icici bank absolute : relative : overweight longbsmedia.business-standard.com/_media/bs/data/... ·...

February 1, 2018 Analyst: Rohan Mandora [email protected] (+91-79-61909529)/Ankit Choudhary [email protected] of 14

Before reading this report, you must refer to the disclaimer on the last page.

ICICI Bank Absolute :LONG

Relative : Overweight

3QFY18 Result: Est. (↑), Target (↑), Rating () Regular Coverage 15.1% ATR in 14 months

Slippages continue to moderate; retain LONG BFSI

© 2017EquirusAll rights reserved

Rating Information

Price (Rs) 353

Target Price (Rs) 410

Target Date 31stMar’19

Target Set On 31stJan’18

Implied yrs of growth (ERE) 20

Fair Value (SOTP) 410

Fair Value (DDM) NA

Ind Benchmark BANKEX

Model Portfolio Position -

Stock Information

Market Cap (Rs mn) 2,266,991

Free Float (%) 100.00 %

52 Wk H/L (Rs) 365.7/238.9

Avg Daily Volume (1yr) 18,651,530

Avg Daily Value (Rs mn) 5,354

Equity Cap (Rs Mn) 12,846

Face Value (Rs) 2

Bloomberg Code ICICIBC IN

Ownership Recent 3M 12M %

Promoters 0.0 % 0.0 % 0.0 %

DII 42.1 % -0.5 % 3.3 %

FII 47.3 % 1.4 % -2.4 %

Public 10.6 % -0.9 % -0.9 %

Price % 1M% 3M% 12M%

Absolute 12.4 % 17.6 % 44.4 %

Vs Industry 5.0 % 8.1 % 5.5 %

HDFCBANK 7.1 % 10.9 % 55.9 %

AXISBANK 5.3 % 13.5 % 27.4 %

Standalone Quarterly EPS forecast

Rs/Share 1Q 2Q 3Q 4Q

EPS (17A) 3.9 5.3 4.2 3.5

EPS (18E) 3.5 3.2 2.6 3.3

ICICI Bank (ICICIBC) posted a below-expected 3QFY18 PAT of Rs 16.5bn (EE Rs 18.7bn)

dragged by 13bps qoq NIM compression, subdued non-treasury fee income growth of 2%

yoy and elevated provisions of Rs 35.7bn. Domestic loan growth was healthy at 16% yoy

with the bank focusing on granular retail and better-rated corporate lending; about ~88%

of incremental corporate disbursements in 9MFY18 were to ‘A- and above’ rated

corporates. With a moderation in incremental slippages, ~Rs 170bn of NCLT-referred

accounts likely reaching some resolution in FY19E, and good quality incremental

disbursements, we expect continued moderation in incremental credit cost (ex. one-

time impact of IND-AS) during FY19E/FY20E; this in turn would drive RoE improvement

(FY20E 12% vs FY18E 7.8%). We retain LONG as we roll over to a SOTP-based Mar’19 TP of

Rs 410 (Rs 343 earlier), valuing the standalone operations at Rs 328. Slippages continue to moderate: Fresh slippages came in at a nine-quarter low of

Rs 44bn, of which Rs 20bn slipped from accounts under various RBI dispensation

schemes. Management indicated that most of the stressed lumpy accounts in the non-

investment grade outside the drilldown list or under various RBI dispensation schemes

have slipped into NPLs, and that the ticket size of the largest standard account here is

Rs 6bn. The bank has completely provided for exposures in RBI’s first IBC list, and will

need to provide ~Rs 15bn towards the second list in 4QFY18. GNPA/NNPA at 3QFY18-

end was at 7.8%/4.2% (-5bp/-23bp qoq) of net customer assets. We expect

FY19E/FY20E credit cost to decline to 2%/1.5% as fresh slippages moderate to 2%. Share of retail loans at 54%, domestic loan growth improves to 16% yoy: Share of

retail loans increased to 54% led by business banking (51% yoy), personal loans (+45%

yoy), credit cards (+27% yoy), rural (+25% yoy) and home loans (+18% yoy). The

overseas book continued to moderate, declining 15% yoy. Despite 11% yoy overall loan

growth, capital consumption was negligible as RWA was largely flat driven by

continued reduction in non balance-sheet exposure and incremental lending towards

low risk-weighted corporates/mortgages. Tier 1 for the bank remains healthy at 15%. International NIMs drag blended NIMs; CASA remains strong at 50.4%: International

NIMs dipped to 29bps vs. 84bps in 2QFY18 dragged by interest reversals and bond

issuances. Domestic NIMs moderated by just 4bps qoq as CASA/avg. CASA ratio

improved to 50.4%/45.7%. ICICIBC guided to blended NIMs of over 3.1% for FY18E. We

build in FY19E/FY20E loan growth of 16% each with NIMs of 3.2%/3.2%. Key risks: A protracted slowdown, non-resolution of stressed assets and adverse

regulatory guidelines are key risks to our estimates. We have not incorporated any

impact of IND-AS and one-time provisioning remains a key risk to our FY19E estimates.

