

Price (`) 0.6x 0.75x 0.9x 1.05x 1.2x


14/28



Profit & loss statement United Bank of India

Y/E March (` cr) FY2010 FY2011 FY2012E FY2013ENet Interest Income 1,391 2,169 2,329 2,583- YoY Growth (%) 19.8 55.9 7.4 10.9Other Income 559 637 582 663- YoY Growth (%) 13.8 14.0 (8.7) 14.0



Pre - Provision Profit 876 1,507 1,457 1,574- YoY Growth (%) 44.2 72.1 (3.3) 8.1

Provision and Cont. 465 838 636 590- YoY Growth (%) 8.0 80.1 (24.1) (7.1)

Profit Before Tax 411 669 821 984- YoY Growth (%) 132.6 63.0 22.7 19.8

Provision for Taxation 88 145 246 319- as a % of PBT 21.5 21.7 30.0 32.4

PAT 322 524 575 665- YoY Growth (%) 181.0 62.5 9.7 15.6

Preference Dividend 17 67 79 79

PAT available to Eq. SH 305 457 496 586- YoY Growth (%) 166.1 49.7 8.5 18.1

Balance sheet United Bank of India

Y/E March (` cr) FY2010 FY2011 FY2012E FY2013EShare Capital 866 1,144 1,144 1,144

Reserve & Surplus 3,037 3,877 4,253 4,698

Deposits 68,180 77,845 88,743 101,167

- Growth (%) 25.0 14.2 14.0 14.0

Borrowings 915 2,887 3,281 3,730

Tier-2 Capital 1,525 1,525 1,784 2,123



Bal.with banks, money at call 1,671 1,385 2,047 2,327

Investments 26,068 26,259 28,610 29,199

Advances 42,330 53,502 62,598 74,491

- Growth (%) 19.6 26.4 17.0 19.0

Fixed Assets 651 819 903 996

Other Assets 1,578 2,133 2,424 2,756

Total Assets 77,005 90,041 102,350 116,344

Key ratios United Bank of IndiaY/E March FY2010 FY2011 FY2012E FY2013EProfitability ratios (%)NIMs 2.1 2.7 2.5 2.4


ROA 0.5 0.6 0.6 0.6

ROE 11.6 14.1 13.2 14.1



CAR 12.0 12.2 11.8 11.6

- Tier-I 7.7 8.3 7.9 7.6


Net NPAs 1.8 1.4 1.5 1.6

Slippages 2.7 2.3 2.2 2.2





DPS 2.0 2.2 3.0 3.5

Key ratios United Bank of IndiaY/E March FY2010 FY2011 FY2012E FY2013EValuation RatiosPER (x) 7.8 5.6 5.2 4.4

P/ABVPS (x) 0.9 0.7 0.7 0.6



(-) Prov. Exp. 0.7 1.0 0.7 0.5

Adj NII 1.3 1.6 1.8 1.

Treasury 0.3 0.2 0.1 0.1

Int. Sens. Inc. 1.6 1.8 1.8 1.9

Other Inc. 0.5 0.5 0.5 0.5

Op. Inc. 2.1 2.4 2.4 2.4

Opex 1.5 1.6 1.5 1.5

PBT 0.6 0.8 0.9 0.9

Taxes 0.1 0.2 0.3 0.3

ROA 0.5 0.6 0.6 0.6

Preference Dividend 0.0 0.1 0.1 0.1

ROA after Pref Div 0.4 0.5 0.5 0.5Leverage 26.4 25.8 25.6 26.3

ROE 11.6 14.1 13.2 14.1


15/28



Profit & loss statement UCO Bank

Y/E March (` cr) FY2010 FY2011 FY2012E FY2013ENet Interest Income 2,324 3,845 3,225 3,593- YoY Growth (%) 41.3 65.4 (16.1) 11.4

Other Income 966 925 1,062 1,253- YoY Growth (%) (5.3) (4.2) 14.8 17.9

Operating Income 3,290 4,770 4,287 4,845- YoY Growth (%) 23.5 45.0 (10.1) 13.0

Operating Expenses 1,718 2,075 2,061 2,383- YoY Growth (%) 6.5 20.8 (0.7) 15.6

Pre - Provision Profit 1,572 2,695 2,226 2,462- YoY Growth (%) 49.4 71.5 (17.4) 10.6

