Banks & NBFCs

Sector Strategy Note
No more mispriced high conviction ideas; Tactical relative bets hold the key
With many Banks and NBFCs up 40%-65% YTD, the disproportionately skewed return-risk ideas are off the table. The “What you pay vis-à-vis What you get in return” equation is well balanced with most of the stocks close to top quartile multiples on a historical traded basis. A few mid caps have not rallied as much and we still see value in them. While asset quality pangs have not yet shown early signs of receding, we are cognizant that there are macro tailwinds esp. improving sentiment on infrastructure sector and the interest rate cycle. As a result, the drivers of Bank and NBFC stocks viz, loan growth, margins, asset quality, bond portfolio returns and book values could improve disproportionately during FY13 and stocks could get re-rated further upwards. However, we believe that absolute return “Buys” are no longer justifiable, and our focus shifts to identifying relative outperformers. Likely headwinds and tailwinds during FY13:  Asset Quality holds the key - While the jury is out on whether recent GoI policy measures on the power sector could create positive momentum and limit the pain, we think restructuring power sector loans could still be a reality given practical challenges in enforcing the directions immediately. Even if the Infrastructure sector sees the pain ameliorating, we continue to see structural issues affecting other sectors such as Textiles, Agri, CRE and Metals sectors. Avoid most PSU banks. Doubts remain on the credibility of the ABVs. We prefer Infra NBFCs to PSU Banks as a better bet on possible asset quality improvement. Buy PSU banks if they are trading below 1x FY13E stress tested ABV. Retail asset biased Pvt banks remain well insulated.  Fiscal Deficit and Market Borrowing: Our numbers suggest that net GoI market borrowings for FY13 in excess of Rs. 4.5tn will be negative for bond yields and systemic liquidity.  The extent of RBI easing could get curtailed: In line with consensus, we too expect a further 100-150 bps of RBI policy easing (CRR + rate cuts) over the ensuing 12 months. However, the rising crude oil prices and possible fuel price hikes may deter rate cuts to that extent. Notwithstanding these issues we see the yield curve steepening and hence prefer wholesale liability biased Pvt banks/ NBFCs as we see them having better NIM expansion.  Momentum on Equity raising: We have shied away from recommending financials to merely play the bump-up on ABVs due to equity raise esp. on fundamentally less favored stocks. However, its impact on stock prices cannot be ignored. With strong FII flows and momentum picking up in the equity markets, many banks should be looking to shore up their capital base, due to which currently stretched multiples could be a mirage. Pvt banks should benefit.  Other issues: Pension liabilities as a headwind, which have dropped off markets‟ radar, could come back to haunt PSU banks. Basel III, IFRS rules and regulatory norms esp. on provisions for restructured loans could cause pain.

Sector Report
Sector Outlook
Date Market data BSE Sensex BSE Bankex NSE Nifty
10% 0% -10% -20%

Neutral
Feb 22, 2012

18429 12839 5607

-30% -40% Feb-11

May-11
Bankex

Aug-11

Nov-11
Sensex

Performance (%) 1m Sensex Bankex 13 24 3m 11 24 12m -1 1

Ganeshram Jayaraman ganeshram@sparkcapital.in +91 44 4344 0031 Jyothi Kumar Varma jyothikumar@sparkcapital.in +91 44 4344 0033 Abhinesh Vijayaraj Abhinesh@sparkcapital.in +91 44 4344 0006

To play these themes, our model financials portfolio would be ICICI Bank, HDFC Bank, Kotak Bank, Indusind Bank, Yes Bank, KVB, ING Vysya Bank, Corporation Bank, IDFC and PFC. We think this portfolio is well positioned to reap the upside and hedged against downside risks and should outperform the benchmark.