(Rs bn) Revised Estimates % Change

FY18E FY19E FY18E FY19E

NII 229.6 258.1 -1.6% -1.8%

Other Inc 156.0 157.6 0.0% 0.0%

Provisions 131.7 117.7 1.8% -6.6%

PAT 78.0 98.9 -1.1% 9.1%

Advances 5,292.2 6,139.0 2.7% 3.6%

Deposits 5,439.4 6,201.0 0.0% 0.0%

Standalone Financials

Rs. Bn YE Mar FY17A FY18E FY19E FY20E

NII 217 230 258 293

Other Income 195 156 158 180

Total Income 412 386 416 472

Operating Exp 148 156 174 196

PPoP 265 229 241 277

Provisions 152 132 118 100

PAT 98 78 99 138

Adj PAT 46 78 99 138

Loan and Advances

4,642 5,292 6,139 7,121

Deposits 4,900 5,439 6,201 7,069

Net Worth 1,000 1,045 1,108 1,207

NIM 3.18 % 3.12 % 3.17 % 3.20 %

Prov/Avg Loans 3.38 % 2.65 % 2.06 % 1.51 %

Rs Per Share FY17A FY18E FY19E FY20E

EPS 16.8 12.8 15.4 21.5

Book Value 171.6 163.1 172.8 188.4

Adjusted BVPS 116.3 120.0 142.0 163.7

P/ABV (x) 2.3 2.3 1.9 1.7

DPS 2.5 5.0 5.2 5.4

P/E (x) 16.1 21.2 17.5 12.6

ROE (%) 10.5 % 7.8 % 9.3 % 12.1 %

RoA (%) 1.3 % 1.0 % 1.1 % 1.4 %

Tier 1 Ratio (%) 14.4 % 14.9 % 14.5 % 14.2 %

*P/E, P/ABV adjusted for subsidiary valuation

ICICI Bank Absolute – LONG Relative – OverWeight 15.1% ATR in 14 Months

February 1, 2018Analyst: Rohan Mandora [email protected] (+91-79-61909529)/Ankit Choudhary [email protected] of 13

Quarterly performance

Particulars

%Variation

P&L Statement (Rs mn) 3QFY18 3QFY18E 3QFY17 2QFY18 3QFY18E 3QFY17 2QFY18

Net interest income (NII) 57,053 59,346 53,634 57,091 -3.9% 6.4% -0.1%

Other income 31,669 34,564 39,383 51,862 -8.4% -19.6% -38.9%

Total income 88,721 93,909 93,017 108,953 -5.5% -4.6% -18.6%

Operating expenses 38,144 41,824 37,777 39,088 -8.8% 1.0% -2.4%

- Staff expenses 13,626 16,200 14,060 15,141 -15.9% -3.1% -10.0%

- Other expenses 24,518 25,624 23,718 23,948 -4.3% 3.4% 2.4%

Operating profit 50,578 52,085 55,239 69,865 -2.9% -8.4% -27.6%

Total provisions 35,696 28,718 27,127 45,029 24.3% 31.6% -20.7%

Profit before tax 14,882 23,367 28,112 24,836 -36.3% -47.1% -40.1%

Tax (1,621) 4,673 3,694 4,254 -134.7% -143.9% -138.1%

Profit after tax 16,502 18,694 24,418 20,582 -11.7% -32.4% -19.8%

Balance sheet (Rs mn) 3QFY18 3QFY18E 3QFY17 2QFY18 % change vs Est % change y-o-y % change q-o-q

Deposits 5,174,031 5,136,020 4,652,843 4,986,428 0.7% 11.2% 3.8%

Advances 5,053,869 5,069,191 4,574,695 4,827,801 -0.3% 10.5% 4.7%

Investment 1,798,066 1,889,320 1,689,875 1,799,352 -4.8% 6.4% -0.1%

Gross NPL 460,387 449,334 377,167 444,885

22.1% 3.5%

Net NPL 238,103 238,885 198,872 241,298

19.7% -1.3%

Particulars 3QFY18 3QFY18E 3QFY17 2QFY18

bp change y-y bp change q-q

Profitability ratios Yield on Advances 8.5%

8.8% 8.7%

(29) (20)

Cost of Funds 4.9%

5.4% 5.1%

(49) (15)

NIM 3.1%

3.1% 3.3%

2 (13)

RoaA 0.8%

1.3% 1.1%

(47) (25)

RoaE 6.3%

10.1% 8.0%

(380) (170)

Asset Quality Gross NPL ratio 7.8%

7.9% 7.9%

(9) (5)

Net NPL ratio 4.2%

4.4% 4.4%

(15) (23)

Coverage ratio 48.3%

47.3% 45.8%

101 252

Business & Other Ratios CASA 50.4%

49.9% 49.5%

50 90

Cost-income ratio 43.0%

40.6% 35.9%

238 712

Non int.inc / total income 35.7%

42.3% 47.6%

(665) (1,191)

Credit deposit ratio 97.7%

98.3% 96.8%

(64) 86

CAR 18.1%

16.0% 17.6%

212 54

Tier-I 15.0%

12.6% 14.5%

249 54 Source: Company Filings, Equirus Securities



Exhibit 1: CASA ratio for the quarter stood at 50.4%

Source: Bank, Equirus Securities

Exhibit 2:Retail advance growth increased to 22.4% yoy/5.9% qoq, leading to a healthy share of retail advances in total advances at 54%


Exhibit 3:Downward trend in slippages continues with slippage ratio at 3.5% in 3QFY18


Exhibit 4: NIM declined by 13bps to 3.14% from 3.27% in 2QFY18


42%

44%

46%

48%

50%

52%

0%

20%

40%

60%

80%

100%

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

3Q

18

Current (%) Saving (%) Term (%) CASA (%)

0%

15%

30%

45%

60%

500

1,000

1,500

2,000

2,500

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

3Q

18

Total Retail Advances (Rs. Bn) YoY Gr in Retail Adv. (%) - RHS

Retail adv. / Total adv. (%) - RHS

0%

2%

4%

6%

8%

10%

12%

0

15,000

30,000

45,000

60,000

75,000

90,000

105,000

120,000

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

3Q

18

Slippages (Rs Mn) Slippages (%)

3.0%

3.2%

3.4%

3.6%

3.8%

4.0%

4%

5%

6%

7%

8%

9%

10%

11%

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

3Q

18

Yield on Advances (%) Cost of Funds (%) NIM - RHS (%)



Exhibit 5: Downward trend in fresh slippages continues as slippage in 3QFY18 hit another low at Rs 43.8bn

NPA Movement (Rs mn) 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18

Opening Gross NPA 152,420 152,860 160,060 213,560 267,210 275,630 325,480 380,850 425,520 431,480 444,890