Provision and Cont. 600 1,781 1,103 804- YoY Growth (%) 23.1 196.8 (38.1) (27.1)Profit Before Tax 972 914 1,123 1,659- YoY Growth (%) 72.3 (5.9) 22.9 47.6

Provision for Taxation (41) 8 112 415- as a % of PBT (4.2) 0.8 10.0 25.0

PAT 1,012 907 1,011 1,244- YoY Growth (%) 81.5 (10.4) 11.5 23.0

Balance sheet UCO Bank

Y/E March (` cr) FY2010 FY2011 FY2012E FY2013EShare Capital 1,699 2,451 2,451 2,451

Reserve & Surplus 3,511 4,969 5,654 6,499

Deposits 122,416 145,278 156,900 185,142

- Growth (%) 22.1 18.7 8.0 18.0

Borrowings 1,889 1,100 1,188 1,402

Tier-2 Capital 4,375 4,375 5,163 6,092



Bal. with banks, money at call 862 6,576 4,412 5,206

Investments 43,521 42,927 40,207 47,472

Advances 82,505 99,071 116,904 137,946

- Growth (%) 19.9 20.1 18.0 18.0

Fixed Assets 710 739 774 886

Other Assets 2,479 3,681 3,976 4,691

Total Assets 137,319 163,398 176,470 208,235

Key ratios UCO Bank



ROA 0.8 0.6 0.6 0.6

ROE 31.6 20.7 15.1 17.0



CAR 13.2 13.8 14.8 13.3

- Tier-I 7.1 8.6 9.0 7.9


Net NPAs 1.2 1.8 1.9 2.1

Slippages 1.6 3.3 2.0 2.0





DPS 2.3 3.0 2.0 3.0

Key ratios UCO Bank


P/ABVPS (x) 1.2 1.0 0.9 0.8



(-) Prov. Exp. 0.5 1.2 0.6 0.4

Adj NII 1.4 1.4 1.2 1.

Treasury 0.2 0.1 0.1 0.1

Int. Sens. Inc. 1.6 1.4 1.3 1.5

Other Inc. 0.6 0.6 0.6 0.6

Op. Inc. 2.2 2.0 1.9 2.1

Opex 1.4 1.4 1.2 1.2

PBT 0.8 0.6 0.7 0.9

Taxes (0.0) 0.0 0.1 0.2

ROA 0.8 0.6 0.6 0.6Leverage 38.9 34.3 31.0 30.8

ROE 31.6 20.7 15.1 17.0


16/28



Bank of Maharashtra - Buy

Sound fundamentals at attractive valuation Reiterate Buy

Healthy CASA share ensures low-cost funding

Bank of Maharashtra has enjoyed a healthy CASA ratio in excess of 35% over the

past several years on the back of strong rural and semi-urban presence

(accounting for ~55% of the entire branch network as of 1QFY2012). Branch

expansion plans have been progressing steadily, with the addition of 69 branches

in FY2011 and a target of adding similar number of branches in FY2012. Steady

branch expansion and a moderate balance sheet growth strategy are expected to

aid the bank in maintaining its CASA share at ~40% levels over FY201213. Also,

management has been focusing on reduction of dependence on bulk deposits, as

evident from the share of bulk deposits reducing from 26.2% in 4QFY2011 to

23.5% as of 1QFY2012. The benefit of sustainable and healthy CASA ratio and arelatively lower dependence on bulk deposits is reflected in the banks relatively

lower cost of deposits than peers.

Exhibit 17:Healthy CASA franchise to largely sustain NIMs


Exhibit 18:Lower cost of deposits (CoD) than peers


Better placed than peers on the asset-quality front

The bank had in FY2011 itself implemented system-based NPA recognition system

and is relatively better placed in terms of asset-quality pressures than peers on this

count. The banks exposure to the power sector is also on the lower side at ~4.4%

of gross advances as of 1QFY2012. Even overall infrastructure exposure is low at

5.4% of gross advances. The banks restructuring of advances has also been much

lower than peers at just 0.9% of gross advances (as of FY2011), of which 5.3%

had slipped into NPAs by FY2011. Provision coverage ratio (including technical

write-offs) has been enhanced to comfortable 70%+ levels as of 1QFY2012 from

54.7% in 1QFY2011.

