Sector Update | 10 July 2017
Financials
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IDFC–Shriram: Creating a large financial conglomerate
Swap ratio key for SHTF and SCUF shareholders
IDFC Bank and Shriram Group have announced their intent to explore a merger during the
course of a 90-day exclusivity arrangement. During this period, the boards of both
companies will apply for regulatory approvals. The merger will place IDFC Limited as a
holding company with three subsidiaries: (1) SHTF as a standalone NBFC subsidiary, which
gets delisted, (2) IDFC Bank (IDFCB; into which SCUF will merge), and (3) insurance
businesses (life and general), in which IDFC Limited will hold 75% stake. The company has
commented that after all approvals, it will take 12 months to complete the transaction.
IDFCB is the key beneficiary, in our view. IDFC Limited would get a strong operating
company post-merger. We believe the deal would require a very favorable swap ratio for
Shriram group investors. Key risks: regulatory approvals, execution risk, extent of holdco
discount and meeting RBI requirement of minimum shareholding by IDFC ltd in IDFCB of
40%.
IDFCBK: Financial Snapshot (INR b)
Y/E March
2018E 2019E 2020E
NII
24.0
29.4
34.5
OP
19.3
23.6
26.6
NP
11.9
14.2
15.5
NIM (%)
2.1
2.1
2.2
EPS (INR)
3.5
4.2
4.6
EPS Gr. (%)
17.1
18.6
9.5
BV/Sh. INR
45.9
49
53
ABV/Sh. INR
42.9
46
49
RoE (%)
7.9
8.8
9.0
RoA (%)
0.9
0.9
0.9
P/E(X)
18.5
15.6
14.3
P/BV (X)
1.4
1.3
1.2
Shriram Transport Finance:
Financial Snapshot (INR b)
Y/E March
2018E 2019E
Net Inc.
60.4
68.2
PPP
48.3
54.6
PAT
17.6
22.0
Con. PAT
17.8
22.3
EPS (INR)
77.4
96.8
Con.EPS (INR
78.5
98.5
BV/Sh (INR)
555 634.8
BV (INR)
564 646.0
RoE (%)
14.7
16.3
Payout (%)
18.6
17.4
Valuations
P/Cons.EPS.x
13.8
11.0
P/Cons.BV. x
1.9
1.7
Div. Yld (%)
1.1
1.3
Shriram City Union Finance:
Financial Snapshot (INR b)
Y/E March 2018E 2019E
NII
33.8
40.0
PPP
21.3
25.4
PAT
8.8
11.3
EPS (INR)
133
171
EPS Gr. (%)
57
29
BV/Sh. INR
874
1019
RoA (%)
3.6
4.0
RoE (%)
16.2
18.1
Payout (%)
16
15
Valuations
P/E (x)
18.6
14.5
P/BV (x)
2.8
2.4
Div. Yld. %
0.7
0.9
IDFCB – win-win
The merger will give IDFC Bank (IDFCB) access to 2,000 touch points and 10m+
customers of the two Shriram group NBFCs, which will help it to generate retail
deposits and fee income. Further, the merger will help ensure that IDFCB, with
access to SCUF’s loan book, can meet PSL requirements with ease (50+% PSL
compliant). IDFCB has INR494b of loans and SCUF has INR230b of loan book. IDFCB’s
savings on the negative carry of PSL (~INR3b) is expected to outweigh SCUF’s
negative carry on CRR/SLR (INR1.7b). IDFCB is already carrying excess SLR on its
balance sheet; hence, CRR/SLR should not impact profitability. Post-merger, IDFCB
will have ~0.9% market share in loans. Further, there are low hanging fruits on opex
(high employee base) in SCUF with the help of IDFCB technology can be extracted.
Execution challenges, technology integration and HR challenges would be the key
risks.
2020E
78.2
62.9
25.8
25.9
113.9
114.1
728.7
740.1
16.7
17.4
9.5
1.5
1.6
SCUF – swap ratio is key
The biggest benefit for SCUF will be access to low cost deposits. In the near to
medium term, organic growth would have remained healthy for SCUF and the
liability side would not have been a concern. However, over a long period, doing
lending business under a banking platform is more beneficial. Since IDFCB will be a
major beneficiary of this merger, we expect favorable swap ratio for SCUF
shareholders.
2020E
47.2
30.1
13.3
202
18
1193
4.0
18.3
14
12.2
2.1
1.0
IDFC Limited – will holdco discount narrow?
IDFC Limited will remain a holdco for all businesses. Apart from existing AMC, PE,
IDF, Securities business and stake in the bank, insurance business and SHTF will be
the key additions post-merger. Addition of a strong operating cash flow generating
entity as a 100% subsidiary will be a key benefit for IDFC Limited and might reduce
the holdco discount. Post-merger structure will be more like HDFC Limited, with the
key differences being: (a) housing finance business at HDFC is done at parent level,
rather than 100% subsidiary, like CV financing for IDFC, and (b) IDFC will have
8 August 2016
1
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Investors are advised to refer through important disclosures made at the last page of the Research Report.
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com); +91 22 6129 1526
/
Piran Engineer
(Piran.Engineer@MotilalOswal.com); +91 22 3980 4393
Subham Banka
(Subham.Banka@MotilalOswal.com); +91 22 6129 1567 /
Anirvan Sarkar
(Anirvan.Sarkar@motilaloswal.com); +91 22 6129 1544

Financials
NOFHC as a 100% subsidiary, unlike HDFC Limited, where stakes are held at the
parent level. Running two parallel businesses of Banking and Lending (via SHTF)
under same NOFHC will entail regulatory challenges. Valuation for Insurance and
AMC businesses of Shriram Capital will remain a key thing to watch out for.