1

large proportion of wholesale funding (35%) positives as the rate cycle turns  Rating driven by comfort on valuations rather than on loan book. agri loans at 7% are much below prescribed mandatory limit.7% continue to be the dominant concern  Other income continues to remain low at 0.5% YTD.2x FY13E ABV Bank of Baroda  Bob‟s low proportion of wholesale liabilities (~23%) and large overseas book (31%) would mean margins are unlikely to improve in a hurry  Restructured assets spike a concern. PSL lending will also play a part  Restructured assets at 5. our concerns are with low slippages from this portfolio (11%).4% of the loan book. Stressed assets at 8. Sector Report Sector Outlook Neutral Rating ADD OUTPERFORM TP: Rs. would wait for betterment in asset quality before recommending a buy Bank of India  Margins to remain flat in 4QFY12 as deposit growth catches up.350  Shift towards BBB and lesser rated corporates could impact asset quality. Focus on these areas is likely to impact NIMs in 4QFY12  Favourable ALM profile. which we believe is unsustainable  Maintain sell with a target multiple of 1x FY13E Abv Corporation Bank  Priority sector loans at 31%. making a loan growth target of 20% for FY12 a stretch unless chunky loans are given-one of our key concerns  Foresee pressure on NIMs in 4QFY12 as a significant portion of incremental loans need to be lent to agri/PSL.  Rating driven by comfort on valuations rather than on loan book. more in the pipeline. 462 2 .6% qoq. slippages from this portfolio accounted for a third of overall slippages in 3QFY12  View the spike in RA and 15% qoq rise in GNPAs as the first signs of an impending downturn in asset quality  Value the bank at 1. 770  Continue to be negative on the bank.3% qoq.Banks & NBFCs View on Stocks Company Axis Bank View  Advances are up only 4. 1. however infrastructure advances grew 4. 16% qoq forex income de-growth discomforting SELL UNDERPERFORM TP: Rs. heightening concerns on an already skewed loan book  Low margins a concern in the absence of pricing power  Restructured assets account for 4.9% far from comforting. target multiple at 1x FY13E ABV Canara Bank  Overall loan book grew only by 0. 604 SELL UNDERPERFORM TP: Rs.1x FY13E ABV. target multiple 2. target multiple 1x FY13E ABV BUY OUTPERFORM TP: Rs. 316 REDUCE UNDERPERFORM TP: Rs.8% of assets.

expect no major accretion to restructured assets  Value the bank at a target multiple of 1x FY13E ABV 3 . which along with a shift to a less risky. averaging 1.1x FY13E ABV HDFC Bank  NIMs to hold firm led by a shift to fixed rate loans  Shift to retail loans in place with our broader thesis  Comfort on asset quality continues.6% of deposits).  Foresee no sustainable turnaround in asset quality in the near term  Value the bank at a target multiple of 1. Current rate of CASA generation should keep pace with the loan growth ensuring stable to improving spreads at the margin  Growth in retail portfolio can help in improving leverage REDUCE UNDERPERFORM TP: Rs.51  Other income has fared well.2X FY13 consolidated ABV Indian Bank  Favorable ALM profile (mismatch at a low 1. which we expect to continue  Business growth expected to remain strong  Maintain outperform rating. 386 ADD OUTPERFORM TP: Rs. 88% of the book has completed one year of principal repayment after the moratorium period Sector Report Sector Outlook Neutral Rating ADD OUTPERFORM TP: Rs.2% of assets.Banks & NBFCs View on Stocks Company City Union Bank View  Comfort on asset quality continues as restructured assets are low at 2. low margin corporate loan segment would mean the bank is unlikely to benefit from a reversal in the rate cycle. 543 BUY OUTPERFORM TP: Rs.7x FY13E ABV ICICI Bank  Nearly 50% of incremental growth has come from Overseas business where margins are improving  CASA ratio has improved for the bank owing to lower growth abetting margins.4% amongst the lowest  Credit growth to continue beating the system  Value the bank at a target multiple of 3. 258  T1 CAR at 11.2% more than sufficient to last into FY14  Asset quality to be stable.4x FY13E ABV Federal Bank  Profitability has improved at the expense of growth and asset quality has deteriorated again this quarter after the improving trend seen over the past two quarters  Repricing of NRE term deposits in FY13would effectively increase the cost on deposits by ~20bps. restructured advances at 0.5% of advances. to help the bank maintain ADD NIMs OUTPERFORM TP: Rs. 1176  Maintain BUY on the bank valuing the business at 2. low proportion of wholesale funding (16%). valuing CUB at a target multiple of 1.