In spite of the above-stated positives and taking into account macro headwinds,

we have conservatively built in NPA provisions to average assets of 0.7% for

FY2012 and 0.5% for FY2013 as compared to the average of 0.4% over

FY200711. Even in terms of slippages, we have assumed similar kind of levels aswitnessed in FY2011.

35.7 36.9 40.4 39.7 39.0

2.5

2.1

2.82.9

2.7

1.6

2.0

2.4

2.8

3.2

25.0

29.0

33.0

37.0

41.0

FY09 FY10 FY11 FY12E FY13E

CASA ratio NIMs

5.4

5.1

6.0

5.4

6.4

5.7

6.7

5.8

7.3

5.9

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

CoD - 1QFY12 CoD - FY11

J&KBK BOM DenaBk United Bk VIJBK (%)


17/28



Exhibit 19:Improving asset quality

Source: Company, Angel Research; Note: Gross NPA %

Exhibit 20:Lower slippages than peers

Source: Company, Angel Research; Note: Slippages % for FY2011

Cheap valuations provide margin of safetyWe expect the bank to deliver healthy 30.5% earnings CAGR over FY201113E on

the back of largely stable NIM, pick-up in fee income and relatively better asset

quality than peers. While absolute returns could be back-ended, in-line with

eventual improvement in the macro environment, even in the short term we expect

the bank to relatively outperform other mid-cap banking stocks. At the CMP, the

stock is trading at attractive valuations, in our view, of 0.7x FY2013E ABV vs. its

five-year range of 0.61.2x and median of 1.0x. Hence, we recommend Buy onthe stock with a target price of `61, implying an upside of 22.9% from currentlevels.

Exhibit 21:P/ABV band


3.5

2.4

1.5

2.0

2.5

3.0

3.5

4.0

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12

J&KBK BOM DenaBk United Bk VIJBK (%)

1.2

1.7

2.12.3

3.3

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

J&KBK BOM DenaBk United Bk VIJBK

(%)

0

20

40

60

80

100

120

Apr-04

Aug-0

5

Nov-06

Mar-08

Jul-09

Nov-10

Mar-12

Price(`) 0.4x 0.7x 1x 1.3x 1.6x


18/28



Profit & loss statement


Other Income 591 531 599 681- YoY Growth (%) 18.2 (10.2) 12.8 13.7


Operating Expenses 1,073 1,644 1,519 1,702- YoY Growth (%) 11.4 53.2 (7.6) 12.0

Pre - Provision Profit 815 855 1,338 1,337- YoY Growth (%) 2.6 5.0 56.5 (0.1)

Provision and Contingencies 246 467 599 505- YoY Growth (%) (13.0) 90.1 28.3 (15.7)

Profit Before Tax 569 388 739 832- YoY Growth (%) 11.3 (31.8) 90.5 12.6Provision for Taxation 129 57 240 270- as a % of PBT 22.7 14.8 32.4 32.4

PAT 440 330 499 562- YoY Growth (%) 17.2 (24.8) 51.1 12.6

Preference Dividend - 34 55 55

PAT available to Eq. SH 440 297 445 508- YoY Growth (%) 17.2 (32.5) 49.8 14.2

Balance sheet

Y/E March (` cr) FY2010 FY2011 FY2012E FY2013EShare Capital 431 1,070 1,070 1,070

