Motilal Oswal Financial Services

1 July 2020

Update | Sector: Financials - NBFC

HDFC

BSE SENSEX

35,414

S&P CNX

10,430

CMP: INR1,835

TP: INR2,150 (+17%)

Buy

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Well-placed to capture market share



Tier I strong at 16%+ | Provisions > GNPA | Deposits 1/3

of liabilities

HDFC is well-placed in the current environment to capture profitable market share.

The company has access to low cost of funds, a strong ALM position, comfortable

leverage, and adequate provisioning on the balance sheet.

While the Tier-I ratio is healthy at 16.6%, it is likely to improve further with the

proposed INR140b capital raise and stake sale in the Insurance business. This would

help HDFC face any contingency, fund its own growth requirement, and further

capture any inorganic opportunities at the parent (portfolio buyouts) and subsidiary

levels (M&A opportunities).

The share of retail customers (by value) that availed moratorium declined ~700bp in

the second phase v/s the first phase. On the other hand, the share of corporate loans

under moratorium remains high at 40%. However, we derive comfort from the fact

that in the past four years, HDFC has quadrupled its provision buffer to INR110b; thus,

its provisions now exceed its outstanding GNPLs.

HDFC's most of subsidiaries are among the top three players in their respective

segments. The company continues to support them when needed; for example, it

infused INR85b equity capital in HDFCB in FY19 and is likely to do so again in the

future, in our view. Importantly, the value contribution of subsidiaries/associates has

been increasing; they now contribute ~54% to our SOTP v/s 37% five years ago and

34% 10 years ago (refer to Exhibit 29).

Due to the COVID-19 crisis, near-term growth is likely to be challenging. However, the

medium- to long-term outlook remains strong, especially given the much lower

competitive intensity within housing finance companies (HFCs). Sharp decline in

incremental cost of funds over the past three months would help maintain stable

spreads at 2.1-2.3%. Maintain Buy, with SOTP (FY22E-based) of INR2,150.



Stock Info

Bloomberg

Equity Shares (m)

M.Cap.(INRb)/(USDb)

52-Week Range (INR)

1, 6, 12 Rel. Per (%)

12M Avg Val (INR M)

Free float (%)

HDFC IN

1,721

3183.4 / 40.3

2500 / 1473

-1/-10/-8



10084

100.0

Financials Snapshot (INR b)

Y/E March

2020 2021E 2022E

Core PPoP

128

138

152



Adj. PAT

103

111

Adj. EPS (INR)

49.2

48.0

51.0

EPS Gr. (%)

10.8

-2.4

6.2

BV/Sh. (INR)

538

577

619

ABV/Sh. (INR)

412

451

494

Core RoA (%)

1.8

1.6

1.5

Core RoE (%)

13.4

11.1

10.8



Payout (%)

23.8

43.5

Valuation

AP/E (x)

19.6

17.4

13.2

P/BV (x)

3.4

3.2

3.0

AP/ABV (x)

2.3

1.8

1.4

Div. Yield (%)

1.1

1.3

1.4

Shareholding pattern (%)

As On

Mar-20 Dec-19 Mar-19

Promoter

0.0

DII

18.0

16.7

FII

70.9

72.8

72.4

Others

11.1

10.6

10.9

FII Includes depository receipts

Stock Performance (1-year)

HDFC

2,600

2,300

2,000

1,700

1,400

Sensex - Rebased

Stable growth across time periods; long-term opportunities intact

Over the last 5/10 years, HDFC has reported a stable retail AUM CAGR of

17%/19%. Despite its size, it has grown faster than its next largest peer (LICHF –

five-year retail AUM CAGR of 9%).

Importantly, growth over the last three to four

years has been driven by volumes rather than value, which is a positive.

expect this trend to continue, especially given the strong momentum in the

Affordable Housing Finance segment – 36% of loan approvals by volume are

toward the Economically Weaker Sections (EWS) and Low Income Group (LIG)

segments. While growth would take a backseat in the near term, we are confident

of 12–15% retail AUM growth from FY22.

Low net credit loss; proactive NPL recognition

Given the high share of salaried customers (75%+) and Tier-I developers, HDFC has

always maintained an excellent asset quality.

Its total write-offs since inception

are barely 14bp of its cumulative disbursements.

The book quality is evident in

the low moratorium numbers. In the Non-Retail segment, HDFC proactively

recognized NPAs to expedite the resolution via recovery proceedings or account

restructuring. Over one-third of the corporate NPLs are stuck in National Company

Law Tribunal (NCLT) proceedings; as and when these get resolved, the company

would be able to recover money and reverse provisions.

Research Analyst: Alpesh Mehta

(Alpesh.Mehta@MotilalOswal.com);+91 22 6129 1526 |

Piran Engineer

(Piran.Engineer@MotilalOswal.com); +91 22 6129 1539

Nitin Aggarwal

(Nitin.Aggarwal@MotilalOswal.com); +91 22 6129 1542 |

Divya Maheshwari

(Divya.Maheshwari@motilaloswal.com); +91 22 6129 1540

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Investors are advised to refer through important disclosures made at the last page of the Research Report.

HDFC

Provisions exceed NPLs; buffer adequate for ~10% of loans

Whenever HDFC reports windfall gains, it adds 30% of these gains to its provision

buffer. As a result, the total provisions now stand at ~INR110b (2.4% of loans) v/s

INR90b of GNPLs (2.0% of loans).

As per our analysis, HDFC’s provision buffer is

adequate even in the scenario of ~10% of the loan book turning stressed (refer to

Exhibit 12).

Note that in our calculation, we have not factored additional one-off

provisions that could arise from subsidiary stake sales in the future.

Smart treasury management; key beneficiary of current risk aversion

Historically, HDFC has effectively managed spreads over cycles with proactive

treasury management. For example, in downward rate cycles, it has availed short-

term borrowings to gain from interest rate declines. It has further engaged in fixed-

to-floating rate swaps to gain on cost of funds. In upward rate cycles, it has

borrowed at fixed rates for long durations, while proactively increasing home loan

rates on the asset side to manage spreads.

HDFC has also been a key beneficiary of

targeted long-term repo operations (TLTRO), which happened in April and May.

Currently, it is able to raise one- to three-year money at 6.5–7.0%. Its public

deposit rates are also attractive at 7% across tenures.

Clear outperformer among HFCs; valuations attractive

HDFC is among the few companies that have delivered a steady performance in an

otherwise cyclical sector. In addition to its disciplined growth, we like its lean cost

structure, competitive advantage on borrowings (leading to a lower-risk book), and

the ability to resolve stressed corporate exposures.