Fresh Slippages 16,720 22,420 65,440 70,030 82,490 80,290 70,370 112,890 49,760 46,740 43,800

- of which slippage from restructured 2,920 9,310 13,550 27,240 13,210 12,310 2,390 18,030 14,760 3,720 1,970

- of which Slippages from exposure to ‘below investment grade’ companies in key

sectors reported NA NA NA NA 45,590 45,550 29,430 79,570 3,590 2,560

6,140

- of which slippage from Non key sector Below Investment Grade/Non Restructured 13,800 13,110 51,890 42,790 23,690 22,430 38,550 15,290 31,410 40,460 11,080

Upgrades & recoveries 5,440 7,090 5,000 7,810 7,920 8,000 6,250 14,130 27,750 10,290 17,220

NPA Written off 10,840 8,130 6,940 8,570 66,150 22,440 64,120 98,760 22,010 36,450 460,390

Closing Gross NPA 152,860 160,060 213,560 267,210 275,630 325,480 325,480 380,850 425,520 431,480 3Q18


Exhibit 6: ~59% of drilldown list exposure is under some form of restructuring under various RBI schemes

Further drilldown Movement 1QFY17 2QFY17 3QFY17 4QFY17 FY17 1QFY18 2QFY18 3QFY18

Aggregate Exposure

Opening Balance 440,650 387,220 324,900 275,350 440,650 190,390 203,580 195,900

Net reduction in exposure 3,650 16,770 21,230 5,930 47,580 (2,590) (9,600) (4,860)

Upgrades to "Investment Grade" 4,190 - (1,110) 5,630 8,710 - - 80

Downgrades to "Below Investment Grade" - - - 6,360 6,360 14,200 4,480 6,490

Classified as Non-Performing 45,590 45,550 29,430 79,760 200,330 (3,590) (2,560) (6,830)

Closing Balance 387,220 324,900 275,350 190,390 190,390 203,590 195,900 190,620

- Of which resolutions under Mgmt. Change

51,000 55,100 55,660 63,990

- Of which resolutions under 5/25

17,000 24,780 24,780 24,780

- Of which resolutions under Exposure to promoter entity where M&A announced

13,000 - -

- Of which resolutions under SDR

26,400 24,470 24,700 24,590




Exhibit 7: ICICIBC’s subsidiaries: financial snapshot

Profit After Tax (Rs mn) 3QFY18 2QFY18 QoQ Growth 1QFY18 FY17 YoY Growth

Domestic Subsidiaries

ICICI Life 4,500 4,210 6.9% 4,060 16,820 1.9%

ICICI General 2,320 2,040 13.7% 2,150 7,020 38.5%

ICICI Pru AMC 1,610 1,560 3.2% 1,410 4,800 47.2%

ICICI Sec Primary Dealership (310) 520 -159.6% 660 4,120 111.3%

ICICI Sec (Consl.) 1,530 1,310 16.8% 1,150 3,390 41.8%

ICICI Venture 20 (10) NM (10) 90 NM

ICICI Home Finance (300) 140 NM 190 1,830 1.7%

Overseas Subsidiaries

ICICI Bank UK 117 1,099 -25.0% 132 (1,079) NM

ICICI Bank Canada 428 969 -34.4% 609 (1,551) NM

Reported Consolidated PAT 18,940 20,710 -8.5% 26,050 101,880 0.1%


Exhibit 8: SOTP valuation

Base Case

Value per share (Rs) Holding (%) Multiple Basis FY18E

ICICI Standalone 100 2.3x Mar'19

ABV ABV 328.0

Subsidiaries / Others

ICICI Bank UK 100 0.7x BV 3.8

ICICI Bank Canada 100 0.7x BV 4.6

Life Insurance 55 based on mkt

value 25% holding company

disc. 37.5

General Insurance 56 based on mkt

value 25% increase based on FY16 transaction value

23.4

Asset Management 51 4.0% AUM 8.3

Home Finance 100 1.0x BV 2.4

Other Subs 100 1x BV 2.4

Total subsidiaries' value

82.3

% contribution of

Subsidiaries / Others

Total fair value per share

410




Earnings call takeaways

Business update

ICICIBC’s domestic loan portfolio grew by 15.6% yoy driven by a robust retail loan

book growth of 22.2% yoy.

88% of disbursements in the domestic corporate portfolio during 9MFY18 were to

corporates rated ‘A- and above’.

As of 3QFY18, ICICIBC along with its partners’ platform added over 8.3mn UPI virtual

payment addresses. The bank entered into a new partnership for digital lending.

International margins were impacted by higher non-accrual of interest income on

NPAs and bond issuance.

The bank saw 40% yoy growth in debit card and credit card transactions in 9MFY18.

Dividend income stood at Rs 4.45bn during 3QFY18.

Employee expenses were lower owing to lower provisions on retrials.

Risk-adjusted returns on off-balance sheet exposures have been lower; therefore,

the bank is cautiously reducing exposures there.

Tax write-backs are based on the bank’s assessment of expected tax for FY18.

Capital consumption should be lower as (i) the bank is lending to better-rated

corporates, (ii) the mortgage book has a lower risk weight, and (iii) there is a

slowdown in project funding.

Loan book

Net NPA/restructured loans/below-BBB rated loans to key sectors declined by 31%

yoy.

PCR increased by 160bps, including cumulative technical prudential write-offs.

Asset quality

Divergence with RBI is within threshold for risk-based supervision of FY17.

Retail GNPA addition was Rs 7.9bn.

Loans under the RBI resolution scheme, which are not a part of the drilldown list or

restructured loans, stood at Rs 18.3bn, down from Rs 31.6bn in 2QFY18.

Net standard restructured loans stood at Rs 18.2bn, or ~0.4% of net advances as of

3QFY18, versus Rs 20.3bn in 3QFY18.

Rs 11bn of recovery is broad based and there is no lumpiness from any account.

Guidance

ICICIBC expects NIMs to remain at similar levels.