4x FY13E ABV BUY OUTPERFORM TP: Rs.Banks & NBFCs View on Stocks Company View Sector Report Sector Outlook Neutral Rating SELL UNDERPERFORM TP: Rs. cut rating from BUY to UNDERPERFORM ADD OUTPERFORM TP: Rs. 464  Strong SA generation post de-regulation can help in maintaining the margins Kotak ADD Mahindra Bank  Turn around in capital markets (contributed 6% of Q3FY12 PAT compared to 15% in FY11 PAT) can provide the delta in earnings OUTPERFORM TP: Rs. 412 Karur Vysya Bank  Comfort on asset quality driven by continuing low slippages and benign restructured assets  Concentration risk has declined substantially. bringing in healthy NIMs  Core fee income improved 4% qoq. top 20 advances now amount to 11.6x FY13E ABV BUY OUTPERFORM TP: Rs. Maintain Outperform 4 .8x FY13E ABV IndusInd Bank  69% of incremental loan book has come from high yielding consumer finance loan book which may not be case going forward resulting in incrementally lower yields.9X FY13ABV largely reflecting the improved fundamentals.6% extremely worrying Indian Overseas Bank  Whopping 51% credit growth since Sep „10 vs 27% for the system compounded with capital adequacy problems  Shortfalls in counter cyclical provisioning buffer and takeover of SSK bank to be provided in 4QFY12  Remain pessimistic about the bank‟s prospects. 345 ING Vysya Bank  ING Vysya‟s ~45% of wholesale liabilities are likely to reprice quicker than assets. 592  May not be beneficiary from potential capital raise as the bank has Tier-1 CAR of 15.4% in 4QFY11  Healthy levels of capital. value the bank at a target multiple of 0. which we expect to continue  Asset quality and CIR expected to hold steady at current levels  Value the bank at 1. and continues to be the best amongst peers logging 1.6%  Valuations expensive but expect.6% of average assets. 90  Stressed asset portfolio at 10. Fall in the yields can be partially mitigated by increase in SA deposits  Strengthening retail liabilities should keep fee income growth healthy  Potential capital raise increase the book value which can keep the momentum going  Valuations at 2. favorable cost structure other positives  Maintain buy with a target multiple of 1.23% of the portfolio against 20.

far from comforting.2X FY13ABV. weakness to continue  PNB has the highest impact to ABV in our stress case scenario.1x FY13E ABV South Indian Bank  Comfort on asset quality continues.  Rising exposures to power. see possibility of increase in slippage to 15%  Low proportion of wholesale liabilities (23%) and large corporate focused loan book mix to result in relatively flat margins going forward  Maintain sell with a target multiple of 1x FY13E ABV SELL UNDERPERFORM TP: Rs.5x FY13E ABV Sector Report Sector Outlook Neutral Rating SELL UNDERPERFORM TP: Rs.  Profitable growth challenges emerging forcing the bank to adopt intermediation route  Chunky advisory related fee income contributed to 44% of the fee income in 9MFY12 whose growth momentum may not continue. play on capital raise  Maintain outperform with a target multiple of 1. CRE.2x FY13E ABV SELL UNDERPERFORM TP: Rs.  Valuations at 2. downgrade to OUTPERFROM ADD OUTPERFORM TP: Rs.8%.Banks & NBFCs View on Stocks Company Punjab National Bank View  Stressed assets at 8. 30 State Bank of India  Remain positive on the bank‟s pricing power driven by sheer size and low cost liability franchise  Concerns center on asset quality. disappointingly delinquencies are spread across sectors. slippages to remain high in 4QFY12  Retain sell with a target multiple of 1. 1714 Union Bank of India  Further restructuring of ~Rs12bn in the pipeline for 4QFY12. 380 5 . given the weak liability franchise leave minimal margin for error. driven both by low slippages and benign restructured assets  Expect moderate compression in margins in 4QFY12 as deposits accrue and PSL obligations are met  Fee income continues to be lackluster and is expected to remain so. NPV sacrifice in 3QFY12 disconcerting  RA slippages low at 12%. maintain sell with a target multiple of 1. 203 Yes Bank  Among the biggest beneficiaries of falling interest rates and de-regulation of savings rate. 892 ADD OUTPERFORM TP: Rs. metals and mining additional concern  Decline in CASA a key challenge. making a significant turnaround in asset quality unlikely  Credit costs.