SHTF – how are minority shareholders likely to be compensated?
Post-merger, SHTF shareholders will be given shares of IDFC Limited. A key thing to
watch for is whether shareholders looking to own a moat CV financing business
would like to hold shares of a holding company with stakes in diverse NBFC,
banking, asset management and insurance businesses. In our view, shareholders of
SHTF should get a very favorable share swap ratio deal to get unlisted and move
away from a pure play company to a holdco structure.
Challenges include regulatory hurdles and execution of integration
The merger is subject to regulatory and shareholder approvals, which will be sought
over the 90-day period. One regulatory hurdle could be housing an NBFC (SHTF) and
a bank (IDFC Bank) under the same NOFHC (IDFC Limited), since the RBI does not
allow an NOFHC to have separate entities where the same business can be done
across departments. Although, as per management, there is a provision from 2016
universal bank on tap guidelines to allow such structure. Other challenges include
(a) integration-related issues (especially technology and workforce), (b) ensuring the
best interest of minority shareholders of SHTF, which will be de-listed (c) IDFC
Limited’s stake in the company would come down to less than 40% (based on CMP).
While this removes the overhang of big dilution/supply in IDFCB by October 2018, as
per regulation IDFC ltd will have maintain 40% shareholding in the IDFCB. This based
on CMP share swap comes down to ~30%.
Big dilution for IDFC group; return ratio accretive for IDFCB
Share swap for SHFT and other businesses (ex SCUF) of Shriram Capital will entail
over 75% equity dilution for IDFC Limited. Share swap with SHTF at current market
price will make IDFC Limited’s existing shareholders 30% owners of the merged
entity. IDFCB’s merger with SCUF will make existing shareholder of IDFCB ~57%
owners of the merged entity. At current market price, share swap ratio for IDFCB
and SCUF will be largely EPS-neutral; however, the merged entity will have RoA of
1.3%+ v/s the current ~1%, and due to excess capitalization, RoE will be less than
10%.
Valuation and view
Cross-selling opportunities and access to retail touch points provide significant
benefits for IDFC Bank. In the near to medium term, IDFC group is the major
beneficiary. Hence, we expect favorable swap ratio for Shriram shareholders. Yet,
over the longer term, it is more beneficial to conduct a growing lending business
under the banking platform. At the CMP, share swap ratio is likely to be 1:38.5
(IDFCB:SCUF), and this will lead to 13%/11% dilution for IDFCB’s (merged entity)
FY18/FY19 BV. We await the merger ratio. We have
Neutral
rating on IDFCB/IDFC
Limited, with target price of INR62/81, and a
Buy
on SCUF/SHTF with a target price
of INR2,689/1,269.
10 July 2017
2

Financials
Conference call highlights
n
n
n
n
n
n
All operating businesses with be co-branded
STF will be a 100% owned standalone unlisted NBFC under the NOHFC of IDFC
Ltd
Life Insurance & General Insurance businesses will be subsidiaries of IDFC Ltd.
Shriram Capital will merge with IDFC Ltd
Life insurance and General Insurance businesses are JVs with Sanlam. General
insurance JV is one of the most profitable generals insurers in the country
The next step in the process would be to get the swap ratio decided by the
boards. The full process will take ~12 months to complete
Rationale and regulatory details
n
n
n
n
n
n
n
n
n
5 regulators are involved for the transaction - RBI, SEBI, IRDA, CCI and NCLT. If
the RBI were to approve only part of the merger (for eg, RBI allows SCUF merger
but not SHTF), then the overall transaction will not go through. This is a
composite scheme.
Deal Rationale for IDFC bank – 1. Direct access to almost 10m Shriram customer
base. 2. Accelerated retailization for IDFCB (1000+retail touch points added to
an existing infra heavy book). 3. Access to PSL loans (More than 50% of SCUF’s
portfolio is PSL-compliant) 4. Higher RoE of Shriram businesses compared to
IDFC 5. Direct entry into South India where credit discipline is highest in the
country.
Deal Rationale for Shriram group – 1. Significant reduction in cost of funds given
that wholesale borrowing rates for banks are much lower than NBFCs 2. SHTF
customers will have access to multiple banking products – significant cross-sell
opportunity
Capital adequacy ratio of the bank will go up post-merger due to lower risk
weights on PSL under a banking entity and high net-worth of SCUF.
IDFC Ltd will be able to pay higher dividends as it now has a 100% owned
operating subsidiary. This could also result in lower hold co discount, according
to the mgmt.
In 2016, RBI came with new regulations – one of them was that RBI has the
discretion to allow certain kind of business to remain outside the bank provided
that the same business is not conducted within the bank. (this pertains to SHTF
being housed under the NOHFC)
As per regulations, NOHFC must reduce its shareholding in the bank to 40% by
Oct 2018 and continue to hold 40% for 5 years. If IDFCB were to merger with
SCUF and SHTF both, then due to the massive dilution, NOHFC’s shareholding
would drop to sub-40%.
The management is confident of maintaining the 40% shareholding in this deal,
despite the contours of the transactions not being clear. They have consulted
with the largest minority shareholders of both SHTF and SCUF regarding the
deal.
CRR/SLR requirements will not be a problem given that IDFCB has excess
CRR/SLR on its books.
