RESULTS REVIEW 4QFY19 22 MAY 2019

Indostar Capital Finance BUY

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters

Twinkle, twinkle… We maintain BUY on INDOSTAR (TP of Rs 520, 1.5x Mar-21E ABV of Rs 347) after an in-line 4Q and, incredibly, an improvement in corporate asset quality.

HIGHLIGHTS OF THE QUARTER Corporate Disbursals Pick Up: After dipping in 2Q and

3Q, overall disbursal growth revived (2.4x QoQ, albeit down ~7% YoY), driven by a 4x growth in corporate disbursals. At ~Rs 12bn, corp. disbursals constituted ~57% in the mix. Retail disbursals too, displayed strong sequential growth with VF disbursals growing ~5x/65% YoY/QoQ to ~Rs 5.8bn. We expect a ramp up in disbursals over FY20-21E, driven by retail segments.

Inorganically Driven AUM Growth: AUMs grew ~94/52% to ~Rs 117bn, led by the retail segment (61% of AUMs vs. 42% sequentially). Indostar completed the acquisition of IIFL’s VF business (~Rs 35bn of AUMs) in 4Q. HF AUMs grew ~29% QoQ on a small base (~5% of AUMs). SME and Corp AUMs were sequentially flat. We have built in an AUM CAGR of ~35% over FY19-21E, driven by retail segments, only a moderate ask.

Optical Decline in Asset Quality: G/NNPAs quadrupled QoQ to ~2.6/1.7% largely led by IIFL’s VF portfolio (reported G/NNPAs at 6/4%). Ex-IIFL, G/NNPA further dipped to 0.7/0.5% led by recoveries in two corp a/cs. Further, the SME G/NNPAs improved slightly, to 3.1/2.1%. Given the chunky corporate exposure, asset quality may move erratically.

Near Term Outlook: In spite of an inline 4Q, uncertainty surrounding the real estate sector can keep the stock range bound.

STANCE Opportunistic and tactile lending by an astute management along with increasing retailisation underpins our constructive stance on Indostar. While critics are wary of its real estate and structured finance exposure, calculated repayment rates and immaculate asset quality should dispel concerns. Current attractive valuations (<1x Mar-21E ABV) imply significant deterioration in corporate asset quality, which we believe is unlikely. We have reduced ABV to factor portfolio acquisition goodwill.

Financial Summary (Rs mn) 4QFY19 4QFY18 YoY (%) 3QFY19 QoQ (%) FY18 FY19P FY20E FY21E Net Interest Income 1772.1 1173.7 51.0 1722.4 2.9 3,776 5,177 10,115 14,407 PPOP 1118.3 667.9 67.4 1142.3 (2.1) 3,025 3,954 6,726 10,621 Reported PAT 739.0 405.0 82.5 712.5 3.7 2,046 2,408 3,492 5,546 EPS (Rs) 8.0 5.1 55.6 7.7 3.7 26.0 26.1 37.9 60.1 ROAE (%) 10.3 9.5 11.0 15.4 ROAA (%) 2.84 1.96 2.45 2.82 Adj. BVPS (Rs) 255.6 271.7 297.1 346.5 P/ABV (x) 1.40 1.32 1.20 1.03 P/E (x) 13.8 13.7 9.5 6.0 Source: Company, HDFC sec Inst Research

INDUSTRY NBFCs CMP (as on 21 May 2019) Rs 358 Target Price Rs 520 Nifty 11,709 Sensex 38,970 KEY STOCK DATA Bloomberg INDOSTAR IN No. of Shares (mn) 92 MCap (Rsbn) / ($ mn) 33 / 474 6m avg traded value (Rsmn) 21 STOCK PERFORMANCE (%) 52 Week high / low Rs 608/275 3M 6M 12M Absolute (%) 5.3 (1.9) (39.0) Relative (%) (3.2) (12.6) (51.5) SHAREHOLDING PATTERN (%) Dec-18 Mar-19 Promoters 60.7 60.5 FIs & Local MFs 12.8 15.3 FPIs 10.9 10.1 Public & Others 15.6 14.1 Pledged Shares NIL NIL Source : BSE

Darpin Shah darpin.shah@hdfcsec.com +91-22-6171-7328

Aakash Dattani aakash.dattani@hdfcsec.com +91-22-6171-7337

INDOSTAR : RESULTS REVIEW 4QFY19

Page | 2

Newer Segments Break Even: The VF (~78%) and HE

(~53%) segments broke even with a marked improvement in the C-I ratios. The IIFL business acquisition did not impact the break-even of the VF business. The C-I ratio for the SME business remained stable at ~22%. Lower income and higher staff costs resulted in an ~860bps rise in the C-I ratio of the corporate segment to ~10.7%. The overall C-I ratio rose ~365bps QoQ to ~37%.