Banks & NBFCs View on Stocks Company HDFC View  Liabilities of HDFC geared up to benefit from lower interest rate scenario with term loans at just 20% of outside liabilities  Weakening demand in key markets like Chennai is translating to slower off take of loans. Maintain Outperform LT Finance Holding  Margin expansion on cards with possible lowering of system level interest rates  Asset side of balance sheet suffers from lack of “Product Leadership”. Housing loans portfolio of banks has slowed down to12. 555 SELL UNDERPERFORM TP: Rs.8% for FY13.2010.  Regulatory changes can result in higher capital requirement reducing structural leverage and using up any new capital that is infused. Maintain SELL with a TP of Rs 555 valuing business at 1.1% yoy growth as of end Dec 2011 compared to 15% in Dec.7% of equity base are due for conversion by Aug 2012 at 16% lower price which can have a bearing on the stock price Sector Report Sector Outlook Neutral Rating ADD OUTPERFORM TP: Rs.  Increasing competition & lower switching cost for customers can mean lower benefit from margin expansion. 742  Retain OUTPERFORM on the stock as we view the stock as a good defensive bet .8XABV SELL UNDERPERFORM TP: Rs.  Maintain SELL due to business challenges with a target multiple of 1.1% yoy growth as of end Dec 2011 compared to 15% in Dec. 160  Lending subsidiaries with separate capital requirements for each of them and lack of fungibility to reallocate capital can create capital allocation problems  Retain UNDERPERFORM with a target multiple of 1. 43 ADD OUTPERFORM TP: Rs.5x FY13E ABV LIC Housing Finance  Weakening demand in key markets like Chennai is translating to slower off take.2010.8XFY13ABV Mahindra Finance  Anecdotal indicate slow down in rural economy as NREGA allocations.  Valuations not factoring in the current risks. Housing loans portfolio of banks has slowed down to12.  Warrants of ~3. No product has more than 25% contribution in L&T Finance while the largest sector contributes to only 20% of loan book for L&T Infra.  Increasing competitive intensity in the CV segment forcing the company to absorb incremental borrowing costs  Margin expansion factored in from 9.5x FY13E ABV.2% in Q3FY12 to 9. IDFC  Management did right job of protecting balance sheet by judicious growth & P&L by selling investments  Loan growth fears receding with more opportunities in roads and refinancing coming up  Management commentary turning positive with improving incremental news flow in power sector  Valuations not completely reflecting the positive news flow at 1. rate of MSP increases slowdown  Live regulatory risks which can lead to margin compression and higher “non-growth” capital requirement . REDUCE UNDERPERFORM TP: Rs. 212 6 .

5% of liabilities as of Q3FY12  Current valuations do not factor in reflect any of our concerns.building sanction book is not difficult if environment improves  Incremental positive news flow to the sector to help rerating  Credit costs to remain subdued if coal supply related concerns get alleviated  Retain BUY with a target multiple of 1. we retain our SELL stance on the stock. 249 BUY OUTPERFORM TP: Rs. Momentum can still play out for the stock. 232  Potential headwinds from regulatory backlash like SLR on retail-NCD can marginally impact the return ratios  Maintain BUY with a target multiple of 2.0x FY13E ABV PFC  Sanctions have come down dramatically by 27% for 9 month comparable period.Banks & NBFCs View on Stocks Company Muthoot Finance View  Potential capital raise can “bump up “ the book value of the stock while maintaining healthy leverage given 40-45% growth guidance  Volume growth for gold at the lowest in the last 4 quarters at ~1.5% in Q3FY12 but value growth continues to remain robust Sector Report Sector Outlook Neutral Rating BUY OUTPERFORM TP: Rs. In generation segment for 9MFY12 sanctions were down by 31% yoy.  Prone to other regulatory risks like SLR requirement on retail NCD which form13. In our view . total loans under stress within the private sector lending is 15% of the assets  Current valuations given the recent run-up do not provide sufficient upside to push absolute BUY.2% of loan book. Including these assets. For 9MFY12 sanctions were just 7% lower than comparable 9month period in the previous year  Management hints potential head winds on asset quality on account of two projects which account for 1. 262 7 .5x FY13E ABV REC  Sanctions volume remained strong despite significant headwinds to sector.  Despite lower growth & conservative lending .optically asset quality will still deteriorate if migration from 180 to 90 DPD happens. Downgrade to OUTPERFORM Shriram Transport  Lower growth with dwindling yields to put pressure on earnings momentum. SELL UNDERPERFORM TP: Rs. 470 ADD OUTPERFORM TP: Rs.

