December 2015 Results Preview | January 2016
Financials - Banks
Technology
Company name
Axis Bank
Bank of Baroda
Bank of India
Canara Bank
DCB Bank
Federal Bank
HDFC Bank
ICICI Bank
Indian Bank
IndusInd Bank
Kotak Mahindra Bank
Oriental Bank of Commerce
Punjab National Bank
State Bank of India
Union Bank of India
Yes Bank
A washout quarter
Regulatory actions add to woes, uncertainty persists
3QFY16 earnings for Financials would be one of the weakest in the last few
years, marred by a) regulatory actions to clean banks’ balance sheet (difficult to
ascertain the quantum, given the lack of disclosures), b) largely flat G-Sec yields
despite 50bp rate cut over the last six months, c) moderate macro recovery
putting pressure on loan growth and d) NIMs (also impacted by 0-35bp base
rate cut). Fee remains under pressure (led by weak corporate demand);
however, banks in the retail segment (especially auto loans) should do well
Ambiguity on headline NPAs remains, led by banks’ aggressive 5:25 refinancing,
SDR, use of DCCO extension and RBI’s stance on clean-up of banks’ balance
sheet.
Asset quality will be the key for earnings growth trajectory in 3Q, and it largely
depends on the final outcome of talks between RBI and banks. In any case—
whether to recognize and provide or just increase—provisioning will have big
impact on earnings.
We have cut estimates 5-10% across large banks for FY16, assuming higher
credit costs. In our view, clarity on banks’ balance sheet health is the key for
stock performance. Post the clean-up and one-time valuation readjustments, we
expect multiples to expand on cleaned balance sheet. We would stick with retail
lenders like
HDFCB
and
IIB
as of now. Our key beta plays are
ICICIBC
(attractive
valuations post correction) and
YES.
We have kept the rating for
PNB, CBK
and
OBC, under review,
given the
uncertainty on the extent of stress additions from regulatory actions, large
corporate exposures and higher proportion of restructured loan book.
Net Profit
Var % Var %
Dec-15
YoY
QoQ
19,281
1.5
0.7
329
-22.7
-11.0
1,806
-31.8
12.0
33,683
20.5
17.4
29,498
2.1
-2.6
5,800
29.7
3.6
6,287
35.4
10.4
6,141
13.7
0.6
102,825
10.1
5.4
5,736
71.7
360.8
(2,807)
NM
NM
3,686
-43.8
-30.3
1,796
-35.3
-51.4
2,546
NM
-15.5
8,425
8.8
35.7
28,361
-2.5
-26.9
5,032
66.4
-23.5
52,776
-3.1
-1.5
Source: Company, MOSL
Exhibit 1: Expected quarterly performance (INR m)
INR m
Net Interest Income
Operating Profit
Var % Var %
Var %
Var %
RECO
Dec-15
Dec-15
YoY
QoQ
YoY
QoQ
Axis Bank
Buy
40,260
12.2
-0.9
38,062
14.8
4.9
DCB Bank
Sell
1,521
24.8
1.4
705
3.1
-9.7
Federal Bank
Neutral
6,004
2.3
-1.3
3,653
-8.1
8.5
HDFC Bank
Buy
68,797
20.7
3.0
56,528
18.3
12.1
ICICI Bank
Buy
52,848
9.8
0.6
54,470
8.1
5.6
IndusInd Bank
Buy
11,303
31.2
3.3
10,655
37.7
5.9
Kotak Mahindra Bank
Neutral
17,583
66.0
4.7
11,699
58.6
12.0
Yes Bank
Buy
11,193
23.1
1.0
10,615
23.0
4.2
PBs
216,684
19.5
2.0
186,387
16.7
7.6
Bank of Baroda
Buy
34,208
4.1
5.4
25,409
8.6
8.7
Bank of India
Neutral
30,906
11.2
2.3
16,509
-11.5
13.2
Canara Bank
Under Review
26,253
10.3
-0.8
18,620
3.6
-4.2
Indian Bank
Buy
10,609
-4.0
-1.8
7,244
-8.8
-1.5
Oriental Bank of Commerce
Under Review
13,655
5.2
-1.3
9,714
-4.3
-2.1
Punjab National Bank
Under Review
42,500
0.4
-1.7
29,768
8.2
1.3
State Bank
Buy
141,501
2.7
-0.7
93,503
0.6
-8.9
Union Bank
Buy
21,386
0.8
1.8
15,159
3.4
7.5
PSBs
321,019
3.6
0.2
215,926
1.3
-2.2
*Note: Data for Private Sector Aggregate is excluding KMB due to VYSB acquisition.
January 2016
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com); +91 22 3982 5415
Dhaval Gada
(Dhaval.Gada@MotilalOswal.com); +91 22 3982 5505
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.
1

December 2015 Results Preview | Sector: Financials
Asset quality ambiguity persists
RBI’s tough stance to clean up the balance sheet by Mar-17 is likely to weigh on
banks’ earnings. As per media articles (link), negotiations between RBI and Banks
continue on a) recognition of some accounts as NPA (would require 15%
provisioning) from restructured loans or otherwise b) aggressively provide for
restructured or accounts taking DCCO benefit without recognizing as NPA (would
require at least ~10% provisioning) c) recognizing accounts at the industry level as
NPA (hit for the banks in case where these accounts are standard; we expect it to be
with large banks). In our view, RBI exercise will result in earnings cut—quantum
difficult to ascertain due to lack of clarity. We have cut FY16 earnings by 5-10% for
large banks by increasing the credit cost.
Banks’ aggressive 5:25 and SDR (INR1.5t+ till date, 2%+ of loans already done)
increase the difficulty of projecting asset quality and, in turn, earnings; some banks
may not even report these numbers as it is not mandatory. As per media reports
(link), RBI is looking to aggressively increase the provisioning requirement on 5:25
and SDR accounts; this can hit earnings further.
Subdued macros continue to mar business growth
Weak corporate loan
growth (5% YoY as of Nov-
15) leading to overall loan
growth moderation,
especially for state-owned
banks
The moderate demand environment is likely to result in 10-11% YoY deposit/loan
growth in 3QFY16. Saddled with NPAs, state-owned banks’ growth is likely to be
lower than the industry average (led by capital conservation effort and weak
corporate loan growth of 5% YoY as of November 2015). Private banks’ growth
should remain healthy at ~20% (helped by strong retail growth, especially auto/CV
loans and refinancing).
Margins under pressure; recongintion can lead to interest reversals
NII growth for state-owned banks is expected to be 4% YoY, whereas private banks
are expected to grow at 16% YoY. Yield on funds is expected to decline QoQ, led by
a) cut in base rate by ~20bp/35bp in 3QFY16/ 2HCY15 and b) strong competition in
the refinancing market. Aggressive recognition of loans as NPA can lead to high
interest reversals and, in turn, lower margins (not factored in our estimates). Banks
have cut deposit rate by 50-175bp over the last one year; this will reduce the cost of
deposits and (in turn) should support margins. Pick-up in unsecured loans (PL and
CC) and high disbursements for auto loans should also help.
Flat yields and relatively stable quarter to moderate trading gains
Bond yields were stable QoQ (2-3bp) across various maturities during the quarter
despite RBI cutting rates by 50bp in 3QFY16 and 2HCY15. Further, less volatility
during the quarter is expected to moderate the trading gains. We expect banks to
report one-off earnings (repatriation of capital, trading gains on sale of HTM security
in OMO, reversal of provisions) to restrict earnings decline.
Absence of AS-15 costs and
retirement-related liabilities
to drive opex growth lower
Opex to drive earnings growth for PSBs; corporate fee remains muted
For state-owned banks, employee expenses would be a key enabler for earnings
growth—led by absence of amortization of 2nd pension option-related liability and
settlement of wage negotiation. No new sanctions, moderate corporate loan growth
and incremental corporate growth (largely by refinancing) continue to impact
corporate fees. Retail fee is expected to be healthy—led by higher disbursements in
2
January 2016