Reserve & Surplus 2,428 2,901 3,234 3,629

Deposits 63,304 66,845 75,535 85,354

- Growth (%) 21.1 5.6 13.0 13.0

Borrowings 129 577 652 736

Tier-2 Capital 2,668 2,500 2,900 3,393



Bal.with banks, money at call 1,379 203 230 260

Investments 21,324 22,491 23,467 24,368

Advances 40,315 46,881 54,382 63,627

- Growth (%) 17.6 16.3 16.0 17.0

Fixed Assets 660 667 731 801

Other Assets 2,063 2,354 2,660 3,006

Total Assets 71,056 76,442 86,380 97,609

Key ratios



ROA 0.7 0.4 0.5 0.6

ROE 19.7 11.3 14.6 14.8



CAR 10.5 12.3 12.4 12.7

- Tier-I 5.3 7.4 7.2 7.1


Net NPAs 1.6 1.3 1.0 0.9

Slippages 2.5 1.7 1.8 1.8





DPS 2.0 2.0 2.0 2.0

Key ratios


P/ABVPS (x) 1.0 0.9 0.7 0.7



(-) Prov. Exp. 0.4 0.6 0.7 0.5

Adj NII 1.6 2.0 2.0 2.

Treasury 0.3 0.1 0.0 0.0

Int. Sens. Inc. 1.9 2.1 2.1 2.1

Other Inc. 0.6 0.6 0.7 0.7

Op. Inc. 2.5 2.8 2.8 2.8

Opex 1.6 2.2 1.9 1.8

PBT 0.9 0.5 0.9 0.9

Taxes 0.2 0.1 0.3 0.3

ROA 0.7 0.4 0.6 0.6

Preference Dividend - 0.0 0.1 0.1

ROA after Pref Div 0.7 0.4 0.6 0.6Leverage 29.1 27.6 26.2 26.5

ROE 19.7 11.3 14.6 14.8


19/28



Banking indicators watchExhibit 22:Credit and deposit growth trends


Exhibit 23:Investment-Deposit ratio


Exhibit 24:LAF borrowings coming off


Exhibit 25:Wholesale rates remain steady


Exhibit 26:Forex reserves


Exhibit 27:ECB demand picks up on rate differential


-

7.0

14.0

21.0

28.0

35.0

Sep-0

8

Dec-0

8

Mar-09

Jun-0

9

Sep-0

9

Dec-0

9

Mar-10

Jun-1

0

Sep-1

0

Dec-1

0

Mar-11

Jun-1

1

Credit growth Deposit growth(%)

27.0

28.0

29.0

30.0

31.0

32.0

68.0

70.0

72.0

74.0

76.0

78.0

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

Aug-11

Credit-to-Deposit ratio (%) Inv-to-Dep ratio (% , RHS)

(2,000)

(1,500)

(1,000)

(500)

-

500

1,000

Oct-10

Nov-10

Dec-10

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

Aug-11

Sep-11

(` bn)

6.0

7.0

8.0

9.0

10.0

11.0

12.0

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

Aug-11

Sep-11

CP 3M CP 12M

-

80

160

240

320

400

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

Aug-11

(US$ Bn)

1.1

3.1

0.81.1

3.4

2.7

1.4

5.6

2.1 2.7

3.3

4.2

-

1.0

2.0

3.0

4.0

5.0

6.0

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

(US$ bn)


20/28



Exhibit 28:Corporate and government bond yields


Exhibit 29:G-Sec yields indicating close to cyclical peak


Lending and deposit rates

Exhibit 30:Lending (average base rate) watchBank Current (%) 3m ch. (bp) 6m ch. (bp) 1yr ch. (bp) AXSB 10.0050 125 250

BOB 10.75 75 125 275

BOI 10.75 75 125 275

CANBK 10.75 75 125 275

HDFCBK 10.00 75 151 275

ICICIBK 10.00 75 125 250

IDBI 10.75 75 125 275PNB 10.75 75 125 275

SBI 10.00 75 175 250

UNBK 10.75 75 125 275


Exhibit 31:Peak retail FD rate in 1-3 year maturityBank Current (%) 3m ch. (bp) 6m ch. (bp) 1yr ch. (bp) AXSB 9.25- - 190

BOB 9.00 - (35) 200

BOI 9.25 - - 175

CANBK 9.25 - 15 175

HDFCBK 9.25 - - 175

ICICIBK 9.25 - - 175

IDBI 9.50 - 25 200PNB 9.40 25 25 240

SBI 9.25 - - 200

UNBK 9.25 - 50 225


Sectoral distribution of credit

Exhibit 32:Credit growth driven by industry and services sectorSector July 2010 July 2011(` cr) % of total (` cr) % of total % chg (yoy) Agriculture 396,394 12.6 443,004 11.9 11.8