Given its strong asset quality

and high capitalization, net NPLs account for just 8% of core networth (excluding

investments in subsidiaries).

Its subsidiaries have also outperformed peers in their

respective segments. While the current stock price reflects the near-term issues

impacting the economy, it undervalues the company’s long-term potential. As

stability returns gradually with the staggered unlocking of the economy, we expect

HDFC to re-rate faster than peers with comfortable liquidity and capital situation.

Maintain Buy, with TP of INR2,150 (FY22E SOTP based).

Exhibit 1: SOTP (FY22E-based)

Particular

Core business

Key Ventures

HDFC Bank

HDFC Standard Life

HDFC AMC

HDFC ERGO GIC

Bandhan Bank

Other Invt/Excess NW

Total Value of Ventures

Less: 20% holding discount

Value of Key Ventures

SOTP

CMP

Upside - %

Stake

Value

(INR b)

1,710

21.4

51.6

52.8

50.7

10.0

1,402

548

312

102

2,514

503

2,011

3,721

3,178

17.1

Value

(USD b)

24.4

20.0

7.8

4.5

1.3

1.5

0.8

35.9

7.2

28.7

53.2

45.4

17.1

Value/Sh.

(INR)

987

811

317

180

1,453

291

1,163

2,150

1,835

17.1

% of

total

45.9

37.7

14.7

8.4

2.5

2.7

1.5

67.6

13.5

54.1

100.0

Target

Multiple

(x)

2.0

3.0

3.4

6.0

2.6

1.0

Rationale

PBV

PEV

CMP

PBV

Invested Capital

Source: MOFSL, Company

1 July 2020

HDFC

KEY CHARTS

Exhibit 2: Share of subsidiaries’ value in SOTP on the rise

Value of subsidiaries (INR b)

Share of subs. value in SOTP (%)

280

FY10

327

FY11

363

FY12

463

FY13

520

FY14

822

FY15

867

FY16

1,252

FY17

1,902

FY18

1,961

FY19

2,011

FY20

Source: MOSL, Company

Exhibit 3: Corporate AUM moving toward lower risk assets (%)

Corporate

LRD

Share of corporate

term loans in total

wholesale lending

declining

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

Note: CF stands for Construction Finance and LRD stands for Lease Rental Discounting;

Source: MOFSL, Company

Exhibit 4: Provisions exceed GNPLs (INR b)

GNPL

Total Provisions

110

Exhibit 5: Total provision coverage much higher than peers

Company

HDFC

LICHF

PNBHF

CANFIN

REPCO

AAVAS

GNPL

(INR b)

89.7

56.2

12.1

1.6

4.9

0.3

Total

Provisions

(INR b)

109.9

25.8

8.8

0.4

1.7

0.2

Total PCR

(%)

122.5

46.0

73.0

26.2

35.6

74.2

Source: MOFSL, Company

FY16

FY17

FY18

FY19

FY20

FY15

Source: MOFSL, Company

1 July 2020

HDFC

Consistent growth across cycles

Regaining MS despite high competitive intensity from banks

Steady growth in retail lending

19% retail AUM

CAGR over the past

decade



Over the last 5/10 years, HDFC has reported a stable retail AUM CAGR of

17%/19%. The company witnessed the slowest growth in FY20 at 14% YoY.

The company has scaled up well in the Affordable Housing Finance segment. The

average monthly approvals in the EWS and LIG segments have increased to

~9,400 from ~8,000 in the past two years.

The segment accounts for 36% of

approvals by volume and 18% by value.

In the pre-COVID-19 era, HDFC saw INR80–90b worth of monthly retail

disbursements. While these came off sharply in April (negligible) and May (25%

of monthly run-rate), disbursements reversed to 45–50% of the monthly run-

rate in June.

Hence, growth in overall retail disbursements may come off by

25%+ YoY in FY21, but pick up strongly in FY22. The lifting of the lockdown,

especially in the large / top seven cities that contribute 55%+ to the company’s

business, may come as a welcome surprise.

Exhibit 6: 19% retail AUM CAGR in last decade; 12%+ CAGR expected in medium term on a higher base

Retail AUM (INR t)

3.4

3.9

FY17

FY18

FY19

FY20

FY21E

FY22E

FY23E

4.6

5.3

Growth (%)

4.1

0.7

FY10

0.9

FY11

1.0

FY12

1.3

FY13

1.5

FY14

1.8

FY15

2.1

2.5

2.9

FY16

Source: MOFSL, Company

Exhibit 7: Mix of approvals in volume terms (%)

EWS, 6

HIG, 17

Exhibit 8: Average monthly volumes in EWS + LIG segments

Volume (no.)

8,000

8,200

8,300

8,400

8,600

8,700

9,300

9,400

9,640

LIG, 30

MIG, 47

Source: MOFSL, Company; Note: LIG/MIG/HIG stands for

Low/Middle/High Income Group and EWS for Economically weaker

section

Source: MOFSL, Company

1 July 2020

HDFC

Opportunistic corporate loan growth

7% corporate AUM

CAGR over the past

two years



Corporate lending, on the other hand, has been more opportunistic. For

example, over FY13–16, corporate loan growth slowed to 11% YoY from 20%+

YoY earlier as the company turned cautious about corporate term loans due to a

hyper-competitive scenario.

Once again, post the IL&FS crisis, the corporate loan CAGR declined to 7% over

FY18–20 amid weak macros and funding challenges among peers.

Exhibit 9: Corporate AUM growth has been more cyclical

Corporate AUM (INR b)

1,248

FY20

Growth (%)

521

FY12

587

FY13

638

FY14

725

FY15

793

FY16

927

FY17

1,090

FY18

1,178

FY19

1,342

FY21E

1,540

FY22E

1,771

FY23E

Source: Source: MOFSL, Company

Share of term

loans has fallen to

21% of corporate

AUM from 41%

over the past

seven years

Share of relatively safer LRD book, however, on the rise



Not only has HDFC reduced the share of its corporate lending over the past

seven years (to 24% of AUM from 32%) but also reduced its risk profile within

the corporate lending segments.

Over this period, the share of corporate term loans nearly halved to 21% from

41%, while that of lease rental discounting (LRD) increased to 33% from 19%.

This indicates a shift toward lower yielding, but lower risk assets.

While the construction finance book within Retail remains in the range of 40–

45%, our industry interaction suggests it has shifted toward the top-quality

developers. Prudency over lending practices in this book has placed HDFC in a

much better position than peers in these tough times.