December 2015 Results Preview | Sector: Financials
vehicle loans and unsecured loans, and momentum (although moderating) in
housing loan growth.
Core operating profits under pressure; provisions a key to profitability
State-owned banks’
PPP/PAT growth expected
to remain weak
As discussed earlier, lack of clarity over asset recognition as stress loans makes it
difficult to estimate earnings for the current quarter. As a precaution, we have
increased credit cost and cut FY16 earnings estimates by 5-10% for large banks.
Higher-than-expected slippages and relapse from restructured loans will be a drag
on earnings. Over the last year, Indian banks—mainly state owned—have sold
assets worth ~INR600b to ARCs. We believe write-downs and the resultant MTM
provisioning for the same (as per RBI guidelines) would begin over the next 1-2
quarters. Overall, we expect earnings growth of -3% YoY for state-owned banks and
+9% YoY for private banks.
Exhibit 2: Financials - Valuation metrics
66
Rating
CMP Mcap EPS (INR)
P/E (x)
BV (INR)
P/BV (x)
RoA (%)
RoE (%) Dividend
(INR) USD b FY16 FY17 FY16 FY17 FY16 FY17 FY16 FY17 FY16 FY17 FY16 FY17 Yld (%) #
ICICIBC*
Buy
250
22.0 21.8 25.4 8.0 6.4 132 150 1.32 1.08 1.58 1.58 15.0 15.3
2.0
HDFCB
Buy
1,065 40.5 49.1 59.3 21.7 18.0 285 331 3.74 3.22 1.88 1.86 18.4 19.3
0.8
AXSB
Buy
431
15.5 35.6 41.8 12.1 10.3 217 252 1.98 1.71 1.69 1.70 17.5 17.8
1.1
KMB*
Neutral
703
19.5 19.2 26.0 36.6 27.0 183 209 3.84 3.37 1.11 1.40 13.9 14.5
0.1
YES
Buy
703
4.5
60.0 75.8 11.7 9.3 327 388 2.15 1.81 1.67 1.73 19.8 21.2
1.3
IIB
Buy
944
8.4
41.3 51.3 22.9 18.4 295 340 3.19 2.78 2.04 2.08 17.6 16.1
0.4
DCBB
Sell
80
0.3
5.4 5.8 14.8 13.7 60
66
1.32 1.21 0.84 0.73 9.3 9.2
0.0
FB
Neutral
55
1.4
4.4 5.6 12.4 9.9
49
53
1.13 1.04 0.86 0.95 9.5 11.0
2.0
JKBK
Neutral
84
0.6
16.2 18.0 5.2 4.7 138 152 0.61 0.55 1.00 1.02 12.3 12.4
2.5
SIB
Buy
20
0.4
2.5 3.1 7.9 6.5
29
31
0.70 0.65 0.55 0.58 9.4 10.3
3.0
Private Aggregate
113.0
17.2 14.4
2.59 2.27
SBIN (cons)*
Buy
217
25.5 26.0 31.9 7.9 6.4 231 257 0.89 0.79 0.73 0.80 11.9 12.9
1.6
PNB
UR
110
3.3
17.7 24.5 6.2 4.5 216 238 0.51 0.46 0.55 0.68 8.7 10.8
3.0
BOI
Neutral
114
1.4
-4.6 16.5 -24.8 6.9 358 372 0.32 0.31 -0.06 0.18 -1.3 4.5
4.4
BOB
Buy
149
1.0
13.3 20.0 11.2 7.4 178 193 0.84 0.77 0.42 0.57 7.9 10.8
2.2
CBK
UR
229
1.8
43.2 60.0 5.3 3.8 572 618 0.40 0.37 0.39 0.48 8.0 10.1
4.6
UNBK
Buy
143
1.5
36.2 44.5 4.0 3.2 312 348 0.46 0.41 0.62 0.68 12.5 13.5
4.2
OBC
UR
135
0.6
44.2 55.6 3.1 2.4 473 515 0.29 0.26 0.55 0.62 9.7 11.3
2.5
INBK
Buy
111
0.8
21.1 30.6 5.2 3.6 278 301 0.40 0.37 0.50 0.65 7.8 10.6
3.8
CRPBK
Neutral
42
0.1
16.5 21.9 2.6 1.9 141 158 0.30 0.27 0.54 0.64 12.3 14.7
3.8
ANDB
Buy
63
0.6
17.8 22.8 3.6 2.8 180 196 0.35 0.32 0.55 0.62 10.3 12.2
3.2
IDBI
Neutral
83
2.0
14.4 19.7 5.8 4.2 157 173 0.53 0.48 0.58 0.69 9.5 11.9
1.9
DBNK
Neutral
40
0.3
8.8 12.5 4.6 3.2 126 136 0.32 0.30 0.36 0.44 7.2 9.6
2.7
Public Aggregate
38.9
7.5 5.5
0.62 0.57
HDFC*
UR
1,208 28.8
35
42 21.6 16.4 165 188 4.62 3.62 2.46 2.55 23.6 22.7
1.2
LICHF
Buy
500
3.8
34
42 14.7 11.8 182 216 2.74 2.31 1.48 1.55 20.1 21.3
1.0
DEWH
Buy
232
1.0
26
33
8.8 7.0 179 204 1.30 1.14 1.27 1.29 15.6 17.2
1.5
IHFL
Buy
735
4.7
56
72 13.2 10.2 275 304 2.68 2.41 3.91 4.07 25.9 24.8
3.5
GRHF
Buy
269
1.5
7
9
39.7 31.5 24
28 11.39 9.46 2.18 2.05 28.9 28.6
0.7
REPCO
Buy
662
0.6
24
35 28.0 19.2 151 182 4.38 3.65 2.08 2.28 16.8 20.7
0.2
IDFC
Buy
48
1.2
10
12
4.9 4.1 107 116 0.18 0.15 1.75 1.83 8.8 9.8
5.1
RECL
Buy
228
3.4
63
74
3.6 3.1 301 358 0.76 0.64 3.21 3.15 22.8 22.4
4.7
POWF
Buy
201
4.0
54
59
3.7 3.4 285 328 0.70 0.61 3.08 2.97 20.5 19.3
4.5
SHTF
Buy
870
3.0
62
73 14.0 11.9 457 515 1.90 1.69 2.08 2.29 14.0 15.0
1.1
MMFS
Buy
237
2.0
12
15 19.6 15.5 109 120 2.17 1.97 1.93 2.22 11.5 13.3
1.7
BAF
Buy
6,133
5.0
224 276 27.4 22.2 1,351 1,582 4.54 3.88 3.12 2.92 19.9 18.8
0.6
MUTH
Buy
177
1.1
19
24 12.4 10.0 140 156 1.69 1.52 2.65 2.85 14.3 16.1
4.0
SKSM
Buy
520
1.0
22
31 10.8 7.6 105 136 2.26 1.75 5.00 5.17 23.4 25.8
0.0
NBFC Aggregate
61.1
14.0 12.0
2.42 2.13
*Multiples adj. for value of key ventures/Investments; For ICICI Bank and HDFC Ltd BV is adjusted for investments in subsidiaries; # Div Yield
based on FY14 declared dividend; UR: Under Review
January 2016
3

December 2015 Results Preview | Sector: Financials
Exhibit 3: State-owned banks—one-year forward P/BV
PSU Banks Sector PB (x)
2.4
1.9
1.3
0.8
0.2
0.6
1.9
1.1
0.7
LPA (x)
Exhibit 4: Private banks—one-year forward P/BV
Pvt Banks Sector PB (x)
3.5
2.8
2.0
1.3
0.5
0.9
3.3
2.2
2.4
LPA (x)
Exhibit 5: Loan growth remains moderate
Loans (INR t)
Chg YoY (%)
Exhibit 6: Deposit growth stable at 11-12%
Deposits (INR t)
Chg YoY (%)
Exhibit 7: Gsec yields largely unchanged (%)
31-Mar-15
30-Sep-15
7.90
7.79
7.50
7.47
3 Yr - Gsec
5 Yr - Gsec
8.06
7.86
7.66
7.63
7.75
7.72
7.54
30-Jun-15
31-Dec-15
Exhibit 8: Moderation in NIMs expected (%)
PSU
Private
7.88
7.72
7.25
7.23
1 Yr - Gsec
10 Yr - Gsec
Exhibit 9: PSBs net slippages to remain elevated (%,
annualized)
Net Slippage Ratio (%)
3.1
1.7
2.0
1.1
2.7 2.7
2.0
1.1
3.3
1.9 2.1
1.1
1.9 2.1
2.6
1.9
2.0
2.6
2.3
Exhibit 10: Provisions to PPoP (%) to remain elevated in case
of PSBs
PSBs
61
38
17
11
13
13
PBs
59
73
51
18
20
62
63
55
40
20
55
52
16
15
17
18
Source: MOSL, Company
Source: MOSL, Company
January 2016
4

December 2015 Results Preview | Sector: Financials
December 2015 Results Preview | Sector: Financials
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
Financial Snapshot (INR b)
Y/E MARCH
AXSB IN
2,370.5
1021/15
655/429
-6/-16/-8
CMP: INR431
Axis Bank
Buy
2015 2016E
142.2
133.9
73.6
3.6
31.0
17.3
187.9
184.3
17.8
1.7
17.8
13.9
2.3
2.3
1.1
162.4
157.6
80.3
3.6
33.9
9.1
216
210
16.7
1.6
17.6
12.7
2.0
2.1
1.2
2017E
188.5
185.7
96.7
3.6
40.8
20.5
249
244
17.5
1.7
17.6
10.6
1.7
1.8
1.4
2018E
218.5
215.4
115.0
3.4
48.5
18.9
289
284
18.0
1.6
17.6
8.9
1.5
1.5
1.7
NII
OP
NP
NIM (%)
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
ABV/Sh. (INR)
RoE (%)
RoA (%)
Payout (%)
Valuations
P/E(X)
P/BV (X)
P/ABV (X)
Div. Yield (%)
Loan growth is expected to be healthy (~20% YoY). Deposits growth
is expected to be lower at ~17% YoY. CASA growth remains a key
monitorable as it has moderated to less than 15% over the last four
quarters
NIMs are expected to come off by 5-10bp QoQ to 3.75%, impacted
by 35bp base rate cut in the beginning of 3Q and higher share of
incremental corporate growth (led by refinancing). Growth in
unsecured loans remains strong and will provide cushion to yields.
Fee income growth is expected to be ~20% YoY, largely in line with
loan growth and helped by strong retail growth.
Asset quality may come under pressure, led by RBI directive. We
have increased the credit cost estimate by ~10bp and cut estimates
by ~5% for FY16 and ~3% for FY17/18.
AXSB trades at 1.7x FY17E BV and 10.6x FY17E EPS. Maintain
Buy.
Quarterly Performance
Interest Income
Interest Expense
Net Interest Income
% Change (Y-o-Y)
Other Income
Net Income
Operating Expenses
Operating Profit
% Change (Y-o-Y)
Other Provisions
Profit before Tax
Tax Provisions
Net Profit
% Change (Y-o-Y)
Operating Parameters
NIM (Reported,%)
NIM (Cal, %)
Deposit Growth (%)
Loan Growth (%)
CD Ratio (%)
Core CASA ratio (%)
Tax Rate (%)
Asset Quality
OSRL (INR b)
OSRL (%)
Gross NPA (INR b)
Gross NPA (on cust. assets, %)
E: MOSL Estimates
1Q
82,894
49,789
33,105
15.5
16,911
50,015
21,059
28,957
1.8
3,866
25,091
8,423
16,668
18.3
3.9
3.7
14.1
16.3
84.8
40.0
33.6
62.9
2.7
34.6
1.3
FY15
2Q
3Q
86,024
88,897
50,775
53,002
35,249
35,896
20.0
20.3
19,476
20,391
54,725
56,286
23,102
23,140
31,623
33,146
15.0
26.8
7,250
5,072
24,373
28,075
8,266
9,077
16,107
18,998
18.2
18.4
4.0
4.0
11.1
20.3
85.4
40.0
33.9
66.9
2.8
36.1
1.3
3.9
3.8
11.0
23.2
89.5
40.0
32.3
68.1
2.6
39.0
1.34
Key issues to watch out for
Guidance for stress addition and credit cost for FY16.
Outlook on loan and fees growth.
View on the existing infrastructure exposure of the bank.
Quantum of loans rescheduled under the 5:25 scheme and any
further large asset sale to ARCs.
(INR Million)
4Q
96,971
58,978
37,992
20.0
26,873
64,866
24,737
40,129
23.6
7,098
33,031
11,225
21,806
18.4
3.8
3.7
14.8
22.2
87.2
40.0
34.0
81.7
2.9
41.1
1.3
1Q
99,361
58,799
40,562
22.5
22,983
63,545
22,624
40,921
41.3
11,218
29,703
9,919
19,784
18.7
3.8
3.9
13.2
23.5
92.5
40.0
33.4
85.2
3.0
42.5
1.4
FY16
2Q
3QE
99,596 100,415
58,975
60,155
40,621
40,260
15.2
12.2
20,414
23,700
61,035
63,960
24,755
25,898
36,280
38,062
14.7
14.8
7,072
8,670
29,208
29,392
10,051
10,111
19,156
19,281
18.9
1.5
3.9
3.9
14.2
23.1
92.0
40.0
34.4
84.3
2.8
44.5
1.4
3.7
16.9
20.1
92.0
34.4
4QE
102,572
61,629
40,943
7.8
29,355
70,297
27,963
42,334
5.5
9,959
32,376
10,346
22,029
1.0
3.5
17.5
20.0
89.0
32.0
FY15
FY16E
354,786
212,545
142,241
19.0
83,650
225,892
92,037
133,854
16.8
23,286
110,568
36,991
73,577
18.3
3.9
3.6
14.8
22.2
87.2
40.0
33.5
81.7
2.9
41.1
1.3
401,944
239,558
162,386
14.2
96,451
258,837
101,241
157,596
17.7
36,918
120,678
40,427
80,251
9.1
3.6
17.5
20.0
89.0
33.5
50.5
1.60
55.1
1.6
55.1
1.6
January 2016
5