The bank has not set a target for a loan mix within corporate/retail segments, and

will continue to grow as per market.

Medium-term ROEs are expected to be better than 12-13%.

Exhibit 10: RoA-RoE Tree

Particulars (Rs mn) FY17A FY18E FY19E FY20E

Yield on Loans and Advances 8.8% 8.4% 8.5% 8.5%

Yield on Investments 7.7% 7.1% 6.8% 6.7%

Cost of Funds D 5.3% 4.8% 4.9% 4.9%

Advances (A) 4,642,321 5,292,246 6,139,005 7,121,246

Investments (B) 1,615,065 1,687,065 1,680,729 1,725,086

Cash and Balances with RBI (C) 317,024 349,413 394,088 401,005

Balances with Bank (D) 440,107 300,495 323,152 365,360

Interest Earning Assets (A+B+C+D) 7,014,517 7,629,219 8,536,973 9,612,697

Average Interest Earning Assets 6,784,981 7,321,868 8,083,096 9,074,835

NII/AvgInt Earning Assets 3.2% 3.1% 3.2% 3.2%

Non Int Inc/AvgInt Earning Assets 2.9% 2.1% 1.9% 2.0%

Total Income/AvgInt Earning Assets 6.1% 5.3% 5.1% 5.2%

Op. Costs/AvgInt Earning Assets 2.2% 2.1% 2.2% 2.2%

PPI/AvgInt Earning Assets 3.9% 3.1% 3.0% 3.0%

Provisions/AvgInt Earning Assets 2.2% 1.8% 1.5% 1.1%

Taxes/AvgInt Earning Assets 0.2% 0.3% 0.3% 0.4%

Return on AvgInt Earning Assets 1.4% 1.1% 1.2% 1.5%

Extraordinary item 0.0% 0.0% 0.0% 0.0%

Adj Return on AvgInt Earning Assets 1.4% 1.1% 1.2% 1.5%

Productivity (AvgInt Earning Assets/Avg Total

Assets) 90.9% 90.9% 90.9% 91.1%

Return on Average Total Assets 1.3% 1.0% 1.1% 1.4%

Leverage (Average Total Assets/Average Equity) 8.0 8.0 8.4 8.7

Return on Average Equity 10.5% 7.8% 9.3% 12.1%

Source: Bank, EquirusSecurities



Snapshot How we differ from Consensus

- Equirus Consensus % Diff Comment

EPS FY18E 12.8 14.2 -10 %

We expect consensus estimated to be

revised. However, our provision

estimates have been higher than

consensus.

FY19E 15.4 18.5 -16 %

NII +

Other

Inc

FY18E 386 398 -3 %

FY19E 416 429 -3 %

PAT FY18E 78 87 -10 %

FY19E 99 118 -16 % Our Key Investment arguments: 1) Expected improvement in FY20E ROA to 1.4%, 2)

Fresh NPL creations to moderate from FY19E, 3) Resolutions of stressed assets to contain

eventual losses

Key Assumptions 2016A 2017A 2018E 2019E 2020E

Net Interest Income (Rsmn) 212.2 217.4 229.6 258.1 292.7

Net interest margin (%) 3.5% 3.2% 3.1% 3.2% 3.2%

Other Income (Rsmn) 153.2 195.0 156.0 157.6 179.7

Total Income (Rsmn) 365.5 412.4 385.6 415.7 472.4

Operating Expense (Rsmn) 126.8 147.6 156.4 174.4 195.8

Cost to Income Ratio (%) 34.7% 35.8% 40.6% 42.0% 41.5%

Credit Cost (%) 2.8% 3.4% 2.7% 2.1% 1.5%

PAT (Rsmn) 97.3 98.0 78.0 98.9 137.7

Advances Growth (%) 12.3% 6.7% 14.0% 16.0% 16.0%

Deposits Growth (%) 16.6% 16.3% 11.0% 14.0% 14.0%

Key Risks: Protracted slowdown, non-resolution of stressed assets and adverse regulatory

guidelines are key risks.

Key Triggers: Improvement in Adj. ROEs, economic recovery, development of ARCs,

support from management of stressed accounts for early resolution.

Sensitivity to Key Variables % Change % Impact on EPS

Net Interest Income 10% 21.2%

Provisioning Costs 10% -9.0%

Loans & Advances Growth 10% 1.7%

ERoE Valuations & Assumptions

Rf Ke Term. Growth RoE in Terminal Yr

6.9 % 15.0% 5.0 % 16.3 %

-

FY18E FY19-22E FY23-27E FY28-37E

PAT Growth

- - - -

Dividend Payout (%)

- - - -

BV growth

- - - -

RoE (%)

- - - -

Years of strong growth

- - - -

Valuation as on date (Rs)

- - - -

Valuation as of 31stMar’19

- - - -

We value the bank’s standalone operations at Rs328 based on 2.3x FY19E ABV. We value

ICICIBC at Rs 410 on SOTP basis, with the standalone bank at Rs 328 and subsidiaries at

Rs 82.

Company Description:

ICICI Bank Limited (ICICIBC) is the largest private sector bank in India on a consolidated

basis with its specialized subsidiaries offering services across life and general insurance,

asset management, securities broking as well as private equity products and services. Its

primary business consists of commercial banking operations for retail and corporate

customers and it provides a range of products like loan products, deposits, forex services

as well as agricultural and rural banking products. As on Dec’17, it had a network of

4,860 branches and 14,262 ATM’s.

Comparable valuation Mkt Cap

Rs. Bn.