IIFL VF Business Acquisition: o Completed the acquisition of IIFL’s VF business in

4QFY19 (Rs 35bn AUMs, Rs 22bn on-book, 1079 employees and 161 branches). The acquired branches will be jointly run for 12 months, post which the cos will mutually decide the branches to be acquired.

o The transaction did not impact the income statement in 4QFY19.

o Having paid a net purchase consideration of ~Rs 24bn, INDOSTAR recognised goodwill ~Rs 3bn. As per mgt commentary and Ind AS 38, the goodwill will not be periodically charged to the P/L, instead it will be tested annually for impairment. We have conservatively subtracted the amount while estimating the ABV.

o The balance consideration will be discharged in cash over 4 qtrs (~Rs 5.13bn/qtr).

Optical Dip in Margins: Reported margins dipped ~100bps QoQ to ~6.7% as yields dipped ~140bps to ~12.9% while the CoF dipped ~20bps (again, optically). As the IIFL business acquisition did not impact the P&L (it only hit the B/S at the end of the qtr and FY), the dip in NIMs was optical. Yields increased across retail segments, (SME: +30bps QoQ,

VF: +180bps QoQ ex-IIFL and HF: +150bps QoQ). Ex. the IIFL acquisition, NIMs dipped ~20bps QoQ to 7.5%. The carrying cost of maintaining higher liquidity too, weighed down on NIMs.

Revival in Corporate Disbursals: After declining in 2Q and 3Q, corporate disbursals grew ~4x QoQ to ~Rs 11.6bn. Indostar, along with Edelweiss ARC acquired BMM Ispat’s debt in a distress sale. Of the ~Rs 6.5bn of loans, it sold down ~Rs 4bn. The transaction was backed by a strategic buyer (possibly JSW Steel). The share of real estate loans within the corporate book was up ~600bps QoQ to 62% as the co disbursed previously sanctioned amounts to existing customers.

Assignment On The Rise: Off-book assets increased to ~Rs 15bn vs. ~Rs 1bn QoQ w/w off-book assets acquired from IIFL were ~Rs 12.7bn. The co completed its first VF/HF assignment transaction for assets of ~Rs 709/239mn in 4QFY19. SME assets assigned during the quarter/ year were ~Rs 1.67bn/684mn. We expect the co to increasingly rely on assignment/ securitization as an alternative source of funding. The higher securitization/ assignment and corporate loan sell downs in 4Q, resulted in a ~31% QoQ rise in income on derecognition of loans to ~Rs 1.17bn.

Provision Reversals: The P&L was subject to an ECL write-back of ~Rs 73mn, led by reversals in the Corporate (Rs 121mn) and SME segments (Rs 26mn). INDOSTAR recovered 100% from 2 delinquent corporate accounts in 4Q. We have conservatively factored in LLPs of ~100bps over FY19-21E, incorporating higher credit losses on the maturity of the nascent book (VF, HF and SME).