December 2015 Results Preview | Sector: Financials
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
Financial Snapshot (INR b)
Y/E MARCH
NII
OP
NP
NIM (%)
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
ABV/Sh. (INR)
RoE (%)
RoA (%)
Div. Payout
(%)
Valuations
P/E(X)
P/BV (X)
P/ABV (X)
Div. Yield (%)
2015 2016E
131.9
99.2
34.0
2.0
15.3
-27.3
166
143
9.7
0.5
29.1
9.7
0.9
1.0
2.2
138.6
100.4
26.8
2.0
11.6
-24.3
176.4
132.3
6.9
0.4
23.2
12.8
0.8
1.1
1.6
2017E
160.2
116.2
44.6
2.1
19.3
66.4
191.2
150.4
10.5
0.6
23.2
7.7
0.8
1.0
2.6
BOB IN
2,310.4
343/5
229/138
-10/7/-24
2018E
179.3
129.9
54.6
2.1
23.7
22.5
209.3
171.9
11.8
0.6
23.2
6.3
0.7
0.9
3.2
CMP: INR149
Bank of Baroda
Buy
Loan/deposit growth is expected to remain moderate (10/12% YoY)
in 3QFY16. The bank’s focus will remain on RAM
(Retail/Agri/MSME).
Expected balance clean-up and 25bp base rate cut in October, NIM
is expected to be under pressure QoQ (~2%). Change in loan mix in
international loan portfolio to provide cushion.
Non-interest income is expected to increase 14% YoY. Core fee
income growth is expected to remain moderate at ~10% YoY.
Opex growth is expected to be moderate at 4% YoY v/s 3% YoY in
2QFY16, led by lower growth in staff expenses.
Asset quality stress is expected to be elevated in 2HFY16 as the new
management looks to clean up the books by Mar-16. BOB reported
slippages of INR69.6b (7.2% of loans) in 2QFY16, and we expect it to
remain around similar levels in 3Q. On the lower base, factoring the
higher credit cost (up ~10bp), we have cut estimates by ~10% for
FY16 and ~5% for FY17/18. Reiterate Buy.
Key issues to watch out for
Performance of stress addition, mainly from international book.
Guidance on loan growth, margins and operating expenses.
Quantum of loans rescheduled under the 5:25 scheme.
New management strategy and guidance.
FY16
2Q
3QE
111,564 114,514
79,119
80,306
32,445
34,208
-4.6
4.1
11,440
12,423
43,885
46,631
20,515
21,221
23,370
25,409
-2.7
8.6
18,917
16,849
4,453
8,561
3,208
2,825
1,245
5,736
-88.7
71.7
2.1
2.0
8.0
7.6
67.7
32.0
72.0
229.3
5.5
237.1
5.6
2.0
11.7
9.6
68.4
33.0
(INR Million)
FY15
FY16E
429,636
297,763
131,872
10.2
44,020
175,892
76,741
99,151
6.7
44,945
54,206
20,222
33,984
-25.2
2.3
2.1
8.6
7.8
69.3
26.4
37.3
259.1
6.1
162.6
3.7
455,450
316,842
138,608
5.1
47,230
185,837
85,448
100,390
1.2
57,148
43,242
16,432
26,810
-21.1
2.1
7.0
6.0
68.9
27.6
38.0
Quarterly Performance
Interest Income
Interest Expense
Net Interest Income
% Change (YoY)
Other Income
Net Income
Operating Expenses
Operating Profit
% Change (YoY)
Other Provisions
Profit before Tax
Tax Provisions
Net Profit
% Change (YoY)
Operating Parameters
NIM (Reported, %)
NIM (Calculated, %)
Deposit Growth (%)
Loan Growth (%)
CD Ratio (%)
CASA Ratio (%)
Tax Rate (%)
Asset Quality
OSRL (INR B)
OSRL (%)
Gross NPA (INR B)
Gross NPA (%)
E: MOSL Estimates
January 2016
1Q
106,580
73,297
33,283
15.2
10,245
43,529
18,733
24,796
1.8
5,267
19,529
5,910
13,619
16.6
2.4
2.1
18.1
18.8
69.2
31.3
30.3
228.3
6.0
120.9
3.1
FY15
2Q
3Q
108,257 107,180
74,246
74,319
34,011
32,861
17.5
7.5
9,917
10,904
43,928
43,765
19,898
20,375
24,029
23,390
13.9
7.2
8,880
12,623
15,149
10,768
4,107
7,428
11,042
3,340
-5.5
-68.1
2.4
2.2
16.9
13.5
68.0
31.9
27.1
224.2
5.8
130.6
3.3
2.2
2.1
12.1
11.7
69.7
32.4
69.0
231.0
5.9
154.5
3.9
4Q
107,619
75,903
31,717
1.5
12,955
44,671
17,736
26,935
5.1
18,175
8,760
2,777
5,983
-48.3
2.2
2.0
8.6
7.8
69.3
33.0
31.7
259.1
6.1
162.6
3.7
1Q
112,765
78,169
34,596
3.9
9,672
44,269
22,249
22,020
-11.2
5,997
16,022
5,501
10,522
-22.7
2.3
2.1
7.5
7.0
68.9
31.9
34.3
255.4
6.3
172.7
4.1
4QE
116,607
79,249
37,358
17.8
13,695
51,053
21,462
29,591
9.9
15,384
14,206
4,898
9,308
55.6
2.1
7.0
6.0
68.7
34.5
258.8
5.8
283.2
6.1
283.2
6.1
6