Exhibit 10: Corporate AUM moving toward lower risk assets (%)

Corporate

LRD

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

Note: CF stands for Construction Finance and LRD stands for Lease Rental Discounting;

Source: MOFSL, Company

1 July 2020

HDFC

Competitive intensity reducing; rapid MS gains witnessed



Given the pullback from three of the five largest HFCs post the IL&FS crisis, HDFC

was able to gain market share.

Its Retail Home Loans market share among HFCs

(MOFSL est.) increased to 43.4% in FY20 from 39.7% in FY18.

Nevertheless, overall MS remains steady at 15–16% as large banks such as SBIN,

ICICIBC, AXSB, and BOB remain aggressive in HDFC’s target market segment.

Gained 350bp+

market share

among HFCs in

Retail Home Loans

over

FY18–20

Exhibit 11: 370bp increase in market share among HFCs over past two years for HDFC

Total

41.9

41.2

40.1

40.6

Among HFCs

40.2

39.8

39.3

39.7

40.8

43.4

14.1

14.5

15.2

15.4

15.3

15.0

14.8

15.7

15.5

15.6

Source: MOFSL, Company; Note: Retail lending only

Low book churn,

coupled with 26%

moratorium rate

(repayment rate to

be lower by

~300bp), would

provide stability to

AUM

Near-term growth to be moderate; gradual pickup expected thereafter



Given that ~75% of HDFC’s book comprises Retail, the overall book churn is low.

While the company does not disclose this data, we expect the annual churn to

be at 18%+. Additionally, with 26% of AUM under moratorium, repayments

would be lower in FY21 – our calculation implies 300bp lower repayments due

to moratorium.

Assuming ~30% YoY lower disbursements, we arrive at 6% AUM growth in FY21.

Thereafter, we forecast a pickup to 12–15% in the coming years.

Exhibit 12: AUM growth to slow to 6% YoY in FY21 and pick up thereafter

Total AUM (INR b)

1,554

FY12

1,870

FY13

2,178

FY14

2,533

FY15

2,915

FY16

3,385

FY17

4,029

FY18

4,619

FY19

5,166

FY20

5,476

FY21E

6,160

FY22E

7,084

FY23E

Growth (%)

Source: MOFSL, Company

1 July 2020

HDFC

Well-placed to manage asset quality stress

Existing ECL could take care of 7–8% of loans with 30% LGD

Marginal deterioration in asset quality due to proactive recognition



Retail NPLs have

been largely stable

over the past three

years



A key factor owing to which HDFC stands out from other financiers is the

consistency of underwriting over the years. Given the stringent risk

management practices, the GNPL ratio has never exceeded 2%.

Moreover, the

total write-offs since inception amount to just 14bp.

However, over the past two to three years, delinquencies have increased in the

corporate book due to underlying stress in the Real Estate segment as well as

the proactive recognition of some stressed accounts as NPLs.

Exhibit 13: Corporate GNPLs up due to Real Estate stress and proactive recognition as NPLs

Individual

Non Individual

4.71

2.34

2.18

0.85

0.71

FY10

0.84

0.72

FY11

1.05

0.55

FY12

0.91

0.58

FY13

1.01

0.53

FY14

1.01

0.51

FY15

1.12

1.16

0.51

FY16

0.61

FY17

0.64

FY18

0.70

FY19

0.95

FY20

Source: MOFSL, Company

Balance sheet provisions exceed GNPLs

Total provisions of

INR110b were

greater than GNPLs

of INR90b



When the company reports windfall gains (from stake sales in subsidiaries), it

uses 30% of these gains as incremental provisions.

As a result, over the past five

years, the total provisions outstanding has grown to INR110b from INR20b, v/s

INR90b worth of GNPLs currently.

Among all the HFCs under our coverage,

HDFC is the only one to have total provisions in excess of GNPLs.

Exhibit 15: Total provision coverage much higher than peers

110

Company

HDFC

LICHF

PNBHF

CANFIN

REPCO

AAVAS

GNPL

(INR b)

89.7

56.2

12.1

1.6

4.9

0.3

Total

Provisions

(INR b)

109.9

25.8

8.8

0.4

1.7

0.2

Total PCR

(%)

122.5

46.0

73.0

26.2

35.6

74.2

Exhibit 14: Provisions exceed GNPLs (INR b)

GNPL

Total Provisions

Source: MOFSL, Company

FY15

FY16

FY17

FY18

FY19

FY20

Source: MOFSL, Company

1 July 2020

HDFC

With blended LGD

of 30%, current

capitalization could

take care of the

worst case of 9%

stress loans by FY23

(assuming max.

leverage of 7x)

Adequately capitalized to face ~9% stressed loans



In this exercise, we calculate the adequacy of outstanding provisions to

withstand asset quality stress. With extreme conservatism, we assume an

optimal leverage ratio of 7x on the core lending business; hence, at current

leverage of 6.5x, HDFC is modestly overcapitalized. The excess capital available

stood at ~INR50b as of FY20 and is likely to reduce to INR35b by FY23 as growth

picks up.

Provisions are likely to increase to INR185b by FY23E from INR110b currently.

This, along with the excess capital of INR35b, would take the provisioning buffer

to INR220b. On a conservative basis, we have modeled credit cost of 50bp each

for FY21/FY22 (excluding the benefit of any provisions with one-off stake sale

gains) v/s an average of ~15bp in the past decade and ~35bp in FY20.

Of this INR220b, we assume INR56b would be allocated to Stage 1 & 2 loans (1%

of loans). As a result, INR163b would be allocated to stressed loans.

With the

assumption of 30% loss given default (LGD), this INR163b could provide for

INR540b+, i.e., 9% of outstanding loans by FY23.

Exhibit 16: Current capitalization adequate to take care of stress loans up to ~9%

FY20

NW incl. OCI

Less: Subs Invt

Lending NW (A)

Loans (B)

Leverage (B/A x)

Capital Reqd. with 7x leverage (C)

O/S Provisions (D)

Excess capital (E = C-A)

Total Prov (F = D+E)

GS1&2 Prov at 1% (G)

Balance GS3 Prov. (H = F-G)

Stress loans (assuming 30% LGD) %

862

169

693

4,509

6.5

644

110

159

FY21

929

169

761

4,764

6.3

681

131

211

169

11.8

FY22

1,002

169

834

5,360

6.4

766

156

224

176

11.0

FY23

1,084

169

915

6,164

6.7

881

184

219

163

8.8

Source: MOFSL, Company

1 July 2020

HDFC

Best managed liability side among peers

Deposits provide stability; refinancing NCDs at lower cost

Share of deposits

has been up 400bp

to 32% since the

IL&FS crisis

Diversifying the liability mix; public deposit traction stands strong



Since the IL&FS crisis, the company has reduced its dependence on capital

market borrowings and increased its share of bank borrowings. The share of

capital market borrowings has declined to 43% currently from 54% pre-crisis

(1HFY19).