Banks & NBFCs 5 year trading history (Banks) Valuation metrics over the past 5 yrs (one yr fwd multiples) Mean P/ABV during FY07-08 Sector Report Sector Outlook Neutral Bank AXSB BOB BOI CBK CRPBK CUBK FB HDFCB ICICIBC INBK IOB CMP 1.74 0.11 1.22 2.02 2.35 5% 30% 1% 20% 8% 48 451 532 991 247 51 480 538 1.11 1.34 0.20 0.23 2.90 2.63 2.47 1.72 0.77 1.05 2.34 2.84 1.38 2.86 1.452 267 369 1.56 0.39 2.96 0.47 1.83 3.08 2.12 4.19 0.87 1.30 23% 35% 14% 7% 9% 110 315 360 388 576 164 334 382 479 579 -33% -6% -6% -19% -1% -18% 41% 7% -6% 40% 0.14 3.55 1.51 0.60 1.07 0.36 1.37 4.19 1.00 2.36 2.96 0.47 2.34 1.22 0.84 4.04 1.18 0.91 2.06 1.42 1.24 1.62 2.42 2.08 1.83 1.82 1.85 0.32 2.95 2.15 2.61 0.92 1.36 2.69 2.97 0.44 1.20 1.64 0.75 0.37 1.99 3.03 2.74 0.288 868 397 554 512 52 wk Correction high from peak 1 yr return FY12E P/ABV FY13E P/ABV Highest P/ABV Least P/ABV P/ABV above % Premium/ which it has (Discount) to Current Mean disc Mean P/ABV traded 75% of FY13E Discount to Mean disc FY09-12 during FY09-12 days P/ABV HDFC B FY07-08 (bps) (bps 1.56 2.50 6.461 1.16 1.65 0.56 (2.07 2.21 11.26 1.24 1.24 1.05 2.24 1.74 1.17 1.30 1.83 1.96 2.22 0.38 2.22 0.007 499 668 658 -12% -14% -20% -17% -22% -6% -5% -13% -7% -12% 2.43 2.20 0.56 2.88 0.71 2.66 2.41 1.08 1.57 1.45 1.25 1.33 1.56 0.35) 2.10 2.01 1.81 2.72 0.64 0.62 2.00) 2.95 0.15 2.03 2.43 1.06 2.12 2.12 0.78 1.40 2.05 1.16 2.235 28 2.28 1.94 1.02 1.28 4.29 3.42 1.97 1.23 1.70 1.50 2.46 4.43 2.34 3.36 0.06 3.23 1.65 2.50 1.24 2.54 2.44 1.57 4.06 4.97 3.80 2.63 2.960 360 375 -13% 0% -17% -26% -2% -4% 27% -15% -26% 32% 1.42 1.26 1.49 0.28 1.01 0.06 1.04 1.38 1.04 1.91 1.24 2.28 (0.93 1.30 1.32 2.072 28 2.63 2.81 0.84 1.59 1.76 0.47 0.06 1.63 1.37 5.30 3.20 1.58 1.80 2.24 0.21 5% 40% 21% 20% 15% SIB SBIN UNBK YES .51 1.83 2.98 2.75 1.26 0.139 265 -4% -6% -1% -13% -7% 14% 15% 26% -8% 16% 1.63 5.28 2.86 2.43 4.27 2.37 1.87 2.47 1.39 1.09 -1% 45% 5% 15% 16% IIB VYSB KVB KMB PNB 1.41 2.62 2.

54 1.49 3.4 3.94 1.97 0.02 3.52 2.87 3.21 1.35 1.13 Sector Report Sector Outlook Neutral Bank HDFC IDFC LICHF LTFH CMP 714 151 271 52 wk Correction high from peak 738 167 281 -3% -10% -3% 1 yr return 11% 6% 38% FY12E P/ABV 5.5 4.87 2.Banks & NBFCs 5 year trading history (NBFCs) Valuation metrics over the past 5 yrs (one yr fwd multiples) Mean P/ABV during FY07-08 5.07 0.23 0.1 3.90 1.69 2.10 3.70 2.51 P/ABV above % Premium/ which it has (Discount) to Current Mean disc Mean P/ABV traded 75% of FY13E Discount to Mean disc FY09-12 during FY09-12 days P/ABV HDFC FY07-08 (bps) (bps) 5.12 Least P/ABV 2.7 63% MMFS MUTH PFC REC SHTF .25 Highest P/ABV 8.61 2.96 2.84 0.08 2.13 1.74 5.79 2.23 1.25 1.68 1.78 1.7 3.45 1.70 3.15 2.10 1.47 5.25 1.57 1.71 3.9 -1% 4% 105% 53 754 173 214 242 593 55 840 218 282 270 850 -4% -10% -21% -24% -10% -30% -11% 7% -21% 2% 1.07 3.00 1.50 1.64 1.34 1.05 1.10 1.08 2.50 3.92 4.77 2.6 3.4 3% 11% 10% 3.52 1.73 3.5 3.91 1.34 2.5 4.50 3.70 FY13E P/ABV 4.20 1.55 1.2 4.1 4.40 3.40 1.10 2.