December 2015 Results Preview | Sector: Financials
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
Financial Snapshot (INR b)
Y/E MARCH
BOI IN
643.0
73/1
311/113
-6/-28/-55
CMP: INR114
Bank of India
Neutral
2015 2016E
113.4
74.9
17.1
2.1
25.7
6.7
0.3
393.3
261
22.6
4.4
0.3
0.4
4.4
122.9
66.0
-16.7
2.1
-21.1
-6.3
-0.3
341
222
0.0
-5.4
0.3
0.5
0.0
2017E
136.9
78.8
7.3
2.1
9.3
2.7
0.1
350
256
23.2
12.3
0.3
0.4
1.6
2018E
157.3
94.6
15.5
2.1
19.5
110.3
5.4
0.2
366
308
23.2
5.9
0.3
0.4
3.4
NII
OP
NP
NIM (%)
EPS (INR)
EPS Gr. (%)
ROE (%)
ROA (%)
BV/Sh. (INR)
ABV/Sh. (INR)
Div. Payout, %
Valuations
P/E(X)
P/BV (X)
P/ABV (X)
Div. Yield (%)
-39.5 -182.3 -143.9
Continued asset quality strain and capital conservation effort to
keep loan/deposits growth below the industry average—flat to
declining YoY in 3QFY16. Expect NIM to be stable/declining QoQ at
2.1% (there was no base rate cut in 3Q).
Non-interest income is expected to decline ~13%, led by lower
growth in non-core income.
Despite flat growth in total income, high staff/other expenses are
expected to lead to a decline in PPP growth (-17% YoY). In 3QFY16,
opex is expected to grow 19% YoY (24% YoY in 1HFY16).
Credit cost is also expected to remain high at 2% (2%+ in the past
couple of quarters), with continued high slippages over the past few
quarters.
CET1 is expected to increase to ~8% post the recent capital infusion
announced by GOI. BOI trades at 0.3x FY17E BV and 12.3x FY17E
EPS. Maintain
Neutral.
Key issues to watch out for
Outlook on asset quality for 2HFY16.
Quantum of loans rescheduled under the 5:25 scheme.
Outlook on balance sheet growth and further capital infusion.
Update on asset monetization plan to increase Tier I ratio.
New management strategy and guidance.
(INR Million)
FY16E
433,284
310,420
122,864
8.3
36,160
159,024
92,989
66,035
-11.8
89,287
-23,253
-6,511
-16,742
-198.0
Quarterly Performance
Interest Income
Interest Expense
Net Interest Income
% Change (Y-o-Y)
Other Income
Net Income
Operating Expenses
Operating Profit
% Change (Y-o-Y)
Other Provisions
Profit before Tax
Tax Provisions
Net Profit
% Change (Y-o-Y)
Operating Parameters
NIM (Reported, %)
NIM (Cal, %)
Deposit Growth (%)
Loan Growth (%)
CD Ratio (%)
Tax Rate (%)
Asset Quality
OSRL (INR b)
OSRL (%)
Gross NPA (INR b)
Gross NPA (%)
E: MOSL Estimates
January 2016
1Q
103,043
76,178
26,865
5.9
10,245
37,110
16,507
20,603
-5.5
8,931
11,672
3,615
8,057
-16.4
2.2
2.0
20.7
23.3
76.2
31.0
210.0
5.5
125.3
3.3
FY15
2Q
3Q
4Q
110,931 108,678 111,648
80,623 80,876 83,185
30,307 27,802 28,463
19.9
2.2
-6.6
10,064 10,797 11,222
40,371 38,599 39,684
19,016 19,945 25,419
21,355 18,654 14,266
1.6
-13.0
-28.5
9,634 15,807 22,555
11,721
2,847
-8,289
3,861
1,113
-7,728
7,860
1,734
-561
26.4
-70.4
-110.1
2.3
2.2
19.9
18.5
77.0
32.9
219.5
5.5
141.3
3.5
2.1
2.0
16.8
15.1
77.4
39.1
218.4
5.3
166.9
4.1
1.9
2.0
11.5
9.2
77.2
NM
218.3
5.3
221.9
5.4
1Q
108,186
79,059
29,127
8.4
8,406
37,533
20,490
17,042
-17.3
15,147
1,895
598
1,297
-83.9
2.1
2.1
1.5
3.5
77.7
31.5
193.9
4.9
268.9
6.8
FY15
FY16
2Q
3QE
4QE
105,399 107,760 111,939 434,299
75,201 76,853 79,306 320,860
30,197 30,906 32,633 113,439
-0.4
11.2
14.7
4.7
7,781
9,377 10,596 42,327
37,978 40,283 43,230 155,766
23,396 23,774 25,329 80,886
14,583 16,509 17,900 74,880
-31.7
-11.5
25.5
-11.1
32,374 21,000 20,766 56,927
-17,791
-4,491
-2,866 17,953
-6,529
-1,684
1,104
861
-11,262
-2,807
-3,970 17,092
-243.3
-261.9
NM
-37.4
2.3
2.2
1.3
-1.1
75.2
36.7
193.1
4.9
298.9
7.6
2.1
2.0
11.5
9.2
77.2
4.8
218.3
5.3
221.9
5.4
2.2
4.0
1.3
75.4
37.5
2.2
10.0
7.6
75.5
-38.5
2.1
10.0
7.6
75.5
28.0
321.9
7.7
356.5
8.1
356.5
8.1
7

December 2015 Results Preview | Sector: Financials
Canara Bank
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
Financial Snapshot (INR b)
Y/E MARCH
CBK IN
515.2
118/2
478/227
-9/-12/-42
CMP: INR229
Under Review
2015 2016E
96.6
69.5
27.0
2.0
56.9
7.6
552.5
433.0
10.8
0.5
23.2
4.0
0.4
0.5
4.6
103.8
75.3
17.9
2.0
34.8
-38.8
566
412
6.5
0.3
23
6.6
0.4
0.6
3.0
2017E
123.8
88.5
29.5
2.1
57.3
64.8
610
475
9.8
0.5
23
4.0
0.4
0.5
5.0
2018E
148.6
104.4
38.4
2.2
74.6
30.1
667
549
11.7
0.5
23
3.1
0.3
0.4
6.5
NII
OP
NP
NIM (%)
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
ABV/Sh. (INR)
ROE (%)
ROA (%)
Div. Payout,%
Valuations
P/E(X)
P/BV (X)
P/ABV (X)
Div. Yield (%)
Loan/deposits growth is expected to be below the industry average,
at 8/9% YoY, in 3QFY16. Expect NIMs to trend lower QoQ at 2%.
Overall NII growth is expected to remain moderate at ~10% YoY.
Non-interest income is expected to grow ~5%, led by muted fee
growth and lower growth in non-core income.
Credit cost is also expected to remain elevated at ~1.5% (1.2% in
2QFY16), with expected increase in slippages (4.5% of loans,
annualized v/s 2.8% in 2Q).
We have cut earnings estimate (on a lower base) ~20% for FY16 and
~5% for FY17/18 to factor in higher credit cost (considering lumpy
exposure to some stress infra companies and RBI’s tough stance on
such borrowers).
CET1 has improved ~8% post the recent capital infusion by GOI. The
stock currently trades at 0.4x FY17E BV and 4x FY17E EPS. We put
our rating
under review
given the regulatory uncertainty, large
corporate exposures and higher share of restructured loans.
Key issues to watch out for
Outlook on asset quality for 2HFY16.
Quantum of loans rescheduled under the 5:25 scheme.
Outlook on balance sheet growth and further capital infusion.
New management strategy and guidance.
FY16
2Q
3QE
26,465 26,253
11.8
10.3
12,105 12,350
38,570 38,603
19,129 19,984
19,441 18,620
19.6
3.6
12,123 13,500
7,318
5,120
2,029
1,434
5,289
3,686
-15.6
-43.8
2.2
2.1
5.2
3.9
66.6
27.7
228.9
7.1
140.2
4.3
2.0
9.1
7.6
66.6
28.0
(INR Million)
FY15
FY16E
96,637
8.0
45,503
142,139
72,636
69,504
2.3
34,527
34,976
7,950
27,026
10.9
2.2
2.0
12.6
9.6
69.7
22.7
226.2
6.9
130.4
3.9
103,805
7.4
48,837
152,643
77,303
75,339
8.4
50,700
24,639
6,714
17,925
-33.7
2.0
10.5
10.0
69.3
27.3
Quarterly Performance
Net Interest Income
% Change (Y-o-Y)
Other Income
Net Income
Operating Expenses
Operating Profit
% Change (Y-o-Y)
Other Provisions
Profit before Tax
Tax Provisions
Net Profit
% Change (Y-o-Y)
Operating Parameters
NIM (Rep, %)
NIM (Cal, %)
Deposit Growth (%)
Loan Growth (%)
CD Ratio (%)
Tax Rate (%)
Asset Quality
OSRL (INR b)
OSRL (%)
Gross NPA (INR b)
Gross NPA (%)
1Q
24,293
22.0
10,269
34,562
16,612
17,950
-5.4
7,881
10,069
2,000
8,069
1.9
2.3
2.1
12.3
21.2
70.6
19.9
209.0
6.9
81.6
2.7
FY15
2Q
3Q
23,678 23,805
8.1
6.9
10,213 11,762
33,891 35,567
17,636 17,594
16,255 17,973
14.1
13.0
8,137
8,413
8,118
9,560
1,850
3,000
6,268
6,560
0.1
60.2
2.2
2.0
17.8
10.6
67.4
22.8
203.9
6.6
91.6
2.9
2.2
2.0
13.1
8.5
67.5
31.4
206.8
6.6
105.7
3.4
4Q
24,861
-1.9
13,258
38,120
20,794
17,325
-7.9
10,096
7,230
1,100
6,130
0.3
2.3
2.0
12.6
9.6
69.7
15.2
226.2
6.9
130.4
3.9
1Q
25,165
3.6
11,130
36,295
16,259
20,036
11.6
13,597
6,438
1,650
4,788
-40.7
2.2
2.0
10.0
7.0
68.7
25.6
230.4
7.1
130.8
4.0
4QE
25,922
4.3
13,253
39,175
21,932
17,242
-0.5
11,480
5,763
1,601
4,162
-32.1
1.9
10.5
10.0
69.3
27.8
159.7
4.7
175.1
4.8
175.1
4.8
January 2016
8