Additionally, total deposit accretion has gained pace in the past year. Despite

the large base of over INR1t, deposits grew 25% YoY in FY20.

Our interaction

with the management suggests retail deposits account for ~50% of total

deposits.

Exhibit 17: Reduction in share of capital market borrowings over past three years (%)

Term Loans

Bonds, Deb, FCCBs and CPs

Deposits

1QFY18

2QFY18

3QFY18

4QFY18

1QFY19

2QFY19

3QFY19

4QFY19

1QFY20

2QFY20

3QFY20

4QFY20

Source: MOFSL, Company

Exhibit 18: Focus on deposits post liquidity crisis

Deposits (INR B)

Growth (%) 29

Exhibit 19: Interest rate on deposits lower than for other

NBFCs

HDFC

PNBHF

BAF

SHTF

MMFS

1–2 years

6.68

7.20

7.40

7.6-7.87

7.41-7.62

2–3 years

6.68

7.57

7.45

8.1-8.82

7.99-8.25

3–4 years

6.68

8.20

7.50

9-9.39

8.56

Source: MOFSL, Company

1 July 2020

HDFC

Refinancing savings from maturing NCDs

Around 52% of NCDs

maturing over the

next two years bear

cost of 8.01–10.00%



Over the next two years, HDFC has INR565b worth of non-convertible

debentures (NCDs) and INR380b of deposits coming up for maturity.

While the company has not disclosed the exact cost of these liabilities, it has

given a range.

Around 52% of the NCDs maturing in this time period bear cost

of 8.01–10.00%. In our opinion, these liabilities are likely to get refinanced at

100bp + lower cost, given that the company is raising incremental NCDs at

~7%.

Exhibit 21: Mix of NCDs maturing over FY20–22 as per cost

of borrowing (%)

Exhibit 20: Maturity of various instruments over FY20–22

566

380

126

6.96-8.00%

8.01-10.00%

10.01-11.95%

ZCB

NCD

Deposits

Term loans

Others

Source: MOFSL, Company; Note: Data taken from FY19 Annual

Report and hence does not include fresh borrowings made in FY20

Source: MOFSL, Company; Note: Data taken from FY19 Annual

Report and hence does not include fresh borrowings made in FY20

Exhibit 22: Some recent NCD issuances by the company

Incremental NCDs

raised at ~7% cost

Month of issue

Jun

May

Apr

Feb

Jan

Tenure of instrument (years)

1.5

3.0

10.0

3.0

5.0

Interest rate (%)

6.22

7.06

6.95

7.20

7.40

6.99

7.50

Source: MOFSL, Company, NSE, FTRAC

Leading banks have

cut one-year MCLR

by 75–110bp over

the past year

Cost of bank borrowings on the decline



Over the past year, banks have also cut the marginal cost of funds based lending

rate (MCLR) meaningfully.

Large banks such as SBI and ICICIB have cut one-year

MCLR by 110bp and 75bp, respectively.

There is also the possibility of further

MCLR cuts given the reduction in deposit rates.

Unlike NCDs, in the case of bank borrowings, the pass-through on cost of funds

happens quicker (floating rates).

1 July 2020

HDFC

Exhibit 23: One-year MCLR of SBI and ICICI down meaningfully over past year

8.75

ICICIB

8.65

8.55

8.45

8.35

SBI

8.25

8.20

8.50

8.15

8.45

8.40

8.00

8.25

8.15

8.05

8.00

7.90

7.85

7.75

7.40

Source: MOFSL, Company

Expect 30bp margin

compression over

next three years

Expect 30bp margin compression with excess liquidity and higher negative

carry



While tailwinds to cost of funds are likely to accrue over the next two years, we

factor moderation in HDFC’s margins due to: a) high competitive intensity on

core home loans, b) a lower share of high-yielding corporate loans, c) expected

stress on asset quality and resultant interest reversals, d) an increase in

leverage, and e) the requirement of keeping excess liquidity on the balance

sheet at a higher negative carry.

Key risks to margins stem from hyper-competition among banks post sharp cuts

in repo-rate-linked home loans.

Note that we have not factored the proposed capital raise in our numbers.

Exhibit 24: Trend in net interest margins (%)

NIM

3.75

3.72

3.58

3.55

3.40

3.38

2.74

2.77

2.71

2.49

2.44

2.36

Source: MOFSL, Company; Note that the sharp decline in FY18 is on account of migration to IndAS

accounting

1 July 2020

HDFC

High capitalization a big positive

Leverage meaningfully lower in the current cycle v/s the past

Low leverage a major positive in this environment



Compared with two of its largest peers (LICHF and PNBHF), HDFC has much

lower leverage, a key positive in this environment.

Over the past five years, HDFC has structurally reduced the leverage at which

it operates to 6–6.5x currently from 9–10x earlier.

With the Tier-I ratio requirement increasing to 10% from 6%, the rating agency

threshold leverage level is likely to come down, in our view. Furthermore, any

fund requirement at HDFC Bank or other subsidiaries could meaningfully impact

leverage; as any investment into subsidiaries is deducted from the networth for

the calculation of Tier-I and leverage.

Exhibit 26: Leverage lower than that of most HFCs (x)

11.7

10.1

8.4

Exhibit 25: Leverage in this cycle lower than previous (x)

Leverage (loans/equity)

13.0

10.2

10.1

9.7

9.3

8.4

8.3

7.3

6.3

6.2

6.4

6.8

2.9

6.3

4.1

7.1

AAVAS

Source: MOFSL, Company

IHFL

HDFC

REPCO

PNBHF CANFIN

LICHF

Source: MOFSL, Company; Note: Leverage = Loans/m

Equity

Networth doubles in last three years



Networth (incl. OCI) has doubled in the last three years to INR862b v/s INR434b.

The company raised INR184b worth of capital via: a) INR111b worth of

preferential allotment, b) INR19b worth of QIP, and c) INR54b worth of warrant

conversion money.

Monetization of stakes in various ventures has helped the company garner

~INR200b. Key transactions include: a) the HDFC Life IPO, resulting in gains of

INR55b, b) the HDFC AMC IPO, leading to gains of INR9b, c) the Gruh stake sale

of INR38b, and d) accounting profits owing to the merger of Bandhan with Gruh,

resulting in gains of INR90b. The company follows the policy of allotting one-

third of gains as provisions, which has led to net additions of ~INR157b to the

networth.

Strong internal accruals of INR155b post the dividend payout are in line with our

estimates.