10 July 2017
3

Financials
Exhibit 1:
BV accretion/dilution
CMP
2,488
65
38.5
2538.6
74.7
40.1
43.6
-13%
-11%
5%
2612
65
40.4
2665.5
78.4
39.5
42.9
-14%
-13%
Premium to CMP
10%
15%
2736
2861
65
65
42.4
44.3
2792.5
2919.4
82.2
85.9
38.9
42.2
-15%
-14%
38.3
41.5
-16%
-15%
20%
2985
65
46.2
3046.3
89.6
37.8
40.9
-18%
-17%
SCUF price for merger
IDFCB price
Swap ratio*
Shares to be issued
% equity dilution (merged entity)
FY18 BV
FY19 BV
BV accretion/(dilution) (%)
FY18 BV
FY19 BV
*Swap Ratio is being calculated on 7 July Friday closing price
Exhibit 2:
SHTF loan mix
Passenger
Vehicles,
25%
Tractors,
5%
Equipment
Finance, 1%
Others, 3%
HCV, 47%
Source: Company, MOSL
Exhibit 3:
SHTF borrowings mix
Total inst
7%
16%
5%
1%
39%
Redemable NCD
Term loans
CC incl WC loans
Fixed dep
Term loans
Subordinated Debt
34%
Source: Company, MOSL
M&LCV,
20%
Exhibit 4:
SCUF Loan mix
Auto loan,
6%
Personal
Loan, 7%
Gold Loan,
15%
Exhibit 5:
SCUF liabilities mix
Commercial
Paper, 12
Inst. Sub
Debt, 2
Subordinate
Debt, 4
Retail
Deposit, 19
2 -Wheeler
loans, 18%
Small
Business
loan, 55%
Source: MOSL, Company
Term Loan,
48
Public issure
NCD, 2
Cash
Credit, 9
NCD (inst), 5
Source: MOSL, Company
10 July 2017
4

Financials
Exhibit 6:
IDFC Bank loan mix
Retail +
SME
loans,
34%
Exhibit 7:
SCUF loan mix
Others,
12%
HFC
subsidi
ary, 7%
2W,
16%
Exhibit 8:
Combined entity loan mix
Whole
sale,
44%
Retail +
SME
loans,
56%
SME,
51%
Source: MOSL, Company
Whole
sale,
66%
Gold ,
14%
Exhibit 9:
IDFC Bank shareholding pre-merger…
Exhibit 10:
…IDFC Bank shareholding post-merger
IDFC Ltd,
30
Others,
47 %
IDFC Ltd,
53%
Others, 42
Shriram
Capital, 14
Piramal
Enterprises,
4
APAX, 9
Source: MOSL, Company
Source: MOSL, Company
10 July 2017
5

Financials
Exhibit 11:
Pro forma merged entity (INR m)
IDFC Bank
FY18E
FY19E
NII
23,979
29,378
Growth (%)
18.9
22.5
Other Income
12,071
14,083
Growth (%)
19.1
16.7
Net Income
36,050
43,462
Growth (%)
19.0
20.6
Opex
16,703
19,902
Growth (%)
30.8
19.2
PPP
19,348
23,559
Growth (%)
10.3
21.8
Provisions
2,293
3,334
Growth (%)
-18.8
45.4
PBT
17,055
20,225
Growth (%)
15.9
18.6
Tax
5,116
6,068
Tax Rate
30.0
30.0
PAT
11,938
14,158
Growth (%)
17.1
18.6
Equity
Reserves and surplus
Networth
Growth (%)
Loans
Growth (%)
Total Assets
Growth (%)
EPS
BV
RoA
RoE
FY20E
34,497
17.4
16,221
15.2
50,718
16.7
24,135
21.3
26,583
12.8
4,441
33.2
22,142
9.5
6,643
30.0
15,499
9.5
Shriram City Union Finance
FY18E
FY19E
FY20E
33,793
39,956
47,190
18.8
18.2
18.1
250
300
300
229.0
20.0
0.0
34,043
40,256
47,490
19.3
18.2
18.0
12,761
14,815
17,398
12.3
16.1
17.4
21,282
25,441
30,092
24.0
19.5
18.3
7,845
8,113
9,605
-9.1
3.4
18.4
13,437
17,329
20,488
57.4
29.0
18.2
4,684
6,041
7,142
34.9
34.9
34.9
8,753
11,288
13,346
57.4
29.0
18.2
FY18E
57,772
18.8
12,321
20.7
70,094
19.1
29,464
22.1
40,630
17.1
10,138
-11.5
30,492
31.2
9800.7
32.1
20,691
31.3
Merged Entity
FY19E
FY20E
69,334
81,687
20.0
17.8
14,383
16,521
16.7
14.9
83,718
98,208
19.4
17.3
34,717
41,533
17.8
19.6
49,001
56,676
20.6
15.7
11,447
14,046
12.9
22.7
37,554
42,630
23.2
13.5
12108.43 13784.7
32.2
32.3
25,446
28,845
23.0
13.4
45,085
45,085
1,99,278 2,22,596
2,44,363 2,67,681
9.1
9.5
11,30,232 13,76,016
24.0
21.7
19,90,726 22,55,471
17.1
13.3
5.6
6.4
54
59
1.38
1.4
10.9
11.3
Source: MOSL, Company
33,990
33,990
33,990
659
659
659
45,085
1,21,935 1,32,780 1,44,653
56,952
66,498
77,943
1,78,887
1,55,925 1,66,770 1,78,643
57,611
67,157
78,603
2,23,972
6.2
7.0
7.1
14.6
16.6
17.0
7.9
6,37,930 8,06,503 9,92,680 2,73,605 3,23,729 3,83,336 9,11,535
29.1
26.4
23.1
19.2
18.3
18.4
26.0
14,38,793 16,82,236 18,91,114 2,61,589 3,08,490 3,64,357 17,00,382
28.3
16.9
12.4
18.5