December 2015 Results Preview | Sector: Financials
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
Financial Snapshot (INR b)
Y/E MARCH
DCBB IN
282.0
22/0
151/75
0/-30/-27
2017E
7.3
3.6
1.9
3.6
6.6
22.1
66.8
10.3
0.8
0.0
12.1
1.2
0.0
2018E
9.1
4.1
2.0
3.5
7.2
10.1
74.0
10.3
0.7
0.0
11.0
1.1
0.0
CMP: INR80
DCB Bank
Sell
2015 2016E
5.1
2.8
1.9
3.9
6.8
12.1
54.9
14.4
1.3
0.0
11.8
1.5
0.0
6.0
3.1
1.5
3.7
5.4
-20.7
60.2
9.3
0.8
0.0
14.8
1.3
0.0
NII
OP
NP
NIM (%)
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
ROE (%)
ROA (%)
Payout (%)
Valuations
P/E(X)
P/BV (X)
Div. Yield (%)
Loan growth (26% YoY) and deposits growth (21% YoY) expected to
be significantly above the industry average.
NII is expected to grow 25% YoY, led by strong loan growth and
largely stable margins. Continued healthy growth in high-yielding
retail loans and controlled cost of funds are likely to keep computed
NIMs stable QoQ at ~3.7% (no base rate cut during the quarter).
We expect revenue growth to remain healthy at 20% YoY; however,
we expect PPP growth to remain muted (~3% YoY) on the back of
increase in opex (~30% YoY)—led by revised branch expansion
strategy. We expect PBT to grow 1% YoY; PAT is expected to de-
grow 23% YoY due to high tax rate YoY
Focus on granular SME and retail loans along with working capital
corporate loans has led to stable asset quality; we expect this trend
to continue.
DCBB trades at 1.2x FY17E BV and 12.1x FY17E EPS.
Sell.
Key issues to watch out for
Commentary on the revised branch expansion strategy.
CASA ratio and traction on NIM.
(INR Million)
FY16E
16,861
10,854
6,007
18.2
2,176
8,183
5,055
3,128
12.7
811
2,317
802
1,515
-20.7
3.7
27.0
25.0
81.7
21.8
34.6
2.7
2.0
Quarterly Performance
Interest Income
Interest Expense
Net Interest Income
% Change (Y-o-Y)
Other Income
Net Income
Operating Expenses
Operating Profit
% Change (Y-o-Y)
Other Provisions
Profit before Tax
Tax Provisions
Net Profit
% Change (Y-o-Y)
Operating Parameters
NIM (Reported,%)
NIM (Cal, %)
Deposit Growth (%)
Loan Growth (%)
CD Ratio (%)
CASA Ratio (%)
Tax Rate (%)
Asset Quality
Gross NPA (INR B)
Gross NPA (%)
E: MOSL Estimates
1Q
3,522
2,132
1,390
67.2
345
1,735
922
812
58.3
229
583
137
446
4.2
3.7
4.5
26.8
28.1
78.6
25.4
23.4
1.5
1.8
FY15
2Q
3,349
2,172
1,177
28.9
370
1,546
948
598
49.2
137
461
50
411
24.2
3.7
3.8
24.0
31.7
80.7
25.5
10.9
1.7
1.9
3Q
3,565
2,346
1,219
29.7
480
1,699
1,015
684
47.5
184
499
74
425
16.9
3.7
3.6
23.5
28.9
80.1
23.8
14.9
1.8
1.9
4Q
3,788
2,492
1,297
29.6
463
1,759
1,079
680
35.6
143
537
-93
629
60.9
3.8
3.5
22.1
28.6
83.0
23.4
-17.2
1.9
1.8
1Q
4,043
2,639
1,404
1.0
631
2,035
1,138
897
10.4
180
716
248
469
5.0
3.8
3.6
25.8
25.7
78.6
23.0
34.6
2.1
2.0
FY16
2Q
4,162
2,662
1,500
27.4
487
1,987
1,206
781
30.5
217
564
195
369
-10.1
3.8
3.8
24.4
27.2
82.5
24.1
34.6
2.2
2.0
3QE
4,263
2,742
1,521
24.8
504
2,025
1,320
705
3.1
203
503
174
329
-22.7
3.7
21.3
26.0
83.2
34.6
2.5
2.0
4QE
4,394
2,811
1,583
22.1
554
2,137
1,391
745
9.6
212
534
185
349
-44.6
3.5
27.0
25.0
81.7
34.7
2.7
2.0
FY15
14,224
9,142
5,082
38.0
1,657
6,739
3,965
2,774
47.6
694
2,080
168
1,912
26.3
3.7
3.8
22.1
28.6
83.0
23.4
8.1
1.9
1.8
January 2016
9

December 2015 Results Preview | Sector: Financials
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
Financial Snapshot (INR b)
Y/E MARCH
FB IN
1,710.6
94/1
80/52
-4/-20/-19
CMP: INR55
Federal Bank
Neutral
NII
OP
NP
NIM (%)
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
ABV/Sh. (INR)
ROE (%)
ROA (%)
Payout (%)
Valuations
P/E(X)
P/BV (X)
P/ABV (X)
Div. Yield (%)
2014 2015E 2016E 2017E
23.8
24.2
27.6
32.2
16.3
10.1
3.3
5.9
19.7
45.2
43.7
13.7
1.3
21.7
9.4
1.2
1.3
2.0
14.8
6.9
3.1
4.0
-31.1
48.3
45.3
8.7
0.8
23.2
13.6
1.1
1.2
1.5
17.2
9.1
3.1
5.3
31.4
52.3
49.1
10.6
0.9
23.2
10.3
1.0
1.1
1.9
20.5
10.8
3.0
6.3
18.2
57.2
54.0
11.5
0.9
23.2
8.7
1.0
1.0
2.3
Loans are expected to increase 11% YoY (+5% QoQ), helped by
increased focus on corporate credit growth. Traction in SME, agri
and retail loans is expected to be maintained. Improvement in CD
ratio (69% as of 2Q) would keep margins stable despite base rate
cut.
Fee income growth is expected to largely follow loan book growth.
Operating expenses are expected to grow 14% YoY (v/s 3% YoY total
income growth), leading to 8% de-growth in operating profits.
On a conservative basis, we factor higher credit cost of 70bp (93bp
in 1Q). PAT is expected to de- grow 32% YoY in 3QFY16.
FB trades at 1x FY17E BV and 10.3x FY17E EPS.
Neutral.
Key issues to watch out for
Outlook on asset quality in the SME segment (strong growth over
the last 5-6 quarters; the last quarter saw initial signs of stress
addition)
Strategy on balance sheet growth, with consolidation in corporate
segment now largely over.
Quarterly Performance
Interest Income
Interest Expense
Net Interest Income
% Change (YoY)
Other Income
Net Income
Operating Expenses
Operating Profit
% Change (YoY)
Other Provisions
Profit before Tax
Tax Provisions
Net Profit
% Change (YoY)
Operating Parameters
NIM (Reported,%)
NIM (Cal, %)
Deposit Growth (%)
Loan Growth (%)
CD Ratio (%)
CASA Ratio (%)
Asset Quality
Gross NPA (INR b)
Gross NPA (%)
1Q
17,715
12,073
5,642
10.7
1,565
7,208
3,692
3,515
-10.0
221
3,295
1,092
2,202
108.4
3.3
3.2
8.5
9.1
72.8
30.8
10.2
2.2
FY15
2Q
3Q
18,696 18,701
12,638 12,829
6,058
5,872
10.5
7.6
1,959
2,199
8,017
8,071
3,919
4,097
4,098
3,974
20.9
20.1
457
-8
3,641
3,982
1,238
1,335
2,403
2,647
6.4
15.0
3.4
3.5
13.7
14.8
75.1
30.6
10.3
2.1
3.2
3.3
13.5
15.3
73.3
30.5
10.7
2.2
4Q
19,083
12,851
6,232
-0.3
3,060
9,292
4,601
4,692
11.7
398
4,294
1,488
2,805
1.2
3.3
3.4
18.6
18.1
72.4
30.4
10.6
2.0
1Q
19,132
13,084
6,048
7.2
1,939
7,987
4,315
3,672
4.5
1,531
2,141
727
1,414
-35.8
3.1
3.2
16.7
10.1
68.7
31.3
13.0
2.6
FY16
2Q
3QE
19,023 19,461
12,939 13,457
6,083
6,004
0.4
2.3
1,823
2,337
7,906
8,341
4,540
4,688
3,366
3,653
-17.9
-8.1
873
875
2,493
2,778
880
972
1,613
1,806
-32.9
-31.8
3.1
3.1
14.3
5.0
68.9
31.9
15.0
2.9
3.1
18.2
11.2
68.9
16.1
3.0
4QE
20,161
14,143
6,019
-3.4
3,027
9,045
4,932
4,113
-12.3
860
3,253
1,154
2,100
-25.2
3.0
13.0
12.0
71.8
16.0
2.8
FY15
(INR Million)
FY16E
77,776
53,623
24,154
1.5
9,127
33,280
18,475
14,805
-9.0
4,139
10,666
3,733
6,933
-31.1
3.1
13.0
12.0
71.8
32.0
16.0
2.8
74,195
50,391
23,804
6.8
8,783
32,587
16,309
16,278
10.0
1,067
15,210
5,153
10,057
19.9
3.3
3.3
18.6
18.1
72.4
30.4
10.6
2.0
January 2016
10