1% 1.5% 2.8% 2.6% 1.0% 1.2% 1.2% 2.4% 0.7% 0.9% 5.8% 3.6% 3.8% 2.2% 3.7% 3. bn Operating Profits.7% 1.5% 2. Rs.2% 118 325 8 62 12 137 435 10 70 17 163 509 13 78 23 91 253 5 43 12 103 305 7 51 16 126 357 8 55 20 44 83 3 21 7 48 112 4 17 10 58 168 4 23 13 1.3% 3.9% FY12E 3.0% 1.5% 3.8% 2.4% 2.7% 3.6% 1.8% 2.5% 4.7% 3.5% 0.0% 4.8% 1.0% 4. Rs.8% 2.8% 2.6% 3.4% 3.2% 3.8% 3. bn Gross NPA Sector Report Sector Outlook Neutral FY11-13E CAGR NIM Bank AXIS BOB BOI CANARA CORP B CUB FED HDFC B IB ICICI INDUSIND ING IOB KMB KVB PNB SBIN SIB UBI YES FY11 66 88 78 78 30 4 17 105 FY12E 82 102 78 78 31 5 20 122 FY13E 98 126 96 95 38 7 21 151 FY1 64 70 54 61 27 4 14 77 FY12E 76 88 62 61 27 5 15 91 FY13E 87 101 72 72 32 6 17 108 FY11 34 42 25 40 14 2 6 39 FY12E 42 47 24 34 15 3 8 53 FY13E 48 53 33 44 18 4 8 62 FY11 1.2% 1.9% 3.9% 4.8% 3.8% 2.2% 1.3% 1.7% 3.Banks & NBFCs Valuation Matrix – Banks Net Interest Income. bn PAT.2% 4.6% 4.3% 3.8% 4.2% 1.9% 3.2% 3.9% 1.2% 2.0% 2.1% 2.0% 1.0% 1.1% 2.9% 3.0% 3.3% 2.4% 2.9% 4.9% 3.6% 3.0% 2.6% 3.2% 1.6% 4.0% 2.3% 3.1% 3.3% 3.4% 2.0% 1.3% 1.5% 1.6% 3.7% 3.3% 2.6% 1.1% FY12E 1.4% 2.6% 1.0% .6% 3.1% 2.7% 3.4% 1.2% 1.2% 2.0% 3.7% FY13E 3.8% 0.7% 1.2% NII 22% 20% 11% 10% 12% 26% 11% 20% PAT 19% 12% 15% 4% 13% 27% 20% 25% ABV 17% 20% 13% 15% 16% 25% 11% 17% FY11 3.6% 1.0% 2.9% 4.2% 1.1% 3.4% 18% 17% 25% 20% 23% 21% 26% 18% 17% 29% 30% 15% 27% 21% 18% 8% 16% 19% 8% 18% 21% 4.2% 1.7% 2.6% 3.9% 3.8% 2.0% FY13E 1.3% 17% 25% 26% 12% 36% 15% 43% 23% 6% 31% 22% 14% 18% 7% 23% 3.1% 3.5% 1.1% 0.8% 41 90 14 10 42 22 8 48 104 17 12 50 25 9 56 124 21 14 63 33 12 33 90 11 6 29 13 6 37 98 14 7 35 16 7 44 117 18 9 41 20 10 17 52 6 3 11 8 4 20 60 8 4 8 11 5 24 70 10 5 14 13 6 1.8% 3.5% 2.1% 1.3% 1. Rs.