1 July 2020

HDFC

Exhibit 27: Sharp rise in capitalization in the last three years (INR b)

184

434

157

155

862

Networth -

FY17

Capital raise

Stake Sales

Internal accrual Change in OCI

(ex-stake sale)

Networth -

FY20

Source: MOFSL, Company; Note: Stake sales are net of provisions and include INR90b gain on

reclassification of GRUH stake after merger with Bandhan

Adequately capitalized for growth over the next three years



We believe rating agencies’ comfort level on adequate leverage based on the

product mix is likely to reduce across products in this cycle, especially

considering the challenges witnessed in the NBFC space over the last two years

and the credit events in large entities in the past.

Over the past decade, HDFC has structurally reduced the leverage at which it

operates to 6–6.5x currently from 10x+ earlier. For the products in which HDFC

operates, in our view, ~8x is the adequate leverage at which rating agencies

would be comfortable. We expect retail salaried housing loan leverage at 9–10x

and non-retail segments at ~5x, resulting in a blended no. of ~8x. Apart from

this, parentage, history of operations, sector outlook, and the ability to raise

both equity and debt capital would be important factors.

In the exercise below, we demonstrate how existing capital would take care of

organic growth or asset quality without the need to raise capital.

Nevertheless, HDFC has already taken approval to raise INR140b, which, in our

view, would be to: a) keep sufficient headroom for growth/confidence capital,

b) capitalize on any inorganic opportunities at the subsidiary/associate level, c)

keep the option to buy out portfolios considering the capital stress for peers. A

capital raise would be taken very positively by rating agencies / debt markets, in

our view.

While rating

agencies’ comfort

level in

loans/equities could

be ~7.8x, HDFC

would like to keep a

buffer for growth;

hence, we expect a

threshold level of

~7x, which it is likely

to reach over

FY23–24

Exhibit 28: Adequately capitalized to take care of next three years of organic growth

FY20

NW incl. OCI

Less: Subs Invt

Lending NW (A)

Loans (B)

Leverage (B/A x)

Threshold for rating (C = B/D)

Max leverage (D x)

Excess capital (E = C-A)

% of NW (E/A %)

862

169

693

4,509

6.5

571

7.9

122

FY21

929

169

761

4,764

6.3

605

7.9

155

FY22

1,002

169

834

5,360

6.4

683

7.8

151

FY23

1,084

169

915

6,164

6.7

785

7.8

130

Max leverage based on loan mix of 72:28 Retail:Non Retail and max permissible leverage of 9x:5x

respectively; Source: MOFSL, Company

1 July 2020

HDFC

Exhibit 29: Return ratios lower in this cycle v/s in the past

29.9

30.4

RoA

26.9

24.1

RoE

22.8

20.7

19.6

14.6

15.3

13.4

11.1

10.8

2.1

FY11

2.1

FY12

2.1

FY13

2.2

FY14

2.1

FY15

2.0

FY16

2.0

FY17

1.6

FY18

1.9

FY19

1.8

1.6

1.5

FY20 FY21E FY22E FY23E

Exhibit 30: Impact on book value and adj. book value assuming INR140b raised in 1HFY21

FY20

Existing Estimates

ABV

Change post dilution

ABV

Dilution

BV additon

ABV Addition

538

412

497

400

577

451

594

500

4.5

9.6

13.5

619

494

637

544

9.1

12.5

666

541

682

589

8.2

11.1

FY21

FY22

FY23

Capital raise assumed at INR1800/share; Float benefit assumed at 9%; ABV is adjusted for investment

in subsidiaries and excess NW; Source: MOSL, Company

HDFC LTD CAPITAL RAISES OVER THE PAST 12 YEARS

FINANCIAL

YEAR

AMOUNT

RAISED (INR b)

NO OF SHARES

ISSUED (m)

TYPE OF

INSTRUMENT

PARTICULARS OF INSTRUMENT

DILUTION ON PREVIOUS

YEARS CAPITAL BASE (%)

Sept 05

2008

USD0.5B

INR26.4/4.8b

76.3/13.8

FCCB

Preferential

allotment



Conversion Price of INR280/share;

~6% ultimate dilution



Conversion anytime over Aug 06–July 10;

upon conversion up to



Zero Coupon with YTM of 4.6%; listed on

July 2010

Singapore Exchange



INR346/share to Carlyle/Citigroup



54.75m warrant at exercise price of

INR600 (INR55/paid upfront);



To be exercised before Aug 2012;



Ultimate capital raise of INR32.85b

6.03/1.09

Aug 09

INR40b NCD and

NIL at the date

INR3b warrant

NCD + Warrant

of issuance

upfront money

Oct 15

Feb 18



INR20b NCD 1 (Zero Coupon with YTM of

7.15% 2 yrs) + INR20b NCD2 (Zero

Coupon with YTM of 7.85% 3 yrs)



36.5m warrant at a price of INR1489

(INR14/paid upfront);

INR50b NCD and



To be exercised before 5th Oct’18 –

NIL at the time

~2.2% upon conversion

INR0.5b warrant

NCD + Warrant

INR54.4b total raise

of issuance

up to FY19

upfront money



INR50b worth of NCD with coupon of

1.4%

Preferential

111

64.3



Price INR1,726/share

4.05

allotment

10.4

QIP



Price INR1,825/share

0.65

~3.7% upon conversion

up to FY13

1 July 2020

HDFC

Well-placed to capture market share

Buy, with SOTP of INR2,150



Buy, with SOTP of

INR2,150



HDFC is among the very few franchises that have delivered a steady

performance in an otherwise cyclical sector. Apart from disciplined growth, we

like its lean cost structure, the lowest cost of funding (leading to a lower-risk

book), and the ability to resolve stressed corporate exposures.

Given the low NPLs and high capitalization, its net NPLs account for just 8% of

the networth (excluding investments in subsidiaries). Its subsidiaries have also

outperformed in their respective segments.

While the current stock price reflects the near-term issues impacting the

economy and company, it undervalues its long-term potential. Post the lifting of

the lockdown, as stability in growth returns and with the company’s

comfortable liquidity and capital situation, we expect HDFC to re-rate faster

than peers.

In our SOTP, subsidiaries contribute ~54% to TP post the holding company

discount. We value the parent at 2x PBV FY22. Maintain Buy, with TP of

INR2,150 (FY22E SOTP based).