Price

Target

Target

Date

P/E P/B BPS RoE Divi Yield

Company Reco. CMP FY17A FY18E FY19E FY17A FY18E FY19E FY18E FY17A FY18E FY19E FY17A FY18E FY19A

ICICI Bank LONG 353 2,267 410 Mar’19 21.0 27.7 22.9 3.0 2.9 2.5 120.0 10.5% 7.8% 9.3% 0.7% 1.4% 1.5%

HDFC Bank ADD 2,006 5,199 2,150 Mar’19 35.1 29.4 24.5 6.1 5.4 4.6 373.8 17.9% 18.1% 18.8% 0.5% 0.7% 0.7%

Axis Bank NR 594 1,522 NR NR 35.9 38.7 19.3 2.5 2.3 2.1 255.9 7.2% 6.5% 13.0% 0.8% 0.9% 1.3%



Standalone Quarterly Earnings Forecast and Key Drivers Rs in Mn 1Q17A 2Q17A 3Q17A 4Q17A 1Q18A 2Q18A 3Q18A 4Q18E 1Q19E 2Q19E 3Q19E 4Q19E FY17A FY18E FY19E FY20E

Interest Income 133,303 136,394 136,181 135,685 134,593 135,771 136,654 144,679 149,718 155,281 157,986 158,499 541,563 551,696 621,484 702,339 Interest Expense 81,717 83,861 82,548 76,064 78,693 78,680 79,601 85,149 87,704 90,335 92,141 93,190 324,190 322,123 363,370 409,595

Net Interest Income 51,585 52,533 53,634 59,622 55,900 57,091 57,053 59,530 62,015 64,946 65,845 65,309 217,373 229,574 258,115 292,744

Non Interest Income 34,293 91,197 39,383 30,172 33,879 51,862 31,669 38,623 36,277 39,605 40,416 41,297 195,045 156,036 157,596 179,660

Total Income 85,878 143,730 93,017 89,794 89,779 108,953 88,721 98,154 98,292 104,552 106,261 106,606 412,418 385,610 415,711 472,404

Operating and Other Expenses 33,731 37,369 37,777 38,674 37,944 39,088 38,144 41,191 41,869 43,543 44,825 44,157 147,551 156,367 174,394 195,842 Staff Cost 12,907 15,567 14,060 14,805 15,112 15,141 13,626 14,606 14,752 15,342 15,496 18,742 57,337 58,484 64,332 72,052 Other Operating Expenses 20,824 21,802 23,718 23,869 22,833 23,948 24,518 26,585 27,117 28,201 29,329 25,415 90,214 97,884 110,062 123,790 Pre-Provision Income 52,147 106,361 55,239 51,120 51,835 69,865 50,578 56,963 56,423 61,008 61,436 62,449 264,867 229,242 241,317 276,562 Provisions and Write-offs 25,145 70,827 27,127 28,982 26,087 45,029 35,696 24,937 29,004 29,041 29,387 30,267 152,081 131,749 117,700 100,066 PBT 27,002 35,534 28,112 22,138 25,748 24,836 14,882 32,026 27,419 31,968 32,049 32,182 112,786 97,493 123,617 176,496 TAX 4,679 4,511 3,694 1,892 5,256 4,254 -1,621 11,610 5,484 6,394 6,410 6,436 14,775 19,499 24,723 38,829 Extraordinary 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 PAT 22,324 31,023 24,418 20,246 20,492 20,582 16,502 20,416 21,935 25,574 25,639 25,746 98,011 77,995 98,894 137,667 EPS 4 5 4 3 4 3 3 3 3 4 4 4 17 13 15 21 Key Drivers - - - - - - - - - - - - - - - - YoA 9.1 % 8.8 % 8.8 % 8.9 % 8.7 % 8.7 % 8.5 % 8.9 % 8.6 % 8.3 % 8.0 % 8.0 % 8.8 % 8.4 % 8.5 % 8.5 % YoI 6.8 % 7.0 % 6.9 % 6.3 % 6.5 % 6.3 % 6.4 % 5.1 % 6.8 % 6.7 % 6.8 % 6.3 % 7.7 % 7.1 % 6.8 % 6.7 % CoF 5.7 % 5.6 % 5.4 % 5.2 % 5.2 % 5.1 % 4.9 % 5.0 % 5.0 % 4.9 % 4.8 % 4.8 % 5.3% 5.0% 4.9% 4.9%

NIM 3.2 % 3.1 % 3.1 % 3.6 % 3.3 % 3.3 % 3.1 % 3.1 % 3.1 % 3.2 % 3.1 % 3.0 % 3.2% 3.2% 3.2% 3.3%

C/I Ratio 39 % 26 % 41 % 43 % 42 % 36 % 43 % 42 % 43 % 42 % 42 % 41 % 35.8% 40.2% 39.9% 39.4%

CD Ratio 106.0 % 101.2 % 98.3 % 94.7 % 95.4 % 96.8 % 97.7 % 97.3 % 99.2 % 99.2 % 99.2 % 99.0 % 94.7 % 97.3 % 99.0 % 100.7 % Non-Interest Income/ Total Income 39.9 % 63.5 % 42.3 % 33.6 % 37.7 % 47.6 % 35.7 % 39.3 % 36.9 % 37.9 % 38.0 % 38.7 % 47.3% 41.8% 41.8% 41.9% ROA 1.3 % 1.7 % 1.3 % 1.1 % 1.1 % 1.1 % 0.8 % 1.0 % 1.0 % 1.2 % 1.1 % 1.1 % 1.3 % 1.0 % 1.1 % 1.4 % ROE 9.9 % 13.2 % 10.1 % 8.3 % 8.2 % 8.0 % 6.3 % 7.8 % 8.3 % 9.5 % 9.3 % 9.3 % 10.5 % 7.8 % 9.3 % 12.1 % Sequential Growth (%) - - - - - - - - - - - - - - - -