December 2015 Results Preview | Sector: Financials
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
Financial Snapshot (INR b)
Y/E MARCH
HDFCB IN
2,506.5
2670/40
1128/932
1/8/19
2017E
328.8
255.4
148.6
4.5
59.3
20.7
331
327
19.3
1.9
23.4
18.0
3.2
3.3
1.1
2018E
400.1
310.3
178.5
4.4
71.2
20.1
385
380
19.9
1.8
23.4
15.0
2.8
2.8
1.3
CMP: INR1,065
HDFC Bank
Buy
2015 2016E
224.0
174.0
102.2
4.6
40.8
15.3
247.4
244.9
19.4
1.9
23.0
26.1
4.3
4.4
0.8
271.6
211.7
123.1
4.6
49.1
20.5
285
282
18.4
1.9
23.4
21.7
3.7
3.8
0.9
NII
OP
NP
NIM (%)
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
ABV/Sh. (INR)
RoE (%)
RoA (%)
Payout (%)
Valuations
P/E(X)
P/BV (X)
P/ABV (X)
Div. Yield (%)
Loan growth is expected to be healthy (~27% YoY), aided by
improvement in growth for some retail products and continued
momentum in corporate loans.
Fee income growth will continue to lag loan growth in the near
term; however, it is expected to remain healthy at ~19% YoY—led
by continued traction in retail fees.
Computed NIMs are expected to decline ~10bp QoQ, led by full
impact of August-end base rate cut (35bp).
Strong operating performance (18%+ PPP growth) and healthy asset
quality (GNPA to remain stable QoQ at 0.9%) would lead to 20%+
YoY earnings growth in 3QFY16.
HDFCB trades at 3.2x FY17E BV and 18x FY17E EPS. Comfort on
earnings (~20% CAGR over FY15-18) remains high. Maintain
Buy.
Key issues to watch out for
Performance in retail loan portfolio—especially in segments like
CV/CE, where commentary from industry experts is positive.
Trends in digital banking/payment industry and various initiatives
by the bank.
Overall B/S growth outlook with anticipated economic recovery.
Quarterly Performance
Interest Income
Interest Expense
Net Interest Income
% Change (Y-o-Y)
Other Income
Net Income
Operating Expenses
Operating Profit
% Change (Y-o-Y)
Other Provisions
Profit before Tax
Tax Provisions
Net Profit
% Change (Y-o-Y)
Operating Parameters
NIM (Reported,%)*
NIM (Cal, %)#
Deposit Growth (%)
Loan Growth (%)
CD Ratio (%)
CASA Ratio (%)
Tax Rate (%)
Asset Quality
OSRL (INR B)
OSRL (%)
Gross NPA (INR B)
Gross NPA (%)
FY15
1Q
2Q
3Q
4Q
112,201 118,476 123,958 130,064
60,485 63,366 66,959 69,932
51,716 55,110 56,999 60,132
17.0
23.1
23.0
21.4
18,506 20,471 25,349 25,638
70,222 75,581 82,348 85,769
31,784 34,979 34,563 38,550
38,438 40,602 47,786 47,220
16.3
19.9
22.9
24.9
4,828
4,559
5,604
5,767
33,610 36,043 42,181 41,453
11,280 12,228 14,236 13,384
22,330 23,815 27,945 28,069
21.1
20.1
20.2
20.6
4.4
4.8
22.7
20.7
83.9
43.0
33.6
6.2
0.2
33.6
1.1
4.5
5.0
24.8
21.8
83.8
43.2
33.9
3.3
0.1
33.6
1.0
4.4
4.8
18.6
17.0
83.8
40.9
33.8
3.5
0.1
34.7
1.0
4.4
4.7
22.7
20.6
81.1
44.0
32.3
3.7
0.1
34.4
0.9
FY16
1Q
2Q
3QE
4QE
140,411 147,725 152,545 157,605
76,523 80,916 83,748 85,506
63,888 66,809 68,797 72,099
23.5
21.2
20.7
19.9
24,619 25,518 28,684 29,609
88,507 92,327 97,481 101,708
40,008 41,898 40,952 45,468
48,499 50,429 56,528 56,240
26.2
24.2
18.3
19.1
7,280
6,813
5,300
5,130
41,219 43,616 51,228 51,110
14,262 14,922 17,546 17,378
26,957 28,695 33,683 33,732
20.7
20.5
20.5
20.2
4.3
4.7
30.1
22.4
78.9
39.6
34.6
3.8
0.1
38.5
1.0
4.2
4.6
29.7
27.9
82.6
39.7
34.2
4.2
0.1
38.3
0.9
4.5
28.5
26.6
82.6
34.3
4.5
24.0
24.0
81.1
34.0
FY15
(INR Million)
FY16E
598,286
326,693
271,593
21.3
108,429
380,022
168,326
211,697
21.6
24,523
187,173
64,107
123,066
20.5
4.6
24.0
24.0
81.1
34.3
484,699
260,742
223,957
21.2
89,964
313,920
139,875
174,045
21.2
20,758
153,287
51,128
102,159
20.5
4.4
4.8
22.7
20.6
81.1
44.0
33.4
3.7
0.1
34.4
0.9
39.9
0.9
43.3
0.9
43.3
0.9
January 2016
11

December 2015 Results Preview | Sector: Financials
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
Financial Snapshot (INR b)
Y/E MARCH
ICICIBC IN
5,775.2
1444/22
393/243
-4/-11/-22
2017E
252.3
254.9
143.9
3.6
24.8
19.9
149
140
15.0
1.8
30.2
6.5
1.1
1.2
2018E
296.3
305.0
172.3
3.6
29.7
19.8
170
163
15.8
1.9
30.2
4.9
0.9
0.9
CMP: INR250
ICICI Bank
Buy
2015 2016E
190.4
197.2
111.8
3.5
19.3
13.5
116.1
108.5
15.2
1.8
30.1
9.7
1.6
1.7
212.0
213.2
120.0
3.5
20.7
7.3
131
121
14.1
1.7
30.2
8.4
1.3
1.4
NII
OP
NP
NIM (%)
EPS (INR)
EPS Gr (%)
BV/Sh (INR)*
ABV/Sh (INR)*
RoE (%)
RoA (%)
Div. Payout,%
Valuations
AP/E (x)
AP/BV (x)
AP/ABV (x)
Div. Yield (%)
2.0
2.2
2.6
3.1
* BV adj. for invt in subsidiaries; Prices adj. for
sub value
Loan growth is expected to remain moderate at ~15% YoY (similar
to the last quarter). Retail loan growth has picked up over the last
year and is expected to remain a key driver of loan growth.
Computed margin is expected to decline ~10bp QoQ to 3.5%, led by
35bp base rate cut in Oct-15. Overall, NII is expected to grow 1%
QoQ and 10% YoY.
We have not factored stake sales in life insurance and general
insurance in earnings
Gross slippages are expected to remain high in 3QFY16. Relapse
from restructured loans remains a key monitorable. Further, RBI’s
stance on large corporate borrowers may increase credit cost. We
factor in a credit cost of 130bp for 3QFY16. Overall, we have
increased FY16-18 credit cost 10bp—leading to 3-5% earnings cut.
ICICIBC trades at 1.1x FY17E BV and 6.5x FY17E EPS. We expect
earnings CAGR of 15% over FY15-18 v/s 16% balance sheet CAGR.
Maintain
Buy.
Key issues to watch out for
Outlook on asset quality and trend on further relapse from
restructured loan book.
Quantum of loans rescheduled under the 5/25 scheme.
Commentary on use of proceeds from insurance venture stake
sales.
FY16
2Q
3QE
4QE
130,989 132,891 136,879
78,474 80,043 81,411
52,515 52,848 55,468
12.8
9.8
9.2
30,074 34,701 37,228
82,588 87,549 92,696
31,004 33,079 35,909
51,584 54,470 56,787
9.8
8.1
3.8
9,422 13,500 14,141
42,163 40,970 42,646
11,862 11,472 12,253
30,301 29,498 30,393
11.9
2.1
4.0
3.5
3.7
9.2
13.3
84.3
118.7
2.9
158.6
3.8
(INR Million)
FY15
FY16E
490,911
300,515
190,396
15.6
121,761
312,157
114,958
197,199
18.8
39,000
158,199
46,446
111,754
13.9
3.5
3.5
8.9
14.4
83.8
110.2
2.8
150.9
3.8
528,884
316,903
211,981
11.3
131,901
343,883
130,663
213,219
8.1
46,617
166,602
46,649
119,954
7.3
Quarterly Performance
Interest Income
Interest Expense
Net Interest Income
% Change (YoY)
Other Income
Net Income
Operating Expenses
Operating Profit
% Change (YoY)
Other Provisions
Profit before Tax
Tax Provisions
Net Profit
% Change (YoY)
Operating Parameters
NIM (Reported,%)
NIM (Cal, %)
Deposit Growth (%)
Loan Growth (%)
Domestic CD Ratio (%)
Asset Quality
OSRL (INR b)
OSRL (%)
Gross NPA (INR b)
Gross NPA (%)
1Q
117,669
72,750
44,919
17.6
28,498
73,417
28,250
45,167
18.4
7,261
37,906
11,353
26,553
16.8
3.4
3.4
15.3
15.2
80.5
112.7
3.2
108.4
3.1
FY15
2Q
3Q
4Q
121,506 124,352 127,385
74,939 76,236 76,591
46,566 48,117 50,794
15.2
13.1
16.6
27,384 30,917 34,963
73,950 79,033 85,757
26,971 28,663 31,074
46,979 50,370 54,683
20.8
13.5
22.8
8,495
9,797 13,447
38,484 40,573 41,236
11,394 11,683 12,016
27,090 28,890 29,220
15.2
14.1
10.2
3.4
3.5
13.9
13.8
79.5
110.2
3.0
115.5
3.1
3.5
3.5
12.1
12.8
81.2
120.5
3.2
130.8
3.4
3.6
3.6
8.9
14.4
83.8
110.2
2.8
150.9
3.8
1Q
128,126
76,975
51,151
13.9
29,899
81,050
30,672
50,378
11.5
9,554
40,824
11,063
29,762
12.1
3.5
3.7
9.6
15.2
85.1
126.0
3.2
151.4
3.7
3.6
14.7
14.6
3.5
20.0
16.2
3.6
20.0
16.2
171.6
3.9
181.5
3.9
181.5
3.9
January 2016
12