Industry 1,385,889 44.2 1,679,781 45.1 21.2

- Micro & Small 210,621 6.7 238,521 6.4 13.2

- Medium 147,527 4.7 189,008 5.1 28.1

- Large 1,027,741 32.8 1,252,253 33.6 21.8

Services 747,691 23.8 906,601 24.3 21.3

Personal Loans 605,516 19.3 698,772 18.7 15.4

- Housing 313,455 10.0 361,602 9.7 15.4

- Vehicle 68,343 2.2 83,511 2.2 22.2

Non-food Credit 3,135,490 100.0 3,728,158 100.0 18.9Source: RBI, Angel Research

9.37

9.39

9.40

9.38

8.32

8.32

9.55

9.35

9.23

9.15

7.55

7.99

7.0

7.5

8.0

8.5

9.0

9.5

10.0

AAA 1 Yr AAA 3 Yr AAA 5 Yr AAA 10 Yr Gsec 1Yr Gsec 10Yr

31-Aug-11 31-Mar-11

4.5

5.5

6.5

7.5

8.5

9.5

(1.0)

-

1.0

2.0

3.0

4.0

Jun-05

Dec-05

Jun-06

Dec-06

Jun-07

Dec-07

Jun-08

Dec-08

Jun-09

Dec-09

Jun-10

Dec-10

Jun-11

G-Sec 1Yr and 10Yr Spread (%) Repo Rate (%, RHS)


21/28



Industry-wise distribution of credit

Exhibit 33:Growth driven by the infrastructure segmentIndustry

July 2010 July 2011(` cr) % of total (` cr) % of total % chg (yoy)

Infrastructure 445,612 32.2 549,811 32.7 23.4

Metals 172,477 12.4 223,913 13.3 29.8

Textiles 122,645 8.8 144,832 8.6 18.1

Engineering 78,523 5.7 97,427 5.8 24.1

Chemicals 83,339 6.0 93,008 5.5 11.6

Food Processing 69,122 5.0 87,323 5.2 26.3

Oil and Gas 62,308 4.5 53,124 3.2 (14.7)

Construction 46,599 3.4 48,690 2.9 4.5

Vehicles 37,226 2.7 48,456 2.930.2

Gems & Jewellery 33,081 2.4 42,891 2.6 29.7

Other Industries 234,955 17.0 290,306 17.3 23.6

Total 1,385,887 100.0 1,679,781 100.0 21.2Source: RBI, Angel Research

Asset quality watch

Exhibit 34:Status of migration to system-based NPA recognitionBank Status as of 1QFY2012Bank of Baroda Fully done

Bank of Maharashtra Fully doneCorporation Bank Fully done

IDBI Bank Fully done

Indian Bank Fully done

J & K Bank Fully done

State Bank of India Fully done

Vijaya Bank

Canara Bank Above `2lakhs

Bank of India Above `5lakhs

Union Bank Above `5lakhs

United Bank Above `5lakhsOriental Bank Above `10lakhs

Punjab Natl. Bank Above `10lakhs

Andhra Bank `25lakhs

Syndicate Bank Above `25lakhs

Allahabad Bank `50lakhs

Dena Bank Above `50lakhs

I O B Above `50lakhs

UCO Bank Above `50lakhs

Central Bank Nothing till now


Slippages of public sector banks have

surged recently due to implementation

of system-based NPA recognition

platform. Our preferred picks have

already completed the switchover or

are close to completion.


