Financial Services Conference UpdateFinancial Services Conference UpdateFinancial Services Conference UpdateFinancial Services Conference UpdateFinancial Services Conference Update22
We, at Edelweiss, hosted a Financial Services Conference on February 15, 2007 in Mumbai to give ourWe, at Edelweiss, hosted a Financial Services Conference on February 15, 2007 in Mumbai to give ourWe, at Edelweiss, hosted a Financial Services Conference on February 15, 2007 in Mumbai to give ourWe, at Edelweiss, hosted a Financial Services Conference on February 15, 2007 in Mumbai to give ourWe, at Edelweiss, hosted a Financial Services Conference on February 15, 2007 in Mumbai to give ourinvestors an opportunity to interact directly with fifteen financial services companies. In tandem, thereinvestors an opportunity to interact directly with fifteen financial services companies. In tandem, thereinvestors an opportunity to interact directly with fifteen financial services companies. In tandem, thereinvestors an opportunity to interact directly with fifteen financial services companies. In tandem, thereinvestors an opportunity to interact directly with fifteen financial services companies. In tandem, therewere nine presentations by industry experts on diverse business segments in the financial serviceswere nine presentations by industry experts on diverse business segments in the financial serviceswere nine presentations by industry experts on diverse business segments in the financial serviceswere nine presentations by industry experts on diverse business segments in the financial serviceswere nine presentations by industry experts on diverse business segments in the financial servicesspace viz., Banking, Mortgage Finance, Insurance (life and non life), CV Financing, Agri/Micro Financing,space viz., Banking, Mortgage Finance, Insurance (life and non life), CV Financing, Agri/Micro Financing,space viz., Banking, Mortgage Finance, Insurance (life and non life), CV Financing, Agri/Micro Financing,space viz., Banking, Mortgage Finance, Insurance (life and non life), CV Financing, Agri/Micro Financing,space viz., Banking, Mortgage Finance, Insurance (life and non life), CV Financing, Agri/Micro Financing,Infrastructure Financing, Retail Financing, and industry outlook, which gave an insight into the intricaciesInfrastructure Financing, Retail Financing, and industry outlook, which gave an insight into the intricaciesInfrastructure Financing, Retail Financing, and industry outlook, which gave an insight into the intricaciesInfrastructure Financing, Retail Financing, and industry outlook, which gave an insight into the intricaciesInfrastructure Financing, Retail Financing, and industry outlook, which gave an insight into the intricaciesof this space. This document tries to encapsulate the key take always from the presentations andof this space. This document tries to encapsulate the key take always from the presentations andof this space. This document tries to encapsulate the key take always from the presentations andof this space. This document tries to encapsulate the key take always from the presentations andof this space. This document tries to encapsulate the key take always from the presentations andmeeting.meeting.meeting.meeting.meeting.
Key TakeawaysKey TakeawaysKey TakeawaysKey TakeawaysKey Takeaways
Discussions at this event reaffirm our belief that the buoyant growth in the Indian economy in the nextthree-four years will provide strong tailwinds for banks, insurance, and other financial services companies. The financial services space will be one of the biggest beneficiaries of the current economic expansion.Bank managements were confident of continued credit growth emanating from strong underlyingdemand.Credit demand is expected to be growth-supportive and resilient. We expect credit to attain 19% CAGRover FY07-09E, after growing at 26% in FY07 (factoring in some credit tightening post recent CRRhike). While direct impact of CRR hike on profitability (1-2%) and margins is lower, it is likely to slowdown banks’ ability to expand credit. Loan demand from corporate and infrastructure sectors willremain strong in FY08E, while the retail sector is expected to report slower than historic growth.In our view, pricing power is back with banks, which will enable stable margins going forward. Increasingcompetition on the deposit side will again benefit banks with a strong deposit franchise.
Valuations Valuations Valuations Valuations Valuations
We maintain our positive view on the sector. However, in the near term, due to negative news flow anduncertainty over inflation and interest rates, we expect valuations to remain subdued. In the currentscenario, we advise investors to be selective in bank stocks. We also expect greater visibility on M&Ato guide valuations as we approach the end of FY08.
Our top picksOur top picksOur top picksOur top picksOur top picks
At current valuations, we prefer PNB, Union Bank, IOB, and Centurion Bank.PNBPNBPNBPNBPNB at 1.3x FY08E book: Strong franchise, high CASA, and 19-21% expected RoE.Centurion Bank of PunjabCenturion Bank of PunjabCenturion Bank of PunjabCenturion Bank of PunjabCenturion Bank of Punjab at 3.3x FY08E book and 28x FY08E EPS: Attractive valuations given stronggrowth outlook, high profitability, and M&A possibilities.Union BankUnion BankUnion BankUnion BankUnion Bank at 1.0 FY08E book: Improved margins, high operating efficiency, and 20% plus expectedRoE.IOBIOBIOBIOBIOB at 1.4x FY08E book: Attractive valuations given 24-25% plus RoE over FY07-08E.
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