9% 22.6% 1.8% 26.9% 0.7% 1.5% 453 483 248 352 455 24 287 108 184 457 81 201 111 110 199 567 829 14 177 109 531 590 256 390 514 30 316 126 211 494 93 254 113 129 246 683 875 17 172 134 624 700 316 462 611 37 351 147 258 535 108 286 128 152 290 837 1.8 1.7 3.7% 14.1% 22.5% 1.0 1.) Rs.1% 0.7% 1.0% 20.8% 1.8 1.4% 19.2 1.6% 18.1 1.6% 1.1% 10.4 1.1% 1.2 1.0 2.3% 24.0% 0.142 147 44 68 425 41 340 1.8% 1.0 4.3 0.326 430 1.) Sector Report Sector Outlook Shares (mn) M.9% 9.3% 1.3% 17.5% 1.1% 24.1% 1.2 1.4% 20.6 2.3% 1.5% 21.4 4.6% 1.2 1.714 SELL 30 ADD 203 SELL 380 ADD O-PF O-PF O-PF O-PF O-PF U-PF O-PF O-PF U-PF U-PF O-PF U-PF O-PF ING IOB KMB KVB PNB SBIN SIB UBI YES .4% 23.4% 1. bn P/ABV(x) 19.3 1.3 2.5% 1.3 1.Cap Neutral Rating Absolute Relative Target Price (Rs.1 3.7% 1.3% 11.0 3.2 3.1% 15.8% 1.3% 0.6 1.5% 1.6 1.1 1.2% 1.4% 22.6 1.7% 15.8% 1.0% 23.9 1.0 1.7 1.3 2.4% 12.8 2.6 1.1% 19.4 1.0% 1.4% 21.4% 17.4% 1.3% 0.0% 1.8% 14.2% 1.5% 12.6% 1.9% 20.0% 21.4% 17.2 1288 868 397 554 512 48 451 532 247 991 315 360 110 576 388 1072 2452 28 267 369 411 393 547 443 148 405 171 2.0 2.7% 1.4% 15.6 1.8% 17.6% 18.0% 13.7% 1.4% 0.4 0.0% 16.3 3.5% 1.5 1.238 106 1.0% 1.5% 1.Banks & NBFCs Valuation Matrix – Banks (cont’d) RoE Bank AXIS BOB BOI CANARA FY11 FY12E FY13E FY11 RoA FY12E FY13E ABV/share Rs.0 1.7% 1.1 1.4% 14.9% 1.7% 14.5 1.0% 20.9 2.0% 19.8% 1.5% 1.3% 1.1% 20.176 BUY 345 ADD 412 BUY 90 SELL 592 ADD 464 BUY 892 SELL 1.7% 14.5% 1.4 1.4% 1.0 1.5% 14.2% 0.6 1.9% 19.2% 0.5% 1.152 466 121 619 737 107 317 635 1.4 1.3 1. FY11 FY12E FY13E P/ABV (x) FY12E FY13E CMP (Rs.3% 21.557 32 140 128 2.0% 22.2% 14.6% 1.7% 1.4 1.3% 13.1% 0.7 1.2 0.3 1.5 1.1 203 165 2.6 2.7% 1.0% 19.9% 24.4% 20.2% 21.9 3.6% 1.1% 0.0% 1.5% 20.1 1.9% 13.3% 19.4 1.0 1.7% 19.7% 23.5% 1.130 524 347 529 341 217 245 76 20 77 1.350 ADD O-PF 770 REDUCE U-PF 316 SELL 462 SELL 604 BUY 51 ADD U-PF U-PF O-PF O-PF CORP B CUB FED HDFC B IB ICICI INDUSIND 386 REDUCE U-PF 543 ADD 258 ADD 1.3% 1.9% 1.9% 24.081 20.4% 20.5 1.7% 22.9 1.9% 9.1% 1.1% 1.0% 0.8% 1.2 2.