22/28



Exhibit 35:Banks with higher exposure to the infra sector


Exhibit 36:Banks with higher exposure to the power sector


Exhibit 37:Banks with higher exposure to the textile sector


Exhibit 38:Banks with higher exposure to comm. real estate


27.6

27.2

27.1

23.6

22.7

22.6

21.8

21.5

20.3

18.8

-

5.0

10.0

15.0

20.0

25.0

30.0

DENA

IDBI

UCO

PSB

CANBK

BOM

CRPBK

SNDBK

UTDBK

OBC

21.5

20.2

14.8

13.3

12.4

11.5

11.1

10.9

10.6

10.3

0.0

5.0

10.0

15.0

20.0

25.0

ANDBK

DENA

BOM

CANBK

UCO

UTDBK

IDBI

OBC

CRPBK

VIJBK

11.0

7.2

7.2

6.6

5.2

5.2

4.9

4.9

4.9

4.9

-

2.0

4.0

6.0

8.0

10.0

12.0

CUB

SBM

KNTKBK

KVB

SBI

IDBI

CA

NBK

SBT

AN

DBK

LVB

20.1

13.8

9.4

5.44.2 3.3 2.8 2.6 2.6 2.6

-

5.0

10.0

15.0

20.0

25.0

D

CB

ANDBK

C

UB

K

MB

IDBI

U

CO

IND

US

A

XSB

ING

YE

SBK


23/28



Valuation watch

Exhibit 39:Private banks P/ABV trends*

Source: Company, Angel Research; Note: Private banks under our coverage

Exhibit 40:Public sector banks P/ABV trends


Exhibit 41:Large private banks P/ABV trends


Exhibit 42:Large public sector banks P/ABV trends


Exhibit 43:Small private banks P/ABV trends*

Source: Company, Angel Research; Note: Small pvt. banks under our coverage

Exhibit 44:Mid-cap public sector banks P/ABV trends


0.60

1.10

1.60

2.10

2.60

3.10

3.60

Mar-05

Aug-05

Jan-06

Jun-06

Nov-06

Apr-07

Sep-07

Feb-08

Jul-08

Dec-08

May-09

Oct-09

Mar-10

Aug-10

Jan-11

Jun-11

P/ABV Median 15th percentile 85th percentile

0.60

0.90

1.20

1.50

1.80

Mar-05

Aug-05

Jan-06

Jun-06

Nov-06

Apr-07

Sep-07

Feb-08

Jul-08

Dec-08

May-09

Oct-09

Mar-10

Aug-10

Jan-11

Jun-11


0.60

1.10

1.60

2.10

2.60

3.10

3.60

Mar-05

Aug-05

Jan-06

Jun-06

Nov-06

Apr-07

Sep-07

Feb-08

Jul-08

Dec-08

May-09

Oct-09

Mar-10

Aug-10

Jan-11

Jun-11


0.70

1.00

1.30

1.60

1.90

2.20

Mar-05

Aug-05

Jan-06

Jun-06

Nov-06

Apr-07

Sep-07

Feb-08

Jul-08

Dec-08

May-09

Oct-09

Mar-10

Aug-10

Jan-11

Jun-11


0.30

0.60

0.90

1.20

1.50

1.80

2.10

Mar-05

Aug-05

Jan-06

Jun-06

Nov-06

Apr-07

Sep-07

Feb-08

Jul-08

Dec-08

May-09

Oct-09

Mar-10

Aug-10

Jan-11

Jun-11


0.30

0.60

0.90

1.20

1.50

Mar-05

Aug-05

Jan-06

Jun-06

Nov-06

Apr-07

Sep-07

Feb-08

Jul-08

Dec-08

May-09

Oct-09

Mar-10

Aug-10

Jan-11

Jun-11



24/28



Economy watch

Exhibit 45:Quarterly GDP trends

Source: CSO, Angel Research

Exhibit 46:IIP trends

Source: MOSPI, Angel Research

Exhibit 47:Monthly WPI inflation trends

Source: MOSPI, Angel Research

Exhibit 48:Manufacturing and services PMI

Source: Markit, Angel Research

Exhibit 49:Exports and imports growth trends


Exhibit 50:Automobile sales trend


7.5

6.15.8

6.3

8.6

7.3

9.4

8.8 8.9

8.37.8 7.7

5.0

6.0

7.0

8.0

9.0

10.0

2QFY09

3QFY09

4QFY09

1QFY10

2QFY10

3QFY10

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

(%)

4.5

6.2

11.4

6.4

8.17.5

6.7

9.4

5.35.9

8.8

3.3

-

2.0

4.0

6.0

8.0

10.0

12.0

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

(%)