17.9
18.1
26.7
3.5
4.2
4.6
132.8
171.2
202.4
4.6
45.9
49.1
52.6
874.1
1018.9
1192.5
50
0.9
0.9
0.9
3.6
4.0
4.0
1.36
7.9
8.8
9.0
16.2
18.1
18.3
9.6
Swap Ratio is being calculated on 7 July Friday closing price
10 July 2017
6

Financials
IDFC Bank: Financials & Valuations
Income Statement
Y/E March
Interest Income
Interest Expense
Net Interest Income
Change (%)
Non Interest Income
Fee income
Change (%)
Other Income
Net Income
Change (%)
Operating Expenses
Change (%)
Pre Provision Profits
Change (%)
Provisions (excl tax)
Credit Cost (%)
PBT
Tax
Tax Rate (%)
PAT
Change (%)
Equity Dividend (Incl tax)
Core PPP*
Change (%)
*Core PPP is (NII+Fee income-Opex)
2H2016
36,488
28,015
8,473
4,032
677
3,355
12,505
5,106
7,399
242
0.0
7,158
2,489
34.8
4,669
1,092
4,044
2017
85,327
65,154
20,173
10,131
3,600
6,531
30,304
142.3
12,770
150.1
17,535
2,825
0.4
14,710
4,512
30.7
10,197
2,386
11,003
2018E
97,600
73,620
23,979
18.9
12,071
5,040
40.0
7,031
36,050
19.0
16,703
30.8
19,348
10.3
2,293
0.3
17,055
5,116
30.0
11,938
17.1
2,794
12,316
11.9
2019E
1,17,575
88,197
29,378
22.5
14,083
6,552
30.0
7,531
43,462
20.6
19,902
19.2
23,559
21.8
3,334
0.3
20,225
6,068
30.0
14,158
18.6
3,313
16,028
30.1
2020E
1,35,943
1,01,447
34,497
17.4
16,221
8,190
25.0
8,031
50,718
16.7
24,135
21.3
26,583
12.8
4,441
0.4
22,142
6,643
30.0
15,499
9.5
3,627
18,552
15.7
(INR Million)
2021E
1,52,915
1,12,785
40,130
16.3
18,769
10,238
25.0
8,531
58,899
16.1
28,833
19.5
30,065
13.1
5,687
0.4
24,378
7,313
30.0
17,065
10.1
3,993
21,534
16.1
Balance Sheet
Y/E March
Share Capital
Reserves & Surplus
Net Worth
Deposits
Change (%)
CA
SA
Borrowings
Change (%)
Infra Bonds
Other borrowings
Other Liabilities & Prov.
Total Liabilities
Current Assets
Investments
Change (%)
G Sec
RIDF and PTC
Other investments
Loans
Change (%)
Other Assets
Total Assets
2016
33,926
1,02,399
1,36,326
82,190
3,610
800
5,71,598
99,450
4,72,148
42,044
8,32,159
29,039
2,97,286
1,10,570
0
1,86,716
4,56,994
n.a.
48,839
8,32,159
2017
33,990
1,12,790
1,46,780
4,02,082
n.a.
18,094
2,368
5,02,622
-12.1
1,04,340
3,98,282
70,112
11,21,597
51,020
5,04,717
69.8
1,92,640
1,36,000
1,76,077
4,94,017
8.1
71,843
11,21,597
2018E
33,990
1,21,935
1,55,925
6,52,632
62.3
29,968
7,296
5,46,101
8.7
1,52,820
3,93,281
84,134
14,38,793
64,412
6,50,240
28.8
2,60,064
1,96,491
1,93,685
6,37,930
29.1
86,211
14,38,793
2019E
33,990
1,32,780
1,66,770
8,40,831
28.8
42,435
19,712
5,73,674
5.0
2,25,432
3,48,242
1,00,961
16,82,236
77,294
6,94,986
6.9
3,06,876
1,75,057
2,13,053
8,06,503
26.4
1,03,454
16,82,236
2020E
33,990
1,44,653
1,78,643
10,25,501
22.0
55,696
37,248
5,65,817
-1.4
3,00,895
2,64,922
1,21,154
18,91,114
86,067
6,88,223
-1.0
3,37,563
1,16,302
2,34,358
9,92,680
23.1
1,24,144
18,91,114
(INR Million)
2021E
33,990
1,57,724
1,91,714
12,15,574
18.5
70,018
58,406
5,34,876
-5.5
3,79,495
1,55,381
1,45,384
20,87,548
83,986
6,95,631
1.1
3,54,441
83,396
2,57,794
11,58,958
16.8
1,48,973
20,87,548
10 July 2017
7

Financials
IDFC Bank: Financials & Valuations
Asset quality
GNPA (INR m)
NNPA (INR m)
GNPA Ratio
NNPA Ratio
PCR (Excl Tech. write off)
E: MOSL Estimates
2016
30,583
11,390
6.27
2.49
62.8
2017
35,891
12,562
6.77
2.54
65.0
2018E
41,063
14,372
6.05
2.25
65.0
2019E
45,609
15,963
5.35
1.98
65.0
2020E
52,618
18,416
5.03
1.86
65.0
2021E
61,948
21,682
5.07
1.87
65.0
Ratios
Y/E March
Spreads Analysis (%)
Avg. Yield-Earning Assets
Avg. Yield on loans
Avg. Yield on Investments
Avg. Cost-Int. Bear. Liab.
Interest Spread
Net Interest Margin
Profitability Ratios (%)
RoE
RoA
Int. Expense/Int.Income
Fee Income/Net Income
Non Int. Inc./Net Income
Efficiency Ratios (%)
Cost/Income
Empl. Cost/Op. Exps.