Exhibit 31: Buy, with FY22E SOTP of INR2,150

Particular

Core business

Key Ventures

HDFC Bank

HDFC Standard Life

HDFC AMC

HDFC ERGO GIC

Bandhan Bank

Other Invt/Excess NW

Total Value of Ventures

Less: 20% holding discount

Value of Key Ventures

SOTP

CMP

Upside - %

21.4

51.6

52.8

50.7

10.0

1,402

548

312

102

2,514

503

2,011

3,721

3,178

17.1

20.0

7.8

4.5

1.3

1.5

0.8

35.9

7.2

28.7

53.2

45.4

17.1

811

317

180

1,453

291

1,163

2,150

1,835

17.1

Source: MOFSL, Company

37.7

14.7

8.4

2.5

2.7

1.5

67.6

13.5

54.1

100.0

6.0

2.6

1.0

3.0

3.4

PBV

PEV

CMP

PBV

Invested Capital

Stake

Value

(INR b)

1,710

Value

(USD b)

24.4

Value/Sh.

(INR)

987

% of

total

45.9

Target

Multiple (x)

2.0

Rationale

PBV

1 July 2020

HDFC

Exhibit 32: DuPont Analysis

(%)

Interest Income

Interest Expended

Net Interest Income

Other core operating income

Core Income

Operating Expenses

Cost to Income Ratio (%)

Employee Expenses

Other Expenses

Core Operating Profits

Provisions/write offs

Core PBT

Dividend Income

Treasury and Other Income

One off provisions/Expenses

PBT

Tax

Tax Rate (%)

Reported PAT

Leverage (x)

RoE

Core RoE

FY15

10.83

7.50

3.33

0.12

3.46

0.29

8.53

0.14

0.16

3.16

0.07

3.09

0.29

0.22

0.00

3.60

1.10

30.54

2.50

8.01

20.02

22.76

FY16

10.32

7.13

3.20

0.14

3.34

0.28

8.37

0.13

0.15

3.06

0.10

2.96

0.30

0.63

-0.17

3.72

1.11

29.83

2.61

8.01

20.90

20.66

FY17

9.87

6.69

3.19

0.11

3.30

0.27

8.12

0.12

0.14

3.03

0.14

2.89

0.29

0.34

-0.09

3.43

1.05

30.62

2.38

7.87

18.74

19.60

FY18

9.03

6.40

2.63

0.06

2.69

0.52

19.32

0.37

0.15

2.17

0.13

2.04

0.29

1.56

-0.45

3.45

0.61

17.62

2.84

6.75

19.18

14.57

FY19

9.15

6.49

2.66

0.08

2.74

0.35

12.65

0.17

0.18

2.39

0.12

2.27

0.26

0.42

-0.10

2.86

0.81

28.44

2.05

6.01

12.30

15.29

FY20

8.90

6.31

2.59

0.06

2.65

0.30

11.48

0.12

0.18

2.35

0.32

2.03

0.22

2.58

-0.88

3.94

0.53

13.32

3.42

6.01

20.55

13.38

FY21E

8.57

6.18

2.39

0.05

2.44

0.27

11.06

0.10

0.17

2.17

0.40

1.77

0.40

0.16

0.00

2.33

0.53

22.81

1.80

6.04

11.48

11.12

FY22E

8.34

6.00

2.34

0.05

2.39

0.27

11.45

0.10

0.17

2.12

0.42

1.70

0.42

0.17

0.00

2.30

0.53

22.93

1.77

6.13

11.46

10.79

FY23E

8.34

6.07

2.27

0.05

2.32

0.27

11.55

0.10

0.17

2.05

0.42

1.63

0.42

0.18

0.00

2.24

0.51

23.00

1.72

6.45

11.72

10.80

Source: MOFSL, Company

Exhibit 33: Share of subsidiaries’ value in SOTP on the rise

Value of subsidiaries (INR b)

Share of subs. value in SOTP (%)

280

FY10

327

FY11

363

FY12

463

FY13

520

FY14

822

FY15

867

FY16

1,252

FY17

1,902

FY18

1,961

FY19

2,011

FY20

Source: MOSL, Company

1 July 2020

HDFC

Valuation matrix

Rating

FY22E

CMP

(INR)

Mcap

(USDb)

P/E (x)

FY21E

17.4

6.8

14.7

2.8

10.6

21.8

20.7

44.1

6.9

7.9

12.8

20.6

FY22E

13.2

5.9

4.6

2.6

5.9

12.1

15.3

28.9

6.0

5.8

10.9

17.2

P/BV (x)

FY21E

1.8

0.7

0.4

0.8

0.9

1.9

4.9

0.6

0.9

3.1

FY22E

1.4

0.7

0.4

0.3

0.7

0.8

1.7

4.3

0.5

0.8

2.5

2.7

RoA (%)

FY21E

1.6

1.0

0.3

2.3

1.4

0.7

1.2

2.4

2.1

1.6

6.4

3.7

FY22E

1.5

1.1

1.0

2.4

1.2

1.6

3.4

2.4

2.1

6.6

4.0

RoE (%)

FY21E

11.1

11.0

3.1

14.4

8.1

4.2

9.4

11.8

8.7

11.3

26.6

16.0

FY22E

10.8

11.5

9.3

13.6

13.0

7.2

11.6

15.9

9.2

13.8

25.4

16.9

HFCs

HDFC*

Buy

1,835

40.0

LICHF

Buy

277

1.8

PNBHF

Neutral

218

0.5

REPCO

Buy

124

0.1

Vehicle fin.

SHTF

Buy

702

2.1

MMFS

Buy

173

1.4

CIFC

Buy

197

2.1

Diversified

BAF

Neutral

2,954

21.6

SCUF

Buy

682

0.6

LTFH

Buy

1.7

MUTH

Neutral

1,097

5.8

MAS

Buy

636

0.5

*Multiple adjusted for value of subsidiaries/associate

1 July 2020

HDFC

Financials and valuations

Income statement

Y/E March

2016

2017

2018

Interest Income

280.7

308.5

331.3

Interest Expended

193.7

209.0

235.0

Net Interest Income

87.0

99.5

96.4

Change (%)

8.8

14.5

-3.2

Assignment income

0.0

5.3

NII (including assignment income)

87.0

99.5

101.7

Change (%)

8.8

14.5

2.2

Other core operating income

3.8

3.5

2.2

Core Income

90.7

103.0

103.9

Change (%)

9.5

13.5

0.9

Operating Expenses

7.6

8.4

19.0

Change (%)

7.4

10.3

127.6

% of core income

8.4

8.1

18.3

Core operating profits

83.1

94.6

84.9

Change (%)

9.7

13.8

-10.3

Provisions/write offs

2.7

4.3

4.6

Core PBT

80.5

90.4

80.3

Change (%)

8.5

12.3

-11.2

Profit on sale/MTM on Invt.