NII -4.6 % 1.8 % 2.1 % 11.2 % -6.2 % 2.1 % -0.1 % 4.3 % 4.2 % 4.7 % 1.4 % -0.8 %

TI -18.3% 67.4% -35.3% -3.5% 0.0% 21.4% -18.6% 10.6% 0.1% 6.4% 1.6% 0.3%

PPI -26.6% 104.0% -48.1% -7.5% 1.4% 34.8% -27.6% 12.6% -0.9% 8.1% 0.7% 1.6% Provisions and Write-offs -64 % 182 % -62 % 7 % -10 % 73 % -21 % -30 % 16 % 0 % 1 % 3 % PAT 218 % 39 % -21 % -17 % 1 % 0 % -20 % 24 % 7 % 17 % 0 % 0 % EPS 214 % 38 % -21 % -17 % 1 % -10 % -19 % 30 % 3 % 17 % 0 % 0 % Advances 3 % 1 % 1 % 1 % 0 % 4 % 5 % 5 % 5 % 4 % 5 % 1 %

Deposits 1 % 6 % 4 % 5 % -1 % 3 % 4 % 5 % 3 % 4 % 5 % 1 %

Total Business 2.0% 3.4% 2.2% 3.4% -0.4% 3.3% 4.0% 3.8% 4.0% 4.0% 5.0% 0.8% Yearly Growth (%) - - - - - - - - - - - - - - - - NII 1 % 0 % -2 % 10 % 8 % 9 % 6 % 0 % 11 % 14 % 15 % 10 % 11 % 2 % 6 % 12 % TI 6 % 74 % -4 % -15 % 5 % -24 % -5 % 9 % 9 % -4 % 20 % 9 % 17 % 13 % -7 % 8 % PPI 4 % 106 % -16 % -28 % -1 % -34 % -8 % 11 % 9 % -13 % 21 % 10 % 21 % 11 % -13 % 5 %

Provisions and Write-offs 163 % 652 % -5 % -58 % 4 % -36 % 32 % -14 % 11 % -36 % -18 % 21 % 199 % 30 % -13 % -11 %

PAT -25 % 2 % -19 % 188 % -8 % -34 % -32 % 1 % 7 % 24 % 55 % 26 % -13 % 1 % -20 % 27 % EPS -25.0% 2.4% -19.1% 188.5% -8.2% -33.7% -32.4% 0.8% 7.0% 24.3% 55.4% 26.1% -13.0% 0.8% -20.4% 26.8% Advances 12 % 11 % 5 % 7 % 3 % 6 % 10 % 14 % 20 % 20 % 20 % 16 % 12 % 7 % 14 % 16 % Deposits 15 % 17 % 14 % 16 % 15 % 11 % 11 % 11 % 15 % 17 % 18 % 14 % 17 % 16 % 11 % 14 %

Total Business 14 % 14 % 10 % 11 % 9 % 9 % 11 % 12 % 17 % 18 % 19 % 15 % 14 % 11 % 12 % 15 %



Standalone Financials

P&L (Rs bn) FY17A FY18E FY19E FY20E

Balance Sheet (Rs bn) FY17A FY18E FY19E FY20E

- FY17A FY18E FY19E FY20E

Interest Income 542 552 621 702 Capital 12 13 13 13 Asset Quality

Interest Expense 324 322 363 410 Reserves and Surplus 988 1,032 1,095 1,194 Gross NPA (Rs mn) 421,594 472,727 445,222 453,162

Net Interest Income 217 230 258 293 Deposits 4,900 5,439 6,201 7,069 Gross NPA (%) 8.8% 8.6% 6.9% 6.1%

% Growth 2.4% 5.6% 12.4% 13.4% Borrowings 1,476 1,549 1,681 1,842 Net NPA (Rs mn) 252,168 250,882 177,137 148,778

Treasury Income 102 56 37 38 Other Liab & Prov 342 366 392 420 Net NPA (%) 3.0% 4.7% 2.9% 2.1%

Other Inc. 93 100 121 141 Total liabilities 7,718 8,400 9,381 10,538 % coverage of NPA 40.2% 46.9% 60.2% 67.2%

Total Income 412 386 416 472 Cash & Bal with RBI 317 349 394 401 Delinquencies (%) 6.8% 4.0% 2.0% 2.0%

Operating Expenses 148 156 174 196 Bal. with banks/ 440 300 323 365 Business Ratios

Operating Profit 265 229 241 277 Investments 1,615 1,687 1,681 1,725 Credit / Deposit(%) 94.7% 97.3% 99.0% 100.7%

% Growth 11.0% -13.5% 5.3% 14.6% Advances 4,642 5,292 6,139 7,121 Invest / Deposit (%) 33.0% 31.0% 27.1% 24.4%

Tax 15 19 25 39 Fixed Assets 78 83 88 93 CASA (%) 50.4% 47.9% 48.6% 48.6%

Total Provisions 152 132 118 100 Other Assets 625 688 757 832 RoaA (%) 1.3% 1.0% 1.1% 1.4%

Net Profit 98 78 99 138

Total assets 7,718 8,400 9,381 10,538 RoE (%) 10.5% 7.8% 9.3% 12.1%

% Growth 0.8% -20.4% 26.8% 39.2% % Growth 7.1% 8.8% 11.7% 12.3% Adj. ROE (%) 11.9% 8.6% 10.3% 13.1%

Adj Profit 46 78 99 138 Key assumptions CAR

Earnings Ratios Deposits RWA (Rs. bn) 6,248 6,335 7,045 7,947

Int Inc. / Avg.assets 7.3% 6.8% 7.0% 7.1% Avg deposit growth (%) 16.3% 11.0% 14.0% 14.0%

Tier I (%) 14.4% 14.9% 14.5% 14.2%

Int Exp./ Avg. assets 4.3% 4.0% 4.1% 4.1% Avg cost of deposits 5.0% 4.8% 4.9% 4.9%

Tier II (%) 3.0% 3.0% 2.7% 2.5%

NIM (%) 3.2% 3.1% 3.2% 3.2% Advances Total CAR (%) 17.4% 17.9% 17.2% 16.7%

Int. exp/ Int earned 59.9% 58.4% 58.5% 58.3% Avg. advances growth 6.7% 14.0% 16.0% 16.0% Per Share Data