INDOSTAR : RESULTS REVIEW 4QFY19

Page | 3

Five Quarters at a Glance (Rs mn) 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 YoY Growth QoQ Growth Net Interest income (NII) 1,174 1,132 1,791 1,722 1,772 51.0% 2.9% Total Operating Expenses 506 541 692 580 654 29.3% 12.7% PPOP 668 591 1,099 1,142 1,118 67.4% -2.1% Provisions And Write Offs (21) 77 111 48 (73) 243.0% -251.7% PBT 689 514 989 1,094 1,192 72.9% 8.9% Tax Expense 285 200 352 381 451 58.0% 18.2% Reported PAT (incl. OCI) 403 314 637 713 743 84.3% 11.9% Other details Disbursements (Rs mn) 21,742 22,521 13,048 8,540 20,280 -6.7% 137.5% Corp (%) 74.1 68.2 31.6 33.4 57.2 -1685 bps 2378 bps SME (%) 18.9 13.6 27.3 12.8 7.5 -1133 bps -525 bps Housing (%) 1.7 5.7 12.9 12.3 6.4 473 bps -583 bps VF (%) 5.3 12.5 28.2 41.5 28.8 2346 bps -1269 bps AUM (Rs mn) 60,595 74,701 77,665 77,482 117,352 93.7% 51.5% Corp (%) 73.2 70.3 62.7 57.8 38.6 -3458 bps -1925 bps SME (%) 23.9 22.0 23.9 24.0 16.1 -781 bps -796 bps Housing (%) 0.8 2.4 4.3 5.5 4.7 382 bps -81 bps VF (%) 2.1 5.3 9.1 12.7 40.7 3857 bps 2802 bps Borrowings (Rs mn) 48,228 54,370 58,032 62,223 89,357 85.3% 43.6% Profitability Yield on Advances (%) 13.50 12.20 15.00 14.30 12.90 -60 bps -140 bps Cost of Funds (%) 8.90 9.00 9.70 9.90 9.70 80 bps -20 bps Spreads 7.00 3.20 5.30 4.40 3.20 -380 bps -120 bps NIM (%) 7.00 6.40 8.50 7.70 6.70 -30 bps -100 bps Cost-Income ratio (%) 43.1 47.8 38.6 33.7 36.9 -619 bps 321 bps Tax rate (%) 41.4 38.8 35.6 34.9 37.8 -355 bps 297 bps CRAR (%) 28.3 31.9 31.2 30.8 24.0 -430 bps -680 bps Asset Quality GNPA 768 884 699 697 3,051 297.3% 337.5% NNPA 640 740 466 465 1,995 211.7% 329.1% GNPA (%) 1.30 1.20 0.90 0.90 2.60 130 bps 170 bps NNPA (%) 1.10 1.00 0.60 0.60 1.70 60 bps 110 bps PCR (%) 16.7 16.3 33.3 33.3 34.6 1795 bps 128 bps Segment wise GNPA Corp (%) 1.10 0.80 0.40 0.30 - -110 bps -30 bps SME (%) 2.10 2.60 2.40 3.20 3.10 100 bps -10 bps VF (%) - - - 0.10 6.10 610 bps 600 bps Housing (%) - - - 0.10 0.10 10 bps 0 bps

Source: Company, HDFC sec Inst Research

In line with estimates led by robust AUM growth and stable NIMs (ex- IIFL)

Led by Corp (Rs11.6bn, 4x QoQ), VF and SME disbursals grew ~65% and ~40% QoQ

Ex-IIFL VF acquisition of Rs 35bn, AUMs were Rs 82.2bn (+36/6% YoY/QoQ)

CPs form a mere 2% of borrowings vs. ~7% QoQ and 15% in 1Q

Ex-IIFL acquisition, NIMs dipped 20bps QoQ to 7.5%

Ex-IIFL acquisition, G/NNPA improved to 70/50bps during 3Q led by a dip in Corp NPAs

100% recovery in 2 a/cs

Led by a ~22/16% rise in staff costs while other opex grew ~44/9%

Reversals led by Corp (Rs 121mn) and SME (Rs 26mn); VF provisions were ~Rs 68mn (+38% QoQ)

INDOSTAR: RESULTS REVIEW 4QFY19

Page | 4

Disbursals Growth: Driven By Corporate Disbursals Disbursals Mix: Share of Corporate Jumps

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research AUM Growth: Ex-IIFL at 36/6% AUM Breakup: Share of Retail At 61%

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

84% 78% 76% 73% 70% 63% 58%39%

16% 22% 23% 24% 22%24% 24%

16%

0% 0% 0% 2% 5% 9% 13%

41%

0%10%20%30%40%50%60%70%80%90%

100%

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

Corporate SME HF VF

Broad based disbursal growth (~2.4x QoQ) led by Corp (Rs 11.6bn, +4.1x), VF (Rs 5.8bn, +65%) and SME (Rs 1.5bn, +40%) Corporate disbursal growth was led by a single large a/c (BMM Ispat, Rs 6.5bn) Retail disbursals now form ~43% of total disbursals INDOSTAR acquired IIFL’s VF portfolio of Rs 35.1bn (on book Rs 22bn) Ex-IIFL VF acquisition, AUM grew 36/6% (Rs 82.2bn) led by the VF (Rs 12.6bn, +28% QoQ) and HF (Rs 5.5bn, +29% QoQ) segments Corporate portfolio was flat QoQ, despite the rise in disbursals as repayments (and sell down of the non real estate a/c: Rs 4.0bn) rate jumped sequentially Post the acquisition, corporate loans are ~39% in the loan mix vs. 58% QoQ