December 2015 Results Preview | Sector: Financials
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
Financial Snapshot (INR b)
Y/E MARCH
INBK IN
464.8
52/1
223/111
-12/-12/-39
2017E
53.9
37.6
14.2
2.6
29.5
46.2
300
252
10.2
0.6
23.2
3.8
0.4
0.4
5.3
2018E
61.9
43.7
17.8
2.6
37.1
25.8
328
285
11.8
0.7
23.2
3.0
0.3
0.4
6.7
CMP: INR111
Indian Bank
Buy
2015 2016E
44.6
30.1
10.1
2.6
20.9
-16.1
261.5
215.6
8.3
0.5
23.3
5.3
0.4
0.5
3.8
43.3
28.2
9.7
2.3
20.2
-3.6
277
226
7.5
0.5
23.2
5.5
0.4
0.5
3.6
NII
OP
NP
NIM (%)
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
ABV/Sh (INR)
RoE (%)
RoA (%)
Div. Payout,%
Valuations
P/E (x)
P/ BV (x)
P/ABV (x)
Div. Yield (%)
We factor in a marginal uptick in loan growth—7% YoY v/s 5% in
2QFY16. Deposits are expected to grow at ~8.5% YoY. Computed
margins are expected to moderate by ~10bp QoQ to 2.3%.
Fee income is expected to be subdued (6% YoY) on lower corporate
loan growth. Trading gains and recovery from written-off accounts
can surprise positively on a lower base. Overall, we expect 24% YoY
growth in non-interest income.
Expect 17% YoY growth in opex, largely on a lower base (-5% YoY in
3QFY15). Hence, PPP growth is expected de-grow 9% YoY; elevated
credit costs are expected to result in PAT de-growth of ~35% YoY.
Asset quality would continue to remain a key monitorable. We
factor in credit cost of 1.15% (similar to 2QFY16).
INBK trades at 0.4x FY17E BV and 3.8x FY17E EPS. Maintain
Buy.
Key issues to watch out for
Outlook on business growth and asset quality remain the key
monitorables.
Quantum of loans rescheduled under the 5/25 scheme.
View on margins with an improvement in liquidity and lower
interest rates.
(INR Million)
FY16E
167,820
124,491
43,330
-2.9
16,581
59,911
31,710
28,201
2.9
13,519
14,682
4,992
9,690
-3.6
2.4
10.0
12.0
76.1
34.0
Quarterly Performance
Interest Income
Interest Expense
Net Interest Income
% Change (Y-o-Y)
Other Income
Net Income
Operating Expenses
Operating Profit
% Change (Y-o-Y)
Other Provisions
Profit before Tax
Tax Provisions
Net Profit
% Change (Y-o-Y)
Operating Parameters
NIM (Rep, %)
NIM (Cal, %)
Deposit Growth (%)
Loan Growth (%)
CD Ratio (%)
CASA Ratio (%)
Tax Rate (%)
Asset Quality
OSRL (INR b)
OSRL (%)
Gross NPA (INR b)
Gross NPA (%)
1Q
39,288
28,568
10,720
-2.3
2,152
12,872
6,502
6,370
-25.9
3,256
3,114
1,042
2,072
-34.7
2.4
2.5
3.8
7.2
75.7
29.2
33.5
93.1
8.0
47.2
4.0
FY15
2Q
3Q
40,041 39,637
28,277 28,587
11,764 11,050
7.6
1.3
3,363
3,578
15,126 14,628
7,477
6,682
7,649
7,945
8.4
25.7
2,866
3,703
4,783
4,243
1,640
1,467
3,144
2,775
2.8
4.9
2.7
2.8
8.1
6.7
72.2
28.8
34.3
97.3
8.3
50.0
4.2
2.5
2.6
2.5
6.8
74.7
29.7
34.6
97.6
8.2
54.6
4.6
4Q
39,564
28,484
11,079
2.8
4,541
15,620
7,448
8,172
16.2
5,626
2,547
485
2,062
-24.0
2.5
2.5
4.3
3.0
76.1
29.7
19.1
99.4
7.9
56.7
4.4
1Q
41,190
29,986
11,203
4.5
3,756
14,959
7,873
7,086
11.2
4,081
3,006
853
2,153
3.9
2.4
2.5
12.9
5.7
71.2
29.5
28.4
101.1
8.3
58.2
4.7
FY16
2Q
3QE
41,412 41,828
30,608 31,220
10,804 10,609
-8.2
-4.0
4,375
4,445
15,179 15,054
7,824
7,810
7,355
7,244
-3.8
-8.8
1,371
4,583
5,984
2,661
2,291
865
3,693
1,796
17.5
-35.3
2.3
2.4
4.7
5.0
72.4
29.8
38.3
100.6
8.2
57.7
4.6
2.3
8.5
7.0
73.8
32.5
FY15
4QE
43,389
32,677
10,713
-3.3
4,006
14,718
8,204
6,515
-20.3
3,485
3,030
983
2,047
-0.7
2.3
10.0
12.0
77.3
32.4
158,529
113,917
44,613
2.3
13,634
58,246
28,109
30,137
1.6
15,451
14,686
4,635
10,052
-13.3
2.5
2.6
4.3
3.0
76.1
29.7
31.6
99.4
7.9
56.7
4.4
61.1
4.7
64.5
4.5
64.5
4.5
January 2016
13

December 2015 Results Preview | Sector: Financials
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
Financial Snapshot (INR Billion)
Y/E March
NII
OP
NP
NIM (%)
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
ABV/Sh. (INR)
RoE (%)
RoA (%)
Valuations
P/E (X)
P/BV (X)
P/ABV (X)
Div. Yield (%)
27.9
4.9
4.9
0.4
24.2
3.2
3.2
0.5
18.8
2.8
2.8
0.6
IIB IN
589.4
556/8
989/784
0/15/24
CMP: INR944
IndusInd Bank
Buy
2015 2016E 2017E 2018E
34.2
31.0
17.9
3.9
33.9
26.5
193.7
191.1
19.0
1.8
43.7
41.8
23.0
4.0
39.0
15.2
293
291
16.7
1.9
54.6
52.0
29.6
4.1
50.1
28.5
337
334
15.9
2.0
68.4
64.5
37.4
4.2
63.4
26.4
391
389
17.4
2.1
14.9
2.4
2.4
0.8
Loan/deposits growth is expected to remain strong at ~29/21% in
3QFY16. Continuation of positive growth trend in CV/CFD segment
would remain a key monitorable. Overall, NIMs are expected to
remain largely stable QoQ.
Forex and third-party fees are likely to be the key drivers of fee
growth (+40% YoY). Overall, non-interest income growth is
expected at 40% YoY during the quarter.
Strong PPP growth (+38% YoY) will keep earnings growth strong at
~30% YoY despite factoring in a 2x increase in provisions.
IIB trades at 2.8x FY17E BV and 18.8x FY17E EPS, with best-in-class
RoA of ~2% and RoE of ~17-18%. Delay in CV cycle revival and sharp
moderation in fees remain the key risks to our estimates. Maintain
Buy.
Key issues to watch out for
Uptick in CV/CE demand will be the key for CFD growth.
Corporate asset quality will be the key monitorable.
Traction in SA deposit growth as the bank has lowered SA rates.
Traction in non-vehicle consumer lending portfolio.
(INR Million)
FY16E
113,214
69,480
43,734
27.9
33,978
77,712
35,876
41,836
35.0
6,989
34,847
11,848
22,999
28.2
3.6
16.0
27.0
101.6
39.0
34.0
Quarterly Performance
Interest Income
Interest Expense
Net Interest Income
% Change (YoY)
Other Income
Net Income
Operating Expenses
Operating Profit
% Change (YoY)
Other Provisions
Profit before Tax
Tax Provisions
Net Profit
% Change (YoY)
Operating Parameters
NIM (Reported,%)
NIM (Cal, %)
Deposit Growth (%)
Loan Growth (%)
CD Ratio (%)
CASA Ratio (%)
Tax Rate (%)
Asset Quality
OSRL (INR b)
OSRL (%)
Gross NPA (INR b)
Gross NPA (%)
1Q
22,973
14,967
8,007
17.8
6,059
14,066
6,574
7,492
16.8
1,104
6,388
2,177
4,211
25.8
3.7
3.6
14.8
23.7
91.8
33.3
34.1
2.3
0.4
6.5
1.1
FY15
2Q
3Q
23,788
24,370
15,457
15,756
8,331
8,614
19.0
18.0
5,940
6,108
14,271
14,721
7,024
6,983
7,247
7,738
23.3
19.5
732
980
6,515
6,758
2,213
2,286
4,302
4,471
30.3
28.9
3.6
3.6
24.4
22.4
90.8
33.9
34.0
3.1
0.5
6.5
1.1
3.7
3.6
23.3
21.7
92.0
34.1
33.8
3.5
0.6
6.7
1.1
4Q
25,790
16,538
9,251
18.4
6,585
15,836
7,331
8,505
18.3
1,074
7,431
2,478
4,953
25.1
3.7
3.5
22.5
24.8
92.8
34.1
33.3
3.6
0.5
5.6
0.8
1Q
27,235
17,428
9,807
22.5
7,616
17,423
8,196
9,227
23.2
1,233
7,994
2,744
5,250
24.7
3.7
3.5
21.6
23.1
93.0
34.7
34.3
4.6
0.6
5.7
0.8
FY16
2Q
3QE
27,978
28,764
17,035
17,461
10,943
11,303
31.3
31.2
7,835
8,562
18,778
19,865
8,713
9,210
10,065
10,655
38.9
37.7
1,581
1,900
8,484
8,755
2,884
2,955
5,600
5,800
30.2
29.7
3.9
3.7
22.5
30.6
96.8
34.7
34.0
4.9
0.6
6.0
0.8
3.6
21.2
28.8
97.8
33.8
4QE
29,237
17,556
11,681
26.3
9,965
21,646
9,758
11,888
39.8
2,275
9,614
3,266
6,348
28.2
3.6
16.0
27.0
101.6
34.0
FY15
96,920
62,717
34,203
18.3
25,480
59,683
28,701
30,982
19.3
3,891
27,092
9,155
17,937
27.4
3.7
3.6
22.5
24.8
92.8
34.1
33.8
3.6
0.5
5.6
0.8
6.4
0.8
7.2
0.8
7.2
0.8
January 2016
14