Oth. Inc./ Tot. Inc. 47.3% 40.5% 37.9% 38.0% Avg yield on advances 8.8% 8.4% 8.5% 8.5% BVPS 171.6 163.1 172.8 188.4

Staff exp/Opt. exp 38.9% 37.4% 36.9% 36.8% Investments Adj. BVPS, Rs. 116.3 120.0 142.0 163.7

Cost/ Income Ratio 35.8% 40.6% 42.0% 41.5% Avg. investments gro 0.7% 4.5% -0.4% 2.6% Price/ Adj. BVPS 2.3 2.3 1.9 1.7

Prov./ Oper Profit 57.4% 57.5% 48.8% 36.2%

Avg. YoI (%) 7.7% 7.1% 6.8% 6.7%

EPS, Rs. 16.8 12.8 15.4 21.5

Loan loss prov./Avg.

loans 3.4% 2.7% 2.1% 1.5%

Dividend Yield 0.7% 1.4% 1.5% 1.5%

P/E Ratio 16.1 21.2 17.5 12.6

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Historical Standalone Financials

P&L (Rs bn) FY14A FY15A FY16A FY17A

Balance Sheet (Rs bn) FY14A FY15A FY16A FY17A

- FY14A FY15A FY16A FY17A

Interest Income 442 491 527 542 Capital 12 12 12 12 Asset Quality

Interest Expense 277 301 315 324 Reserves and Surplus 721 793 886 988 Gross NPA (Rs mn) 105,059 150,947 262,213 421,594

Net Interest Income 165 190 212 217 Deposits 3,319 3,616 4,214 4,900 Gross NPA (%) 3.0% 3.8% 5.8% 8.8%

% Growth 22.4% 28.4% 30.9% 26.9% Borrowings 1,548 1,724 1,748 1,476 Net NPA (Rs mn) 32,980 62,555 129,631 252,168

Treasury Income 22 36 65 102 Other Liabilities 348 317 347 342 Net NPA (%) 1.0% 1.6% 3.0% 3.0%

Other Inc. 82 86 88 93 Total liabilities 5,946 6,461 7,207 7,718 % coverage of NPA 68.6% 58.6% 50.6% 40.2%

Total Income 269 312 365 412 Cash Balance with RBI 218 257 271 317 Delinquencies (%) 1.4% 2.2% 4.1% 6.8%

Operating Expenses 42 47 50 57 Bal. with bank 197 167 328 440 Business Ratios Operating Profit 61 67 77 90 Investments 1,770 1,581 1,604 1,615 Credit / Deposit(%) 102.0% 107.2% 103.3% 94.7%

% Growth 25.7% 18.8% 21.0% 11.0% Advances 3,387 3,875 4,353 4,642 Invest/ Deposit (%) 53.3% 43.7% 38.1% 33.0%

Tax 42 46 25 15 Fixed Assets 47 47 76 78 CASA (%) 42.9% 45.5% 45.8% 50.4%

Total Provisions 26 39 117 152 Other Assets 327 534 576 625 RoaA (%) 1.7% 1.8% 1.4% 1.3%

Net Profit 98 112 97 98 Total assets 5,946 6,461 7,207 7,718 RoE (%) 14.0% 14.5% 11.5% 10.5%

% Growth 17.8% 13.9% -13.0% 0.8% % Growth 10.8% 8.7% 11.5% 7.1% Adjusted RoE (%) 17.1% 17.2% 13.3% 11.9%

Adj Profit 25.7% 18.8% 21.0% 11.0% Key assumptions CAR

Earnings Ratios Deposits RWA (Rs. bn) 4,986 5,449 6,071 6,248

Int Inc/Avg. assets 7.8% 7.9% 7.7% 7.3%

Avg deposit growth 13.4% 8.9% 16.6% 16.3%

Tier I (%) 12.8% 12.8% 13.1% 14.4%

IntExp/Avg assets 4.9 % 4.8 % 4.6 % 4.3 % Avg cost of deposits 5.7% 5.9% 5.5% 5.0% Tier II (%) 4.9% 4.2% 3.6% 3.0%

NIM 3.1 % 3.4 % 3.5 % 3.2 % Advances Total CAR (%) 17.7% 17.0% 16.6% 17.4%

Int. exp/Int earning 62.7 % 61.2 % 59.8 % 59.9 % Avg adv growth (%) 16.7% 14.4% 12.3% 6.7%

Per Share Data

Oth Inc/Tot. Inc. 38.8 % 39.0 % 41.9 % 47.3 % Avg yield on adv (%) 10.0% 9.8% 9.5% 8.8% BVPS, Rs 126.8 138.7 154.3 171.6

Staff exp/Total exp 40.9 % 41.3 % 39.4 % 38.9 % Investments Adj. BVPS, Rs. 99.4 108.0 116.6 116.3

Cost/Inc Ratio 38.3 % 36.8 % 34.7 % 35.8 % Avg invest growth (%) 3.3% -10.7% 1.4% 0.7% Price/ ABV 2.7 2.5 2.3 2.3

Prov/Op Profit 15.8 % 19.8 % 48.9 % 57.4 %

Avg yield on invest (%) 7.3% 6.9% 7.3% 7.7%

EPS, Rs. 17.0 19.3 16.7 16.8

Total prov/Avg. loan 0.8 % 1.1 % 2.8 % 3.4 %

Dividend Yield 1.2% 1.3% 1.4% 0.7%

P/E Ratio 15.9 14.0 16.2 16.1

*Valuation Ratios adjusted for subsidiary Valuation



Equirus Securities

Research Analysts Sector/Industry Email

Equity Sales E-mail

Abhishek Shindadkar IT Services [email protected] 91-22-43320643 Vishad Turakhia [email protected] 91-22-43320633

Ashutosh Tiwari Auto, Metals & Mining [email protected] 91-79-61909517 Subham Sinha [email protected] 91-22-43320631

Depesh Kashyap Mid-Caps [email protected] 91-79-61909528 Sweta Sheth [email protected] 91-22-43320634