-100%-50%0%50%100%150%200%250%300%350%

0

5,000

10,000

15,000

20,000

25,000

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

Corporate SMEHF VFGrowth (RHS, YoY)

59%75% 77% 74% 68%

32% 33%

57%

41%25% 21% 19%

14%

27%13%

8%

5% 12%28%

41%29%

0%10%20%30%40%50%60%70%80%90%

100%

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

Corporate SME HF VF

0%

20%

40%

60%

80%

100%

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

Corporate SMEHF VFGrowth (RHS, YoY)

INDOSTAR: RESULTS REVIEW 4QFY19

Page | 5

Corporate Book Split: Share of RE Jumps Calc. Corporate Repayment Rates: Inch Up

Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research Borrowing Mix: Share of Assignment Rises Margin Movement: Optical Dip

Source : Company, HDFC sec Inst Research; * 2HFY19 incl. assignment (22% in 4Q)

Source : Company, HDFC sec Inst Research

The share of real estate loans jumped ~600bps to ~62% of the corporate book Real estate loans form ~24% of AUMs vs. ~32% QoQ Calc. corporate repayments rose to ~25% vs. 14% QoQ Of the ~Rs 6.5bn disbursed for BMM Ispat, ~Rs 4bn was sold down in 4Q, contributing to the rise in corp repayment rates Several existing sanctions to real estate borrowers were disbursed in 4Q INDOSTAR will require ~Rs 4-5bn additionally, to repay IIFL The PC to IIFL will be repaid over 4 qtrs (~Rs 5.13bn/ qtr) Ex. IIFL VF acquisition, NIMs were largely stable at 7.5% vs. 7.7% CPs form ~2.7% of total borrowings

56% 54% 46% 52% 54% 56% 62%

44% 46% 54% 48% 46% 44% 38%

0%10%20%30%40%50%60%70%80%90%

100%

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

Real Estate Non-Real Estate

151.

2%

84.8

%

107.

0%

16.2

%

15.2

%

13.8

% 24.9

%

0%20%40%60%80%

100%120%140%160%

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

Repayment Rates

25%37% 44% 45% 36%

49%41%

45% 46%

39%

26% 22%11% 10%

25%

0%10%20%30%40%50%60%70%80%90%

100%

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

NCD Banks CP& Others

0.0%2.0%4.0%6.0%8.0%

10.0%12.0%14.0%16.0%18.0%

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

Yields Cost of Borrowings NIMs*

INDOSTAR: RESULTS REVIEW 4QFY19

Page | 6

Segment-Wise Yields: Rise Sequentially (ex-IIFL) C-I and C-AA Ratios: C-AA Dips Optically

Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research Segment-Wise C-I Ratios: Corporate Surges Branches And Employees: Doubled Post Acquisition

Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research

The co has increased SME, HF and VF lending rates by ~100bps The sharp sequential rise in staff costs (+22/16%, led by the corporate segment) resulted in a ~365bps QoQ rise in the C-I ratio With a marked improvement in the C-I ratios, the HF (53% vs. 148% QoQ) and VF (78% vs. 104% QoQ) segments broke even in 4Q The acquisition of IIFL’s VF business led to the doubling of branches (to 322) and employees (2050+) The acquired branches will be operated by the two cos jointly for 12 months

0.0%2.0%4.0%6.0%8.0%

10.0%12.0%14.0%16.0%18.0%20.0%

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

Corporate SME HF VF

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

0%5%

10%15%20%25%30%35%40%45%50%

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

C-I Ratio C-AA Ratio (RHS)

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

Corporate SME

0

50

100

150

200

250

300

350

0

500

1,000

1,500

2,000

2,500

3,000

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

Branches Employees (LHS)