Cost per Empl. (INR m)
of which for ex-Infra bus. INR M
NP per Empl. (INR Mn)
2H2016
2017
9.7
10.7
8.2
8.4
1.4
2.3
2018E
8.5
9.8
7.0
7.0
1.5
2.1
2019E
8.4
9.5
7.0
6.8
1.7
2.1
2020E
8.5
9.5
7.0
6.8
1.8
2.2
2021E
8.7
9.5
7.0
6.8
1.9
2.3
7.2
1.0
76.4
11.9
33.4
7.9
0.9
75.4
14.0
33.5
8.8
0.9
75.0
15.1
32.4
9.0
0.9
74.6
16.1
32.0
9.2
0.9
73.8
17.4
31.9
42.1
44.9
1.8
93.9
3.2
46.3
41.7
1.6
94.6
2.8
45.8
40.7
1.6
89.9
2.8
47.6
39.3
1.7
89.9
2.8
49.0
38.8
1.7
94.4
2.7
Valuation
Book Value (INR)
Change (%)
Price-BV (x)
Adjusted BV (INR)
Change (%)
Price-ABV (x)
EPS (INR)
Change (%)
Price-Earnings (x)
Dividend Per Share (INR)
Dividend Yield (%)
E: MOSL Estimates
40.2
43.2
1.5
40.6
1.6
3.0
21.7
0.6
0.9
45.9
6.2
1.4
42.9
5.7
1.5
3.5
17.1
18.5
0.7
1.1
49.1
7.0
1.3
45.8
6.7
1.4
4.2
18.6
15.6
0.8
1.3
52.6
7.1
1.2
48.8
6.5
1.3
4.6
9.5
14.3
0.9
1.4
56.4
7.3
1.2
51.9
6.5
1.3
5.0
10.1
12.9
1.0
1.5
37.8
1.4
10 July 2017
8

Financials
Shriram City Union Finance: Financials and Valuation
Income Statement
Y/E March
Financing Income
Financing charges
Net Financing income
Change (%)
Income from securitisation
Net Income (Incl Secur)
Change (%)
Fee & Other Income
Net Income
Change (%)
Employee Cost
Other Operating Exp.
Operating Income
Change (%)
Total Provisions
% to operating income
PBT
Tax
Tax Rate (%)
PAT
Change (%)
Proposed Dividend
(INR Million)
2019E
2020E
59,621
70,467
20,037
23,717
39,583
46,749
18.2
18.1
373
441
39,956
47,190
18.2
18.1
300
300
40,256
47,490
18.2
18.0
7,211
8,437
7,604
8,961
25,441
30,092
19.5
18.3
8,113
9,605
31.9
31.9
17,329
20,488
6,041
7,142
34.9
34.9
11,288
13,346
29.0
18.2
1,450
1,582
(INR
Million)
2020E
659
77,943
78,603
78,619
2,85,738
18.4
0
3,64,357
5,240
-9.8
3,83,336
18.4
763
-24,982
3,64,357
2013
27,012
14,105
12,907
51.2
3,460
16,367
46.6
75
16,442
46.3
2,239
3,987
10,215
46.2
3,559
34.8
6,657
2,160
32.5
4,496
31.3
464
2014
29,312
13,507
15,805
22.4
2,207
18,012
10.1
487
18,500
12.5
2,708
4,531
11,261
10.2
3,462
30.7
7,799
2,587
33.2
5,211
15.9
611
2015
33,104
13,432
19,672
24.5
1,243
20,915
16.1
519
21,434
15.9
4,116
4,820
12,499
11.0
4,088
32.7
8,411
2,830
33.6
5,581
7.1
1,028
2016
37,065
13,834
23,231
18.1
658
23,889
14.2
250
24,139
12.6
5,132
5,362
13,645
9.2
5,577
40.9
8,068
2,771
34.3
5,298
-5.1
989
2017
43,344
15,344
28,000
20.5
452
28,452
19.1
76
28,528
18.2
5,503
5,857
17,168
25.8
8,632
50.3
8,536
2,976
34.9
5,561
5.0
330
2018E
50,327
16,847
33,480
19.6
313
33,793
18.8
250
34,043
19.3
6,163
6,598
21,282
24.0
7,845
36.9
13,437
4,684
34.9
8,753
57.4
1,187
Balance Sheet
Y/E March
Capital
Reserves & Surplus
Net Worth
Net Worth
Borrowings
Change (%)
Other Liabilities & Prov.