Devam Modi Power & Infrastructure [email protected] 91-79-61909516 Viral Desai [email protected] 91-22-43320635

Dhaval Dama FMCG, Mid-Caps [email protected] 91-79-61909518 Dealing Room E-mail

Manoj Gori Consumer Durables [email protected] 91-79-61909523 Ashish Shah [email protected] 91-22-43320662

Maulik Patel Oil and Gas [email protected] 91-79-61909519 IleshSavla [email protected] 91-22-43320666

Praful Bohra Pharmaceuticals [email protected] 91-79-61909532 Manoj Kejriwal [email protected] 91-22-43320663

Rohan Mandora Banking & Financial Services [email protected] 91-79-61909529 Dharmesh Mehta [email protected] 91-22-43320661

Associates E-mail SandipAmrutiya [email protected] 91-22-43320660

Ankit Choudhary [email protected] 91-79-61909533 Compliance Officer E-mail

Bharat Celly [email protected] 91-79-61909524 Jay Soni [email protected] 91-79-61909561

Harshit Patel [email protected] 91-79-61909522 Corporate Communications E-mail

Meet Chande [email protected] 91-79-61909513 Mahdokht Bharda [email protected] 91-22-43320647

Parva Soni [email protected] 91-79-61909521

Pranav Mehta [email protected] 91-79-61909514

RonakSoni [email protected] 91-79-61909525

Samkit Shah [email protected] 91-79-61909520

Shreepal Doshi [email protected] 91-79-61909541

Varun Baxi [email protected] 91-79-67606527

Vikas Jain [email protected] 91-79-61909531

Rating & Coverage Definitions: Absolute Rating • LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap >Rs 5 billion and ATR >= 20% for rest of the companies • ADD: ATR >= 5% but less than Ke over investment horizon • REDUCE: ATR >= negative 10% but <5% over investment horizon • SHORT: ATR < negative 10% over investment horizon Relative Rating • OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon • BENCHMARK: likely to perform in line with the benchmark • UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Investment Horizon Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion.

Registered Office: Equirus Securities Private Limited Unit No. 1201, 12th Floor, C Wing, Marathon Futurex, N M Joshi Marg, Lower Parel, Mumbai-400013. Tel. No: +91 – (0)22 – 4332 0600 Fax No: +91- (0)22 – 4332 0601

Corporate Office: 3rd floor, House No. 9, Magnet Corporate Park, Near Zydus Hospital, B/H Intas Sola Bridge, S.G. Highway Ahmedabad-380054 Gujarat Tel. No: +91 (0)79 - 6190 9550 Fax No: +91 (0)79 – 6190 9560

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Analyst Certification

We, Rohan Mandora/Ankit Choudhary, author to this report, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or

their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Disclosures

Equirus Securities Private Limited (ESPL) having Corporate Identification Number U65993MH2007PTC176044 is registered in India with Securities and Exchange Board of India (SEBI) as a trading member on the

Capital Market (Reg. No. INB231301731), Futures & Options Segment (Reg. No.INF231301731) of the National Stock Exchange of India Ltd. (NSE) and on Cash Segment (Reg. No.INB011301737) of Bombay Stock

Exchange Limited (BSE).ESPL is also registered with SEBI as Research Analyst under SEBI (Research Analyst) Regulations, 2014 (Reg. No. INH000001154), as a Portfolio Manager under SEBI (Portfolio Managers

Regulations, 1993 (Reg. No.INP000005216) and as a Depository Participant of the Central Depository Services (India) Limited (Reg. No.IN-DP-324-2017). There are no disciplinary actions taken by any regulatory

authority against ESPL. ESPL is a subsidiary of Equirus Capital Pvt. Ltd. (ECPL) which is registered with SEBI as Category I Merchant Banker and provides investment banking services including but not limited to

merchant banking services, private equity, mergers & acquisitions and structured finance.

As ESPL and its associates are engaged in various financial services business, it might have: - (a) received compensation (except in connection with the preparation of this report) from the subject company for

investment banking or merchant banking or brokerage services in the past twelve months;(b) managed or co-managed public offering of securities for the subject company in the past twelve months; or (c) have

received a mandate from the subject company; or (d) might have other financial, business or other interests in entities including the subject company (ies) mentioned in this Report. ESPL & its associates, their

directors and employees may from time to time have positions or options in the company and buy or sell the securities of the company (ies) mentioned herein. ESPL and its associates collectively do not own (in

their proprietary position) 1% or more of the equity securities of the subject company mentioned in the report as the last day of the month preceding the publication of the research report. ESPL or its Analyst or

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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. ESPL has not been engaged in market making activity for the subject company.

The Research Analyst engaged in preparation of this Report:-

(a) has not received any compensation from the subject company in the past twelve months; (b) has not managed or co-managed public offering of securities for the subject company in the past twelve months;

(c) has not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (d) has not received any compensation for products

or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (e) has not received any compensation or other benefits from the

subject company or third party in connection with the research report; (f) might have served as an officer, director or employee of the subject company; (g) is not engaged in market making activity for the

subject company.

This document is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,

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information current. Also there may be regulatory, compliance, or other reasons that may prevent ESPL and its group companies from doing so. This document is prepared for assistance only and is not intended

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consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. ESPL/its affiliates do and seek to do business with

companies covered in its research report. Thus, investors should be aware that the firm may have conflict of interest.



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“three years” period in the price chart).

Disclosure of Interest statement for the subject Company Yes/No If Yes, nature of such interest

Research Analyst’ or Relatives’ financial interest No

Research Analyst’ or Relatives’ actual/beneficial ownership of 1% or more No

Research Analyst’ or Relatives’ material conflict of interest No

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ESPL/its affiliates are not a registered broker–dealer under the U.S. Securities Exchange Act of 1934, as amended (the“1934 act”) and under applicable state laws in the United States. In addition Equirus is not a

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Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by Equirus, including the products and services described herein are not available to or intended

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