December 2015 Results Preview | Sector: Financials
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
Financial Snapshot (INR b)
Y/E MARCH
KMB IN
1,825.7
1284/19
744/594
5/7/18
CMP: INR703
Kotak Mahindra Bank
Neutral
2015 2016E
61.5
41.1
24.2
36.6
4.1
68.8
41.2
20.6
35.1
4.1
19.2
165
13.0
1.5
3.5
183
11.1
1.1
3.5
36.6
3.8
0.0
2017E
78.8
53.9
30.2
47.5
4.1
26.0
35.4
209
13.3
1.4
3.5
27.0
3.4
0.0
2018E
96.2
69.0
40.0
60.2
4.2
33.0
26.7
241
14.7
1.5
3.5
21.3
2.9
0.1
NII
OP
NP
Cons. NP
NIM (%)
Cons. EPS,INR
EPS Gr. (%)
Cons. BV.(INR)
Cons. RoE (%)
RoA (%)
Payout (%)
Valuations
P/E(x) (Cons.)
P/BV (x)
(C
)
Div. Yield (%)
Lending business
Expect standalone bank (KMB+VYSB) to sustain 20%+ loan and
deposits growth for 3QFY16.
Margins are expected to remain stable QoQ. Overall, we expect
17% QoQ growth in NII. Non-interest income growth is expected to
remain healthy, led by strong fee income growth and healthy
growth in non-core income.
Expect credit cost to increase sequentially, led by higher
provisioning on VYSB book.
Profit from the lending business is expected to increase 35%+ YoY.
Capital market and asset management business
Profitability of Kotak Securities is expected to be strong YoY, with
improving capital market volumes.
The asset management business is expected to report a profit of
INR250m in 3QFY16 v/s INR100m loss in 3QFY15. Maintain
Neutral.
Key issues to watch out for
Update on and cost of KMB-VYSB integration.
Performance of non-banking subsidiaries and their contribution to
the overall profit.
Insurance monetization plans in the wake of increased FDI limits.
(INR Million)
FY15
FY16E
3QE
17,583
66.0
11,699
58.6
6,287
35.4
1,300
375
80
810
400
250
0
550
-150
9,902
38.2
4QE
18,482
64.5
13,078
51.9
6,703
27.2
1,354
425
86
840
530
265
0
590
-200
10,594
16.1
42,237
13.5
29,975
16.3
18,660
24.2
5,077
1,060
130
2,900
520
-290
250
2,280
-140
30,447
-2.5
68,834
63.0
41,194
37.4
20,583
10.3
5,114
1,460
266
3,100
1,500
945
0
2,280
-150
35,099
15.3
Quarterly Performance
Y/E March
1Q
FY15
2Q
3Q
10,594
16.1
7,376
26.1
4,645
36.6
1,200
240
-60
600
140
-100
20
510
-30
7,165
21.2
4Q
11,232
16.2
8,607
41.8
5,271
29.5
1,427
400
300
960
180
-180
110
760
-100
9,128
37.6
1Q
15,982
59.5
5,970
-10.3
1,898
-55.8
1,190
300
30
670
250
200
0
660
-30
5,168
-25.9
FY16
2Q
16,787
61.6
10,448
42.4
5,695
28.1
1,270
360
70
780
320
230
0
480
230
9,435
31.5
Kotak Bank (standalone)
Net Interest Income
10,022 10,389
% Change (Y-o-Y)
9.3
12.4
Operating Profit
6,655
7,336
% Change (Y-o-Y)
-14.5
21.0
Net Profit
4,298
4,445
% Change (Y-o-Y)
6.7
26.1
Other Businesses
Kotak Prime
1,200
1,250
Kotak Mah. Investments
170
250
Kotak Mah. Capital Co
-40
-70
Kotak Securities
680
660
International subs
70
130
Kotak Mah. AMC & Trustee Co.
0
-10
Kotak Investment Advisors
80
40
Kotak OM Life Insurance
490
520
Con.adj and MI
30
-40
Conso. PAT
6,978
7,175
% Change (Y-o-Y)
11.2
23.1
Note: FY15 numbers are only for KMB (ex. VYSB)
January 2016
15

December 2015 Results Preview | Sector: Financials
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
Financial Snapshot (INR b)
Y/E MARCH
OBC IN
299.8
40/1
341/121
-6/-16/-52
CMP: INR135
Oriental Bank of Commerce
Loan/deposit growth is expected to remain moderate at ~9.5%/6%
YoY in 3QFY16.
NII is expected to remain subdued (~5% YoY), led by higher interest
reversals and growth in safer assets. NIM is expected to
decline~10bp QoQ to ~2.6%.
Given the subdued economic environment, fee income growth is
likely to remain in low single digit. Overall, non-interest income is
expected to de-grow 11% YoY.
PPP is expected to de-grow 4% YoY, and lower provisioning costs
YoY are expected to lead to a 12x growth in PAT.
We expect slippages to increase QoQ to INR14b (4% of trailing 12M
loans, annualized). We factor credit costs of ~1.4%. Factoring in the
higher credit cost of ~10bp, we have cut FY16-18 estimates 5-15%.
The stock currently trades at 0.3x FY17E BV and 2.7x FY17E EPS. We
put our rating
under review
given the regulatory uncertainty, large
corporate exposures and higher share of restructured loans.
Under Review
2015 2016E
51
42
5
2.4
17
-56.4
439
326
3.8
0.2
23.2
8.1
0.3
0.4
2.5
55
41
11
2.4
36
119.4
467
331
8.0
0.5
23.2
3.7
0.3
0.4
5.4
2017E
62
49
15
2.5
50
37.5
505
384
10.3
0.6
23.2
2.7
0.3
0.4
7.4
2018E
72
57
20
2.5
67
33.7
556
446
12.6
0.7
23.2
2.0
0.2
0.3
9.9
NII
OP
NP
NIM (%)
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
ABV/Sh. (INR)
RoE (%)
RoA (%)
Div. Payout, %
Valuations
P/E (x)
P/BV (x)
P/ABV (x)
Div. Yield (%)
Key issues to watch out for
Outlook on asset quality, as net stressed loans remain one of the
highest in the industry.
Quantum of loans rescheduled under the 5:25 scheme.
Balance sheet growth and traction in focus loan segments.
(INR Million)
Quarterly Performance
Y/E March
Net Interest Income
% Change (YoY)
Other Income
Net Income
Operating Expenses
Operating Profit
% Change (YoY)
Other Provisions
Profit before Tax
Tax Provisions
Net Profit
% Change (YoY)
Operating Parameters
NIM (Rep, %)
NIM (Cal,%)
Deposit Growth (%)
Loan Growth (%)
CASA Ratio (%)
Tax Rate (%)
Asset Quality
OSRL (INR b)
OSRL (%)
Gross NPA (INR b)
Gross NPA (%)
1Q
12,428
-4.9
5,882
18,310
6,892
11,417
4.9
5,416
6,001
2,356
3,645
3.2
2.6
2.5
5.8
8.1
24.1
39.3
107.4
7.8
59.8
4.3
FY15
2Q
3Q
12,463 12,975
-2.7
5.4
3,927
5,120
16,389 18,095
7,841
7,947
8,549 10,148
3.6
18.2
6,412 10,225
2,137
-77
-778
-273
2,914
196
15.9
-91.3
2.6
2.6
6.4
8.1
24.9
-36.4
108.0
7.7
66.4
4.7
2.7
2.6
8.4
5.5
23.7
NM
124.7
8.8
76.7
5.4
4Q
12,977
-0.8
6,285
19,262
7,106
12,157
-12.1
13,870
-1,713
71
-1,784
-157.5
2.6
2.5
5.4
5.2
24.2
NM
141.0
9.5
76.7
5.2
1Q
13,285
6.9
4,539
17,824
7,380
10,445
-8.5
5,777
4,668
2,090
2,578
-29.3
2.7
2.5
5.0
8.3
24.2
44.8
147.9
9.9
85.8
5.9
FY16
2Q
3QE
13,831 13,655
11.0
5.2
4,246
4,539
18,076 18,194
8,151
8,480
9,925
9,714
16.1
-4.3
5,694
5,914
4,231
3,799
1,218
1,254
3,013
2,546
3.4
NM
2.8
2.7
6.9
7.0
25.0
28.8
140.6
9.4
85.6
5.7
4QE
13,964
7.6
5,321
19,285
8,433
10,852
-10.7
6,776
4,076
1,310
2,766
-255.0
FY15
50,842
-0.8
21,214
72,056
29,785
42,271
1.7
35,923
6,348
1,377
4,971
-56.4
2.6
2.5
5.4
5.2
24.2
21.7
141.0
9.5
76.7
5.2
FY16E
54,735
7.7
18,645
73,380
32,444
40,935
-3.2
24,161
16,775
5,871
10,903
119.4
2.6
5.7
9.5
33.0
2.5
10.0
10.4
32.1
2.6
10.0
10.4
35.0
90.6
5.9
95.6
5.8
95.6
5.8
January 2016
16

December 2015 Results Preview | Sector: Financials
Bloomberg
Equity Shares (m)
M. Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel Perf. (%)
Financial Snapshot (INR b)
Y/E MARCH
PNB IN
1,854.6
204/3
222/110
-17/-14/-41
CMP: INR110
Punjab National Bank
Under Review
2015 2016E
166
120
31
3.1
17
-10.6
203
145
8.5
0.5
23.2
6.7
0.5
0.8
3.0
167.6
118.1
31.2
2.9
15.9
-3.8
215
154
7.8
0.5
11.6
6.9
0.5
0.7
1.4
2017E
194.7
141.0
44.7
3.0
22.8
43.4
235
178
10.1
0.6
11.6
4.8
0.5
0.6
2.1
2018E
219.8
161.5
54.4
3.0
27.7
21.6
259
208
11.2
0.7
11.6
4.0
0.4
0.5
2.5
NII
OP
NP
NIM (%)
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
ABV/Sh. (INR)
RoE (%)
RoA (%)
Payout (%)
Valuations
P/E(x)
P/BV (x)
P/ABV (x)
Div. Yield (%)
Loan growth is expected to be 9% YoY in 3QFY16, partially driven by
higher risk aversion. Deposits growth is expected to be ~14%.
NII is expected to remain muted (flat YoY), led by higher interest
reversals and growth in safer assets.
Fee income growth is likely to remain muted and overall non-
interest income is expected to grow by 13% YoY—led by higher
growth in non-core income.
Slippages have been volatile and elevated over the last 7-8
quarters. We factor in a slippage ratio of 4% and credit cost of
~1.65%. PPP is expected to grow 8% YoY; elevated credit cost is
expected to lead to ~9% YoY PAT growth.
We factor in higher credit costs led by RBI’s stance to clean-up bank
balance sheets leading to ~10% cut in FY16E and ~3% for FY17/18E.
The stock currently trades at 0.5x FY17E BV and 4.8x FY17E EPS. We
put our rating
under review
given the regulatory uncertainty, large