INDOSTAR: RESULTS REVIEW 4QFY19

Page | 7

Asset Quality: Sharp Rise Driven By Acquired Biz Segment-Wise GNPAs: Sharp Corporate Recoveries

Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research; 1QFY18 onwards as per IND-AS

Provision Expense: Reversals Led By Corporate Segment-Wise Provisions: Reversals In Corp and SME

Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

0

500

1000

1500

2000

2500

3000

3500

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

GNPAs (Rs mn) NNPAs (Rs mn)GNPAs NNPAs

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

Corporate SME

-1.20%-1.00%-0.80%-0.60%-0.40%-0.20%0.00%0.20%0.40%0.60%0.80%

-150

-100

-50

0

50

100

150

1QFY

18

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

LLPs (Rs mn) LLPs (%) - RHS

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

2QFY

18

3QFY

18

4QFY

18

1QFY

19

2QFY

19

3QFY

19

4QFY

19

Corporate SME

Ex-IIFL VF acquisition, G/NNPAs improved QoQ to 70/50bps Improvement in asset quality was led by recoveries in the corporate book (NIL GNPAs) SME and HF asset quality was sequentially stable Provisions reversals led by write backs in the corporate (- Rs 121mn) and SME (-Rs 26mn) segments VF provisions were higher at Rs 68mn vs. 49mn QoQ HF provisions were flat QoQ Having taken over on-book advances at a reduced value (Rs 21bn vs. Rs 22bn), the co does not expect to incur further credit costs on the acquired book

INDOSTAR: RESULTS REVIEW 4QFY19

Page | 8

Change In Estimates

Rs mn FY20E FY21E

Old New Change Old New Change NII 9,902 10,115 2% 15,402 14,407 -6% PPOP 6,260 6,726 7% 10,279 10,621 3% PAT 3,378 3,492 3% 5,356 5,546 4% Adj. BVPS (Rs) 332.3 297.1 -11% 366.0 346.5 -5% Source: HDFC sec Inst Research

Peer Set Comparison

NBFC Mcap (Rs bn)

CMP (Rs) Rating TP

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

FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E FY19E FY20E FY21E LICHF 265 525 NEU 471 281 326 377 10.9 9.6 8.5 1.87 1.61 1.39 15.9 15.9 15.8 1.31 1.28 1.26 MMFS # 248 403 BUY 504 124 152 177 15.2 13.0 11.6 3.10 2.54 2.18 15.2 15.7 15.8 2.60 2.54 2.49 SHTF 246 1,086 BUY 1,308 449 590 747 9.6 8.9 7.9 2.42 1.84 1.45 17.4 16.3 15.8 2.53 2.47 2.45 CIFC 222 1,420 BUY 1,799 355 422 514 18.7 15.9 13.6 4.00 3.37 2.76 21.1 20.5 20.1 2.34 2.26 2.33 INDOSTAR 33 358 BUY 520 272 297 346 13.7 9.5 6.0 1.32 1.20 1.03 9.5 11.0 15.4 1.96 2.45 2.82 REPCO 27 425 BUY 591 214 253 295 11.1 10.0 8.9 1.98 1.68 1.44 16.7 16.0 15.5 2.26 2.21 2.16

Source: Company, HDFC sec Inst Research; # Adjusted for subsidiary

INDOSTAR: RESULTS REVIEW 4QFY19

Page | 9

Income Statement (Rs mn) FY17 FY18 FY19P FY20E FY21E Interest Earned 6,436 7,031 10,813 18,709 25,586 Interest Expended 3,118 3,255 5,636 8,594 11,179 Net Interest Income 3,317 3,776 5,177 10,115 14,407 Other Income 763 1,008 1,244 1,300 1,866 Total Income 4,081 4,783 6,420 11,415 16,273 Total Operating Exp 727 1,758 2,466 4,689 5,652 PPOP 3,354 3,025 3,954 6,726 10,621 Provisions & Contingencies 123 (142) 163 1,395 2,154 PBT 3,230 3,167 3,792 5,332 8,467 Provision For Tax 1,122 1,121 1,384 1,839 2,921 PAT 2,108 2,046 2,408 3,492 5,546