8 23. bn FY12E 38.9 13.8 9.5% 3.1 FY13E 5.8 2.3 17.1% 7.Cap Target P/ABV (x) 5.7 13.9% 131 129 214 154 145 258 175 166 313 1.3% FY13E 3.3% 13.3% 3.7 1.7 2.8 0.4% 8.0% 2.715 104 372 Rs.6 12.7% FY12E 2.5% 1.8% 0.3% 0.6% FY13E 24.6 0.5 1.8% 4.5% 9.4 18.7% 6.9% 3.8% 0.5 (Rs.5% 15.0 44.0 23.3 9.1% 2.2% 17.2 7.3% 3.9% 0.5 40.1 7.6% 21.7% 4.7 17.2% FY13E 0.6% 2. Rs. P/ABV (x) CMP Shares M.5 16.5% 10.0 14.) 714 151 271 53 754 173 (mn) 1.6% 1.6 FY12E 53.7 55.1% 4.8 1.9% 4. bn 1.8 47.2 55.1% FY13E 2.6% 2.5% FY12E 21.0% 51.5 34.4 18. bn FY11 49.0 Price (Rs.5 1.6 10.6% 0.053 227 129 90 78 64 Absolute Relative O-PF O-PF U-PF 742 ADD 160 ADD 212 SELL 43 REDUCE U-PF 555 SELL 232 BUY U-PF O-PF PFC REC SHTF 18.9% 2.8 2.7% 23.4 13.2 13.508 475 1.5% 11. Rs.) Rating NBFC HDFC IDFC LICHF LTFH MMFS MUTH FY11 21.4% 6.0% 4.1% 4.5% 1.4 11.9 FY11 Gross NPA FY12E 0.0% 9.4 1.0 2.6% 20.5% 3.4 4.0 6.5 20.4 12.3 12.1% 16.9 4.4% 2.2% 0.7 FY11 PAT.8% 35.4% 4.8 2.5 1.5 15.6 8.1 31.6% 23.5 1.2% 2.3% 2.4% 9.2 1.5 25.4 20.320 987 226 282 239 134 1.5% 3.8 4.8 24. Rs.6 22.3 1.3 40.2 25.1% 2.6 37.7 34.0% 63% 26% 19% 9% 67% 23% 13% 13% 70% 16% 13% 21% 10.2 8.6% 19.2 22.8 2.9 214 242 593 1.7% 20.3% 0.0% 2.5% 3.5 29.1% 0.3% 0.0% 3.0% 4.5% FY11-13E CAGR NII 21% 19% 17% 29% 30% PAT 18% 16% 7% 34% 22% ABV 10% 10% 16% 22% 15% FY11 3.9% 1.5 16.8 26.4 13.8 39.9 35.3% 3.3 16.6% 3.6 2.Banks & NBFCs Valuation Matrix – NBFCs Net Interest Income.7% 2.0 1.9% 2.4% 41.4% 3.7% 36.4% RoE RoA ABV/share Rs.7 34.6 15.3 12.2% 0.8 FY13E 49.2% FY11 2.3 8.1% 1.3 30.7 12.3% 21.6% 2.3% 8.4 28.0 5.0% 22.7% 21.1 FY12E 49.7 FY13E 68.5% FY11 118 77 87 20 232 40 FY12E 124 83 98 27 263 81 FY13E 143 93 118 29 308 117 FY12E 5.0 28.9 26.2 1.7% NIM FY12E 3.7 10.4% MUTH PFC REC SHTF 12.9 38.9 7.2 33.7% 3.8% 0.8% 3.1% 2.8% 4.8% 3.3% 0.5 13.3 48.7 3.3% 13.3 1.8 32.4% 5.7% 14.1 Sector Report Sector Outlook Neutral Operating Profits.0% 21.0% 26.9 2.1 32.7 1.3% 13.5 262 BUY 249 ADD 470 SELL O-PF O-PF U-PF .4% 11. bn NBFC HDFC IDFC LICHF LTFH MMFS FY11 45.5% 28.1 FY13E 65.8% 10.8% 0.5 1.474 1.4% 4.5% 5.9% 4.

which is already available in publicly accessible media or developed through the independent analysis of Spark Capital Advisors (India) Private Limited Copyright in this document vests exclusively with Spark Capital Advisors (India) Private Limited. Nothing in this document should be construed as investment or financial advice. This report has been prepared on the basis of information. effect or have effected an own account transaction in. and will not be receiving direct or indirect compensation for expressing the specific recommendation(s) or view(s) in this report. Spark Disclaimer This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. or solicit investment banking or other business from. or deal as principal or agent in or for the securities mentioned in this document. This document does not constitute or form part of any offer for sale or subscription or incitation of any offer to buy or subscribe to any securities. They may perform or seek to perform investment banking or other services for. Spark Capital Advisors (India) Private Limited. are not. . completeness or fairness of the information and opinions contained in this document. This document is being supplied to you solely for your information and may not be reproduced.Banks & NBFCs Sector Outlook Sector Report Neutral Absolute Rating Interpretation BUY ADD Stock expected to provide positive returns of > 15% over a 1-year horizon Stock expected to provide positive returns of <=15% over a 1-year horizon REDUCE SELL Stock expected to fall <=15% over a 1-year horizon Stock expected to fall >15% over a 1-year horizon Relative Rating Interpretation OUTPERFORM UNDERPERFORM Stock expected to outperform sector index /sector peers in our coverage Stock expected to underperform sector index/ sector peers in our coverage Analyst Certification The Research Analyst(s) who prepared the research report hereby certify that the views expressed in this research report accurately reflect the analyst(s) personal views about the subject companies and their securities. from time to time. express or implied. directly or indirectly. and nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of companies referred to in this document. for any purpose. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved). any company referred to in this report. and the employees of Spark Capital Advisors (India) Private Limited and its affiliates may. as to the accuracy. and should consult its own advisors to determine the merits and risks of such an investment. copied. in whole or in part. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. The Research Analyst(s) also certify that the Analyst(s) have not been. its affiliates. to any other person or published. redistributed or passed on. Spark Capital Advisors (India) Private Limited makes no representation or warranty.

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