16.5

10.0

57.2

Dividend Income

8.1

9.1

10.8

One off exp/prov

-4.5

-2.8

-16.6

Miscellaneous Income

0.6

0.5

0.2

PBT

101.1

107.3

131.9

Tax

30.2

32.8

22.3

Tax Rate (%)

29.8

30.6

16.9

Reported PAT

70.9

74.4

109.6

Change (%)

18.4

4.9

47.3

PAT adjusted for EO*

65.9

74.0

67.5

Change (%)

8.9

12.2

-8.7

Proposed Dividend

31.4

28.7

40.2

* (Core PBT +Dividend Income + Other income) adjusted for applicable tax

2019

392.4

278.4

114.0

18.3

8.6

122.6

20.6

3.5

126.2

21.4

14.9

-22.0

11.8

111.3

31.1

5.2

106.1

32.2

17.6

11.3

-4.2

0.3

131.2

34.9

26.6

96.3

-12.1

87.1

29.0

43.4

2019

3.4

774.1

778

-4.0

774

3,652.7

14.2

161.6

4,588

4,066.1

12.1

462.4

50.5

9.7

49.6

4,588

2019

4,619

14.7

74.5

25.5

88.0

12.0

2020

437.5

310.0

127.5

11.8

9.7

137.2

11.9

3.0

140.1

11.1

15.0

0.8

10.7

125.2

12.5

15.9

109.2

2.9

126.4

10.8

-43.2

0.2

203.5

25.8

12.7

177.7

84.5

96.2

10.5

43.7

2020

3.5

928.6

932

-70.5

862

4,191.0

14.7

188.3

5,241

4,509.0

10.9

649.4

40.4

22.4

60.1

5,241

2020E

5,166

11.8

75.8

24.2

87.3

12.7

2021E

463.1

334.1

129.0

1.2

10.8

139.9

2.0

2.7

142.6

1.7

14.6

-2.7

10.2

128.0

2.3

21.4

106.6

-2.4

8.4

21.6

0.0

0.2

136.8

28.7

21.0

108.1

-39.2

102.8

6.8

40.5

2021E

3.5

996.2

1,000

-70.5

929

4,430.6

5.7

207.2

5,567

4,764.1

5.7

681.9

5.0

24.6

96.3

5,567

2021E

5,476

6.0

75.5

24.5

87.0

13.0

2022E

493.7

355.1

138.6

7.4

12.5

151.1

8.0

3.0

154.1

8.1

16.2

11.2

10.5

137.9

7.7

24.6

113.2

6.2

10.0

24.9

0.0

0.2

148.3

31.1

21.0

117.2

8.4

110.7

7.7

43.9

2022E

3.5

1,069.4

1,073

-70.5

1,002

5,038.0

13.7

227.9

6,268

5,359.6

12.5

750.1

10.0

27.1

131.5

6,268

2022E

6,160

12.5

75.0

25.0

87.0

13.0

INR b

2023E

561.3

408.5

152.8

10.2

14.3

167.1

10.6

3.3

170.4

10.6

18.0

11.2

10.6

152.4

10.5

28.3

124.0

9.5

11.9

28.6

0.0

0.2

164.8

34.6

21.0

130.2

11.1

122.3

10.5

48.8

INR b

2023E

3.5

1,150.8

1,154

-70.5

1,084

5,855.3

16.2

250.7

7,190

6,163.5

15.0

825.1

10.0

29.8

171.3

7,190

2023E

7,084

15.0

75.0

25.0

87.0

13.0

Balance sheet

Y/E March

Capital

Reserves and Surplus (Ex OCI)

Net Worth (Ex OCI)

Other Comprehensive Income

Net Worth (Incl OCI)

Borrowings

Change (%)

Other liabilities

Total Liabilities

Loans

Change (%)

Investments

Change (%)

Net Fixed Assets

Other assets

Total Assets

Y/E March

AUM (INR b)

Change (%)

Individual loans (%)

Non Individual loans (%)

On Balance Sheet (%)

Assignment/Securitization (%)

E: MOFSL Estimates

2016

3.2

356.6

360

0.0

360

2,376.4

13.9

142.3

2,879

2,592.2

13.6

153.5

7.4

6.6

144.2

2,897

2016

2,915

15.1

72.8

27.2

88.9

11.1

2017

3.2

433.3

436

-2.1

434

2,793.5

17.6

124.0

3,352

2,989.5

15.3

201.8

31.5

10.4

150.2

3,352

2017

3,385

16.1

72.6

27.4

88.3

11.7

2018

3.4

652.1

655

-2.8

653

3,197.2

14.4

139.3

3,989

3,628.1

21.4

307.2

52.2

10.4

43.4

3,989

2018

4,029

19.0

72.9

27.1

90.1

9.9

1 July 2020

HDFC

Financials and valuations

Ratios

Y/E March

Spreads Analysis (%)

Avg Yield on Hsg Loans

Avg. Yield on Funds

Avg. Cost of funds

Interest Spread on loans

Net Interest Margin

Profitability Ratios (%)

RoAE

Core ROE

RoA

Core ROA

Efficiency Ratios (%)

Int. Expended/Int.Earned

Op. Exps./Net Income

Empl. Cost/Op. Exps.

Asset Quality (INR b)

Gross NPAs

Gross NPAs to Adv. (%)

Net NPAs

Net NPAs to Adv. (%)

VALUATION

Book Value (INR)

Price-BV (x)

Adjusted BV* (INR)

Adj Price-ABV (x)

Adjusted EPS (INR)#

Adjusted EPS Growth YoY

Adj Price-Adj EPS (x)

Dividend per share (INR)

17.0

18.0

20.0

21.0

Dividend yield (%)

E: MOSL Estimates; * BV is adj. by ded. invt in Subs/Asso. from NW

# Adjusted EPS is adjusting for dividend from key ventures and one-offs

33.7

8.2

39.1

15.9

34.5

-11.7

44.4

28.7

176.6

223.0

262.2

325.0

18.8

0.7

12.7

0.5

2016

227.7

24.4

0.8

16.5

0.6

2017

274.7

40.8

1.1

29.2

0.8

2018

391.1

48.4

1.2

34.3

0.8

2019

451.7

89.7

2.0

54.0

1.2

2020

538.1

3.4

412.3

2.3

49.2

10.8

19.6

21.0

1.1

145.3

3.1

87.2

1.9

2021E

577.1

3.2

451.3

1.8

48.0

-2.4

17.4

23.4

1.3

173.5

3.2

104.1

2.0

2022E

619.4

3.0

493.6

1.4

51.0

6.2

13.2

25.4

1.4

203.0

3.3

121.8

2.0

2023E

666.4

2.8

540.6

0.9

55.9

9.5

8.6

28.2

1.5

69.0

6.6

46.0

67.7

6.8

46.5

70.9

11.1

72.0

70.9

9.6

48.2

70.9

5.4

39.6

72.1

8.4

36.6

71.9

8.6

36.2

72.8

8.5

35.8

11.0

8.7

2.3

3.4

10.5

8.1

2.5

3.4

9.6

9.4

7.8

1.7

2.7

9.7

9.5

8.1

1.6

2.8

9.7

9.3

7.9

1.8

2.7

9.5

8.9

7.8

1.7

2.5

9.2

8.7

7.5

1.7

2.4

9.2

8.6

7.5

1.7

2.3

2016

2017

2018

2019

2020

2021E

2022E

(%)