9.0 9.1

8.2

9.5 9.5 9.59.7 9.7

9.6 9.5

9.2

9.8

7.0

7.5

8.0

8.5

9.0

9.5

10.0

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

Aug-11

(%)

50.0

52.5

55.0

57.5

60.0

62.5

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

Aug-11

Mfg. PMI Services PMI

-60

-40

-20

0

2040

60

80

100

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Export Growth yoy (%) Import growth yoy (%)

(60.0)

(40.0)

(20.0)

-

20.0

40.0

60.0

80.0

100.0

120.0

May-99

Jan-00

Sep-00

May-01

Jan-02

Sep-02

May-03

Jan-04

Sep-04

May-05

Jan-06

Sep-06

May-07

Jan-08

Sep-08

May-09

Jan-10

Sep-10

May-11

Domestic PV yoy (%)


25/28



Stock performance tracker

Banking stocks (Bank Nifty down by 7.0%) remained under pressure during August

2011 along with the broader markets (Nifty falling by 1.2%). While July IIP

numbers were below street estimates, the possibility of further rate hikes continued

to grip the market. Also, overall slower economic growth trends raised fears of a

surge in NPAs for banks, which led to pressure on performance on the bourses. Exhibit 51:Stock performance tracker

CMP Price change (%)1 mth 3 mths 6 mths 1 yrS&P CNX Nifty 5,013 (1.2) (8.9) (9.4) (13.5)

Bank Nifty 9,472 (7.0) (12.3) (13.0) (20.6)

Monthly Top 3 GainersSt Bk of Mysore 598 3.4 (4.4) (6.2) (41.1)Kotak Mah. Bank 479 2.3 0.5 8.1 2.6

Dena Bank 260 1.8 (1.0) 5.9 8.8

Monthly Top 3 LosersUnion Bank (I) 101 (18.9) (30.2) (29.5) (27.8)

ING Vysya Bank 1,827 (16.9) (18.1) (29.8) (41.3)

Punjab Natl. Bank 228 (16.1) (29.3) (32.3) (38.5)

Source: Bloomberg, Angel Research; Note: CMP as of 14th Sep

Exhibit 52:Underperformance of banking stocks continues


85

90

95

100

105

12-Aug

14-Aug

16-Aug

18-Aug

20-Aug

22-Aug

24-Aug

26-Aug

28-Aug

30-Aug

1-Sep

3-Sep

5-Sep

7-Sep

9-Sep

11-Sep

13-Sep

Nifty Bank Nifty


26/28



Exhibit 53:Recommendation summaryCompany Reco. CMP(`) Tgt. price(`) Upside(%) FY2013EP/ABV (x) FY2013ETgt P/ABV (x) FY2013EP/E (x) FY2011-13EEPS CAGR (%) FY2013ERoA (%) FY2013ERoE (%)