Total Liabilities
Investments
Change (%)
Loans
Change (%)
Net Fixed Assets
Net Current Assets
Total Assets
2013
554
21,537
22,092
22,528
1,27,287
30.0
0
1,49,815
730
309.9
1,37,795
24.3
884
10,407
1,49,815
2014
593
28,390
28,983
29,017
1,20,491
-5.3
0
1,49,508
6,276
759.5
1,29,835
-5.8
1,014
12,384
1,49,508
2015
659
40,352
41,011
41,036
1,24,017
2.9
0
1,65,054
9,817
56.4
1,60,275
23.4
823
-5,861
1,65,054
2016
659
44,457
45,116
45,136
1,44,084
16.2
0
1,89,220
7,923
-19.3
1,91,406
19.4
849
-11,309
1,88,869
2017
659
49,624
50,284
50,300
1,70,420
18.3
0
2,20,720
7,145
-9.8
2,29,614
20.0
782
-16,837
2,20,704
2018E
659
56,952
57,611
57,628
2,03,961
19.7
0
2,61,589
6,443
-9.8
2,73,605
19.2
855
-19,315
2,61,589
2019E
659
66,498
67,157
67,174
2,41,316
18.3
0
3,08,490
5,811
-9.8
3,23,729
18.3
849
-21,899
3,08,490
10 July 2017
9

Financials
Shriram City Union Finance: Financials and Valuation
Ratios
Y/E March
Spreads Analysis (%)
Yield on loans
Cost of funds
Interest Spread
NIMs (incl Securitisation inc) on AUM
2013
20.9
12.5
8.4
11.2
2014
21.2
10.9
10.3
11.8
2015
21.9
11.0
11.0
13.3
2016
20.7
10.3
10.4
13.2
2017
20.3
9.8
10.6
13.3
2018E
19.8
9.0
10.8
13.3
2019E
19.8
9.0
10.8
13.2
2020E
19.8
9.0
10.8
13.2
Profitability Ratios (%)
RoE
RoA
Int. Expended/Int.Earned
Other Inc. (incl. Sec. Inc.) / Net Income
Efficiency Ratios (%)
Op. Exps./Net Income
Empl. Cost/Op. Exps.
Asset-Liability Profile (%)
Loans/Borrowings Ratio
Leverage
Average leverage
Valuations
Book Value (INR)
BV Growth (%)
Price-BV (x)
Adjusted BV (INR)
Price-ABV (x)
EPS (INR)
EPS Growth (%)
Price-Earnings (x)
DPS (INR)
Dividend Yield (%)
E: MOSL Estimates
22.5
3.4
52.2
21.5
20.2
3.5
46.1
14.6
15.9
3.5
40.6
8.2
12.3
3.0
37.3
3.8
11.7
2.7
35.4
1.9
16.2
3.6
33.5
1.7
18.1
4.0
33.6
1.7
18.3
4.0
33.7
1.6
37.9
36.0
39.1
37.4
41.7
46.1
43.5
48.9
39.8
48.4
37.5
48.3
36.8
48.7
36.6
48.5
108.3
6.8
6.9
107.8
5.2
5.9
129.2
4.0
4.5
132.8
4.2
4.1
134.7
4.4
4.3
134.1
4.5
4.5
134.2
4.6
4.6
134.2
4.6
4.6
406.5
22.7
399.7
81.1
24.0
8.4
489.5
20.4
484.9
87.9
8.3
10.0
622.7
27.2
617.0
84.7
-3.7
15.0
684.6
10.0
668.9
80.4
-5.1
15.0
763.0
11.4
3.3
741.2
3.4
84.3
5.0
29.9
15.0
0.6
874.1
14.6
2.8
832.0
3.0
132.8
57.4
18.6
18.0
0.7
1,018.9
16.6
2.4
969.9
2.6
171.2
29.0
14.5
22.0
0.9
1,192.5
17.0
2.1
1,140.5
2.2
202.4
18.2
12.2
24.0
1.0
10 July 2017
10

Financials
Shriram Transport Finance: Financials and valuation
Income Statement
Y/E March
Financing Income
Finanancing charges
Net Financing income
Change (%)
Income from securitisation
Net Income (Incl Secur)
Change (%)
Other Income
Net Income
Change (%)
Employee Cost
Brokerage & Commission
Other Operating Exp.
Operating Profit
Change (%)
Total Provisions
% to operating income
PBT
Tax
Tax Rate (%)
PAT
Change (%)
Proposed Dividend
2013
45,028
28,439
16,588
36.1
18,057
34,645
7.4
1,885
36,530
8.9
3,848
948
3,065
28,670
8.5
8,508
29.7
20,162
6,556
32.5
13,606
8.2
1,590
2014
62,664
38,982
23,683
42.8
12,796
36,479
5.3
1,655
38,134
4.4
4,089
1,227
4,245
28,573
-0.3
10,293
36.0
18,280
5,638
30.8
12,642
-7.1
1,588
2015
77,779
44,029
33,750
42.5
7,379
41,129
12.7
707
41,836
9.7
4,296
609
5,878
31,054
8.7
12,630
40.7
18,424
6,046
32.8
12,378
-2.1
1,815
2016
95,300
50,744
44,556
32.0
6,171
50,727
23.3
762
51,489
23.1
5,891
587
6,611
38,400
23.7
20,586
53.6
17,814
6,032
33.9
11,782
-4.8
2,269
2017
98,013
52,094
45,919
3.1
9,293
55,212
8.8
758
55,970
8.7
5,482
479
6,326
43,682
13.8
24,443
56.0
19,239
6,666
34.6
12,573
6.7
908
2018E
1,03,766
53,072
50,694
10.4
9,669
60,363
9.3
834
61,197
9.3
5,756
518
6,591
48,332
10.6
21,506
44.5
26,827
9,255
34.5
17,571
39.8
2,811
(INR Million)
2019E
1,15,604
57,324
58,280
15.0
9,882
68,162
12.9
918
69,080
12.9
6,562
580
7,363
54,575
12.9
21,794
39.9
32,781
10,818
33.0
21,963
25.0
3,294
2020E
1,30,190
63,079
67,111
15.2
11,119
78,230
14.8
1,009
79,240
14.7
7,481
649
8,225
62,885
15.2
24,316
38.7
38,569
12,728
33.0
25,841
17.7
3,876
Balance Sheet
Y/E March
Capital
Reserves & Surplus
Net Worth
Borrowings
Change (%)
Other Liabilities
Total Liabilities
Investments
Change (%)
Loans
Change (%)
Net Fixed Assets
Net Current Assets
Total Assets
E: MOSL Estimates
2013
2,269
69,679