Source: Company, HDFC sec Inst Research

Balance Sheet (Rs mn) FY17 FY18 FY19P FY20E FY21E SOURCES OF FUNDS Share capital 784 787 923 923 923 Reserves and surplus 18,063 19,961 29,140 32,479 37,782 Shareholders' Funds 18,847 20,747 30,063 33,402 38,705 Borrowings 33,756 48,321 89,552 108,572 155,228 Other Liabilities 2,571 2,870 3,387 20,302 37,637 Total Liabilities 55,174 71,938 123,002 162,275 231,570

APPLICATION OF FUNDS Advances 51,105 59,004 103,637 146,718 212,642 Investments 1,870 10,070 3,009 2,858 2,715 Fixed assets 88 642 702 772 850 Other Assets 2,111 2,222 15,654 11,926 15,364 w/w Goodwill 0 0 3,002 3,002 3,002 Total Assets 55,174 71,938 123,002 162,275 231,570

Source: Company, HDFC sec Inst Research

INDOSTAR: RESULTS REVIEW 4QFY19

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Key Ratios

FY17 FY18 FY19P FY20E FY21E VALUATION RATIOS EPS (Rs) 28.7 26.0 26.1 37.9 60.1 Earnings Growth (%) 10.0 (3.0) 17.7 45.0 58.8 BVPS (Rs) 256.5 263.7 325.8 362.0 419.5 Adj. BVPS (Rs) 248.1 255.6 271.7 297.1 346.5 DPS (Rs) 0.0 0.0 1.0 1.4 2.3 ROAA (%) 4.1 2.8 2.0 2.4 2.8 ROAE (%) 12.3 10.3 9.5 11.0 15.4 P/E (x) 12.5 13.8 13.7 9.5 6.0 P/ABV (x) 1.44 1.40 1.32 1.20 1.03 P/PPOP (x) 3.9 4.7 4.2 2.5 1.6 Dividend Yield (%) - - 0.3 0.4 0.6 PROFITABILITY Yield On Advances (%) 13.55 12.29 12.05 14.17 14.24 Cost Of Funds (%) 9.78 7.93 8.18 8.68 8.48 Core Spread (%) 3.76 4.35 3.88 5.49 5.76 NIM (%) 6.98 6.60 5.77 7.66 8.02 OPERATING EFFICIENCY Cost/Avg. Asset Ratio (%) 1.5 3.1 2.7 3.6 3.1 Cost-Income Ratio 17.8 36.8 38.4 41.1 34.7 BALANCE SHEET STRUCTURE RATIOS Loan Growth (%) 22.8 18.6 89.1 25.0 44.9 Borrowings Growth (%) 12.4 43.1 85.3 21.2 43.0 Equity/Assets (%) 34.2 28.8 24.4 20.6 16.7 Equity/Loans (%) 36.0 33.4 25.6 22.8 18.2 Total CRAR 33.8 28.3 24.3 21.1 17.4 Tier I 33.4 28.0 24.0 20.6 16.7 ASSET QUALITY Gross NPLs (Rs mn) 727.3 767.9 3,050.8 4,545.0 6,759.2 Net NPLs (Rs mn) 619.5 639.7 1,995.0 2,991.0 3,736.8 Gross NPLs (%) Total Assets 1.40 1.30 2.60 3.10 3.18 Net NPLs (%)Total Assets 1.20 1.10 1.70 2.04 1.76 Coverage Ratio (%) 14.3 15.4 34.6 34.2 44.7 Provision/Avg. Loans (%) 0.24 (0.23) 0.14 0.95 1.01

ROAA TREE FY17 FY18 FY19P FY20E FY21E Net Interest Income 6.50% 5.94% 5.31% 7.09% 7.32% Non-Interest Income 1.50% 1.59% 1.28% 0.91% 0.95% Operating Cost 1.42% 2.77% 2.53% 3.29% 2.87% Provisions 0.24% -0.22% 0.17% 0.98% 1.09% Tax 2.20% 1.76% 1.42% 1.29% 1.48% ROAA 4.13% 3.22% 2.47% 2.45% 2.82% Leverage (x) 2.98 3.21 3.84 4.50 5.46 ROAE 12.30% 10.33% 9.48% 11.01% 15.38%

Source: Company, HDFC sec Inst Research

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RECOMMENDATION HISTORY

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

Date CMP Reco Target 25-Mar-19 350 BUY 549 9-Apr-19 413 BUY 549

22-May-19 358 BUY 520

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