AxisBk Buy 1,051 1,55547.9 1.7 2.5 8.7 20.9 1.5 21.0

FedBk Buy 365 423 16.1 1.0 1.2 7.5 19.1 1.2 14.0

HDFCBk Accumulate 467 519 11.3 3.1 3.5 16.2 30.5 1.7 20.9

ICICIBk* Buy 854 1,193 39.8 1.6 2.2 12.1 25.8 1.5 16.0

SIB Accumulate 22 24 8.3 1.1 1.2 6.8 11.6 0.9 17.2

YesBk Buy 274 329 20.1 1.7 2.1 9.2 19.1 1.2 20.6

AllBk Accumulate 166 19014.3 0.8 0.9 4.7 9.2 0.9 17.8

AndhBk Accumulate 120 13411.7 0.8 0.9 5.4 (0.6) 0.9 15.9

BOB Buy 743 946 27.3 1.0 1.3 5.6 10.8 1.1 19.6

BOI Buy 319 379 19.0 0.9 1.1 5.0 18.7 0.8 18.0

BOM Buy 50 61 22.9 0.7 0.8 4.7 30.8 0.6 14.8

CanBk Accumulate 433 465 7.3 0.8 0.9 5.0 (2.4) 0.9 17.2

CentBk Neutral 100 - - 0.7 - 4.9 (14.0) 0.5 14.4

CorpBk Buy 446 519 16.3 0.7 0.8 4.4 2.7 0.8 17.0

DenaBk Neutral 80 - - 0.6 - 3.8 7.0 0.8 16.5

IDBI# Accumulate 105 111 5.5 0.7 0.7 5.0 12.1 0.7 14.0

IndBk Accumulate 207 220 6.4 0.8 0.9 5.2 1.2 1.2 17.8

IOB Buy 102 122 20.1 0.6 0.8 3.9 22.4 0.7 16.4

J&KBk Neutral 821 - - 0.9 - 5.6 7.3 1.2 16.5

OBC Buy 292 350 19.8 0.7 0.8 4.9 7.5 0.9 14.4

PNB Buy 954 1,130 18.5 1.1 1.3 5.9 7.4 1.0 20.0

SBI* Buy 1,840 2,547 38.4 1.4 1.9 7.0 42.0 1.1 22.0

SynBk Buy 101 124 22.8 0.7 0.9 4.7 8.6 0.6 15.6

UcoBk Neutral 68 - - 0.8 - 4.0 16.0 0.6 17.0

UnionBk Buy 230 286 24.5 0.8 1.1 4.9 20.0 0.8 17.9

UtdBk Buy 75 97 30.0 0.6 0.8 4.4 13.2 0.6 14.1

VijBk Neutral 57 -- 0.8 - 6.2 61.9 0.4 11.7

Source: Company, Angel Research; Note:*Target multiples=SOTP Target Price/ABV (including subsidiaries), #Without adjusting for SASF, CMP as of 13th Sept


27/28



Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

DISCLAIMERThis document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investmentdecision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make

such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies

referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and

risks of such an investment.

Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make

investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this

document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's

fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliablesources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as thisdocument is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any wayresponsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report .Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify,nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. WhileAngel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory,compliance, or other reasons that prevent us from doing so.

This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,

redistributed or passed on, directly or indirectly.

Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or

other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in

the past.

Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in

connection with the use of this information.

Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to thelatest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may haveinvestment positions in the stocks recommended in this report.

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors

Disclosure of Interest Statement

Analyst ownership Angel and its Group companies Angel and its Group companies' Broking relationshipof the stock ownership of the stock Directors ownership of the stock with company covered

Axis Bank No No Yes N

HDFC Bank No No No No

United Bank of India No No No No

UCO Bank No No No No

Bank of Maharashtra No No No No


28/28


6th Floor, Ackruti Star, Central Road, MIDC, Andheri (E), Mumbai - 400 093. Tel: (022) 39357800Research Team

Fundamental:

Sarabjit Kour Nangra VP-Research, Pharmaceutical [email protected]

Vaibhav Agrawal VP-Research, Banking [email protected]

Shailesh Kanani Infrastructure [email protected]

Srishti Anand IT, Telecom [email protected]

Bhavesh Chauhan Metals, Mining [email protected]

Sharan Lillaney Mid-cap [email protected]

V Srinivasan Research Associate (Cement, Power) [email protected]

Yaresh Kothari Research Associate (Automobile) [email protected]

Shrinivas Bhutda Research Associate (Banking) [email protected]

Sreekanth P.V.S Research Associate (FMCG, Media) [email protected]

Hemang Thaker Research Associate (Capital Goods) [email protected]

Nitin Arora Research Associate (Infra, Real Estate) [email protected]

Ankita Somani Research Associate (IT, Telecom) [email protected] Varun Varma Research Associate (Banking) [email protected]

Technicals:

Shardul Kulkarni Sr. Technical Analyst [email protected]

Sameet Chavan Technical Analyst [email protected]

Derivatives:

Siddarth Bhamre Head - Derivatives [email protected]

Institutional Sales Team:

Mayuresh Joshi VP - Institutional Sales [email protected] Abhimanyu Sofat AVP - Institutional Sales [email protected]

Meenakshi Chavan Dealer [email protected]

Gaurang Tisani Dealer [email protected]

Akshay Shah Dealer [email protected]

Production Team:

Simran Kaur Research Editor [email protected]

Dilip Patel Production [email protected]

financials monthly update - august 2011

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