71,947
3,10,025
34.1
22
3,81,995
35,689
-10.0
3,11,227
41.1
601
34,478
3,81,995
2014
2,269
80,463
82,732
3,59,200
15.9
22
4,41,955
27,253
-23.6
3,64,878
17.2
1,007
48,818
4,41,955
2015
2,269
90,111
92,380
4,42,800
23.3
0
5,35,180
33,272
22.1
4,92,271
34.9
1,007
8,629
5,35,180
2016
2,269
99,272
1,01,541
4,97,907
12.4
0
5,99,448
13,562
-59.2
6,37,701
29.5
1,011
-52,825
5,99,448
2017
2,269
1,10,753
1,13,022
5,31,101
6.7
0
6,44,123
15,494
14.2
6,78,402
6.4
838
-50,610
6,44,123
2018E
2,269
1,23,674
1,25,943
5,82,679
9.7
0
7,08,622
17,818
15.0
7,57,996
11.7
1,181
-68,372
7,08,622
2019E
2,269
1,41,782
1,44,051
6,56,753
12.7
0
8,00,804
20,490
15.0
8,64,009
14.0
1,291
-84,986
8,00,804
2020E
2,269
1,63,088
1,65,357
7,44,997
13.4
0
9,10,354
23,564
15.0
9,88,314
14.4
1,377
-1,02,901
9,10,354
10 July 2017
11

Financials
Shriram Transport Finance: Financials and valuation
Ratios
Y/E March
Spreads Analysis (%)
Avg. Yield - on Financing portfolio
Avg Cost of funds
Int Spread on Financing portfolio
NIM (incl Securitisation)
NIM (Excl Securitisation)
Profitability Ratios (%)
RoE
RoA
Int. Expended/Int.Earned
Other Inc./Net Income
Efficiency Ratios (%)
Op. Exps./Net Income
Empl. Cost/Op. Exps.
Asset-Liability Profile (%)
Loans/Borrowings Ratio
Net NPAs to Adv.
Leverage
Average leverage
2013
16.3
10.5
5.8
7.7
6.2
2014
17.3
11.6
5.6
7.1
7.0
2015
17.0
11.0
6.0
7.3
7.9
2016
16.3
10.8
5.6
7.7
7.9
2017
14.6
10.1
4.4
7.3
7.0
2018E
14.1
9.5
4.6
7.2
7.1
2019E
13.9
9.3
4.7
7.2
7.2
2020E
13.7
9.0
4.7
7.3
7.2
20.6
4.0
63.2
54.6
16.3
3.1
62.2
37.9
14.1
2.5
56.6
19.3
12.2
2.1
53.2
13.5
11.7
2.0
53.2
18.0
14.7
2.6
51.1
17.2
16.3
2.9
49.6
15.6
16.7
3.0
48.5
15.3
21.5
49.0
25.1
42.8
25.8
39.8
25.4
45.0
22.0
44.6
21.0
44.7
21.0
45.2
20.6
45.7
100.4
0.8
5.3
5.1
101.6
0.8
5.3
5.3
111.2
0.8
5.8
5.6
128.1
1.9
5.9
5.9
127.7
2.7
5.7
5.8
130.1
3.5
5.6
5.7
131.6
3.4
5.6
5.6
132.7
3.5
5.5
5.5
Valuations
Standalone BV (INR)
BV Growth (%)
Price-BV (x)
Consolidated BV (INR)
Price-BV (x)
Standalone EPS (INR)
Growth (%)
Price-Earnings (x)
Consolidated EPS (INR)
EPS Growth (%)
Price-Earnings (x)
Dividend
Dividend Yield (%)
E: MOSL Estimates
317
19.8
323
60.0
7.9
64.5
11.6
7.0
365
15.0
375
55.7
-7.1
59.9
-7.2
7.0
407
11.7
408
54.6
-2.1
45.3
-24.3
8.0
447
9.9
450
51.9
-4.8
53.3
17.6
10.0
498
11.3
2.1
500
2.1
55.4
6.7
18.9
55.6
4.3
18.8
4.0
0.4
555
11.4
2.0
564
1.9
77.4
39.8
14.0
78.5
41.2
13.8
12.4
1.2
635
14.4
1.7
646
1.7
96.8
25.0
11.2
98.5
25.4
11.0
14.5
1.4
729
14.8
1.5
740
1.5
113.9
17.7
9.5
114.1
15.9
9.5
17.1
1.6
10 July 2017
12

Financials
Click here for further details
Annexure: New banking license guidelines
Key takeaways from RBI final guidelines on banking license
Eligibility criteria for promoters and Fit and Proper criteria
n
n
n
n
Entities/groups in the private sector, owned and controlled by residents, sound
credentials and integrity and having successful track record of at least 10 years
will be eligible.
RBI may, inter alia, seek feedback on applicant groups on “fit and proper
criteria” or any other relevant aspects from other regulators and enforcement
and investigative agencies like income tax, CBI, Enforcement Directorate etc as
deemed appropriate.
Entities/groups business model and business culture should not be uneven with
the banking model and their business should not potentially put the bank and
the banking system at risk on account of group activities such as those which are
speculative in nature or subject to high asset price volatility.
Entities in public/private sector shall be eligible to promote a bank through a
wholly-owned Non-Operative Financial Holding Company (NOFHC)
Corporate structure for setting up of NOFHC
n
n
n
n
n
n
Capital structure of the wholly-owned NOFHC set up in private sector: 1) Any
individual belonging to promoter group and entities in which promoter group
hold not less than 50% of the voting equity cannot hold more than 10% of voting
equity shares of the NOFHC and 2) Companies forming part of the Promoter
Group whereof companies in which the public hold not less than 51% of the
voting equity shares shall hold not less than 51% of the total voting equity
shares of the NOFHC.