2023E

20.9

20.7

2.42

2.02

18.7

19.6

2.37

2.04

20.2

14.6

1.84

1.64

13.5

15.3

2.03

1.88

21.7

13.4

1.96

1.80

12.1

11.1

1.90

1.59

12.1

10.8

1.87

1.54

12.5

10.8

1.82

1.47

1 July 2020

HDFC

GALLERY

1 July 2020

HDFC

Explanation of Investment Rating

Investment Rating

Expected return (over 12-month)

BUY

>=15%

SELL

< - 10%

NEUTRAL

< - 10 % to 15%

UNDER REVIEW

Rating may undergo a change

NOT RATED

We have forward looking estimates for the stock but we refrain from assigning recommendation

*In case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall within

following 30 days take appropriate measures to make the recommendation consistent with the investment rating legend.

Disclosures

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).

Motilal Oswal Financial Services Ltd. (MOFSL) is a SEBI Registered Research Analyst having registration no. INH000000412. MOFSL, the Research Entity (RE) as defined in the

Regulations, is engaged in the business of providing Stock broking services, Investment Advisory Services, Depository participant services & distribution of various financial

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registered Trading Member with National Stock Exchange of India Ltd. (NSE) and Bombay Stock Exchange Limited (BSE), Multi Commodity Exchange of India Limited (MCX) and

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any other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the

specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOFSL even

though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report

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Research Analyst views on Subject Company may vary based on Fundamental

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This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability

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to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these

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located in Hong Kong & are not conducting Research Analysis in Hong Kong.

For U.S.

Motilal Oswal Financial Services Limited (MOFSL) is 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 MOFSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers

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dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this

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The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S.

registered broker-dealer, MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public

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For Singapore

In Singapore, this report is being distributed by Motilal Oswal Capital Markets Singapore Pte Ltd (“MOCMSPL”) (Co.Reg. NO. 201129401Z) which is a holder of a capital markets

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Specific Disclosures

1 MOFSL, Research Analyst and/or his relatives does not have financial interest in the subject company, as they do not have equity holdings in the subject company.

2 MOFSL, Research Analyst and/or his relatives do not have actual/beneficial ownership of 1% or more securities in the subject company

3 MOFSL, Research Analyst and/or his relatives have not received compensation/other benefits from the subject company in the past 12 months

4 MOFSL, Research Analyst and/or his relatives do not have material conflict of interest in the subject company at the time of publication of research report

5 Research Analyst has not served as director/officer/employee in the subject company

6 MOFSL has not acted as a manager or co-manager of public offering of securities of the subject company in past 12 months

7 MOFSL has not received compensation for investment banking/ merchant banking/brokerage services from the subject company in the past 12 months

8 MOFSL has not received compensation for other than investment banking/merchant banking/brokerage services from the subject company in the past 12 months

1 July 2020

HDFC

9 MOFSL has not received any compensation or other benefits from third party in connection with the research report

10 MOFSL has not engaged in market making activity for the subject company

********************************************************************************************************************************

The associates of MOFSL may have:

financial interest in the subject company

actual/beneficial ownership of 1% or more securities in the subject company

received compensation/other benefits from the subject company in the past 12 months

other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on

the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOFSL

even though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report.

acted as a manager or co-manager of public offering of securities of the subject company in past 12 months

be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the

company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies)

received compensation from the subject company in the past 12 months for investment banking / merchant banking / brokerage services or from other than said services.

The associates of MOFSL has not received any compensation or other benefits from third party in connection with the research report

Above disclosures include beneficial holdings lying in demat account of MOFSL which are opened for proprietary investments only. While calculating beneficial holdings, It does not

consider demat accounts which are opened in name of MOFSL for other purposes (i.e holding client securities, collaterals, error trades etc.). MOFSL also earns DP income from

clients which are not considered in above disclosures.

Analyst Certification

The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the

research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.

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The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or

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the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and

should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make

modifications and alternations to this statement as may be required from time to time without any prior approval. MOFSL, its associates, their directors and the employees may from

time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to

perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a

separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of

information that is already available in publicly accessible media or developed through analysis of MOFSL. The views expressed are those of the analyst, and the Company may or

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expenses that may be suffered by the person

accessing this information due to any errors and delays.

Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022 71934200/ 022-71934263;

Website www.motilaloswal.com.CIN no.: L67190MH2005PLC153397.Correspondence Office Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road,

Malad(West), Mumbai- 400 064. Tel No: 022 7188 1000.

Registration Nos.: Motilal Oswal Financial Services Limited (MOFSL)*: INZ000158836(BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst:

INH000000412. AMFI: ARN - 146822; Investment Adviser: INA000007100; Insurance Corporate Agent: CA0579;PMS:INP000006712. Motilal Oswal Asset Management Company

Ltd. (MOAMC): PMS (Registration No.: INP000000670); PMS and Mutual Funds are offered through MOAMC which is group company of MOFSL. Motilal Oswal Wealth

Management Ltd. (MOWML): PMS (Registration No.: INP000004409) is offered through MOWML, which is a group company of MOFSL. Motilal Oswal Financial Services Limited is

a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs,Insurance Products and IPOs.Real Estate is offered through Motilal Oswal Real Estate Investment Advisors II Pvt.

Ltd. which is a group company of MOFSL. Private Equity is offered through Motilal Oswal Private Equity Investment Advisors Pvt. Ltd which is a group company of MOFSL.

Research & Advisory services is backed by proper research. Please read the Risk Disclosure Document prescribed by the Stock Exchanges carefully before investing. There is no

assurance or guarantee of the returns. Investment in securities market is subject to market risk, read all the related documents carefully before investing. Details of Compliance

Officer: Name: Neeraj Agarwal, Email ID: na@motilaloswal.com, Contact No.:022-71881085.

* MOSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National

Company Law Tribunal, Mumbai Bench.

1 July 2020