NOFHC shall hold the bank as well as all the other financial services entities of
the Group regulated by RBI or other financial sector regulators. The objective is
that the Holding Company should ring fence the regulated financial services
entities of the Group, including the bank from other activities of the Group and
other regulated financial activities of the group.
Financial services entities whose shares held by NOFHC cannot be a shareholder
of NOFHC.
No financial services entity held by the NOFHC would be allowed to engage in
any activity that a bank is permitted to undertake departmentally. However
certain specialized activities, such as, insurance, mutual funds, stock broking,
infrastructure debt funds, etc. to be conducted through a separate Subsidiary /
Joint Venture / Associate structure.
NOFHC shall not be permitted to set up any new financial services entity for at
least three years from the date of commencement of business of the NOFHC.
However, this will not preclude bank from having a subsidiary or JV or associate.
Shares of the NOFHC shall not be transferred to any entity outside the Promoter
Group. Any change in shareholding (by promoter group), wherein shareholder
acquires more than 5% in NOFHC will require prior approval of RBI.
10 July 2017
13

Financials
Regulatory framework for NOFHC
n
n
The NOFHC will be registered as a non-banking financial company (NBFC) with
the RBI and will be governed by a separate set of directions issued by RBI.
The financial entities held by the NOFHC will be governed by the applicable
Statutes and regulations prescribed by the respective financial sector regulators.
Prudential norms for NOFHC
n
n
n
On a standalone basis, NOFHC may have leverage up to 1.25x of net worth.
Actual leverage should be assumed based on ability of NOFHC to service
borrowings from dividend income.
On a consolidated basis, CAR should be maintained as per Basel II/Basel III
guidelines as appropriate.
Exposure norms: No credit or investment exposure to promoter group entity or
outside group entities expect those held under it
Exposure norms for the financial entities (ex-bank) held by the NOFHC
n
The financial entities held by NOFHC shall not have: A) Any credit and
investments exposure to the Promoter Group entities or individuals associated
with the Promoter Group or the NOFHC. B) Shall not make investment in the
equity / debt capital instruments amongst themselves. C) Cannot invest in
equity instruments of other NOFHCs
Corporate governance of the NOFHC
n
n
n
NOFHC shall not have a Director on the board a person who is a Director in any
other NOFHC or a bank other than a banking company under it.
At least 50% of the Directors of NOFHC shall be totally independent of the
Promoter or Promoter Group entities and their major customers and major
suppliers (10% annual sales and purchase taken together).
Ownership and management shall be separate and distinct in the NOFHC, the
bank and entities regulated by RBI.
Norms for the new banks
n
Requirement of the new bank
Applicants for new bank licenses will be required to furnish their business plan
as to how the bank proposes to achieve financial inclusion.
In case of deviation from the stated business plan after issue of license, RBI may
consider restricting the bank’s expansion, effecting change in management and
imposing penal charges as may be necessary.
The bank shall comply with the priority sector lending targets and sub-targets as
applicable to the existing domestic banks. For this purpose, the bank should
build its priority sector lending portfolio from the commencement of its
operations.
The bank shall open at least 25% of its branches in unbanked rural centers
(population up to 9,999 as per the latest census) to avoid over concentration of
their branches in metropolitan areas and cities which are already having
adequate banking presence.
The Board of the bank should have a majority of independent Directors
n
n
n
n
10 July 2017
14

Financials
Capital requirement and equity holding for bank
n
n
n
n
n
n
n
Minimum capital requirement:
Initial minimum paid-up voting equity capital for
a bank shall be INR5b. The NOFHC shall hold a minimum of 40% of the equity
capital of the bank which shall be locked in for a period of five years from the
date of commencement of business of the bank.
NOFHC holding excess of 40% in the bank shall be brought down to 40% within
three years from the date of commencement of business of the bank. The
shareholding by NOFHC shall be brought down to 20% within a period of 10
years, and to 15% within 12 years from the date of commencement of business
of the bank.
No single entity or group of related entities, other than the NOFHC, shall have
shareholding or control, directly or indirectly, in excess of 10% of the paid-up
voting equity capital of the bank.
The Promoter Group entities / individuals associated with Promoter Group shall
hold equity investment, in the bank and other financial entities held by it, only
through the NOFHC.
Bank as well as NOFHC will be required to maintain a minimum capital adequacy
ratio of 13% of its risk weighted assets (RWA) for a minimum period of 3 years
on a standalone and a consolidated basis.
The bank shall get its shares listed within three years of the commencement of
business.
Banks promoted by Groups having 40% or more assets / income from
nonfinancial business will require RBI’s prior approval for raising paid-up voting
equity capital beyond INR10b for every block of INR5b.
Foreign shareholding in the bank
n
n
n
Foreign shareholding (Including FDI, NRI and FII) in new private sector banks
shall not exceed 49% for the first 5 years from the date of licensing of the bank.
No nonresident shareholder, directly or indirectly, individually or in groups, or
through subsidiary, associate or JV will be permitted to hold more than 5% paid
up equity capital of the bank for the period of 5 years from the commencement
of business of the bank.
After 5 years aggregate foreign shareholding would be as per the extant FDI
policy.
Exposure norms for the bank
n
n
n
The bank cannot take any credit and investments (including investments in the
equity/debt capital instrument) exposure on the Promoters / Promoter Group
entities or individuals associated with the Promoter Group or the NOFHC.
The bank cannot invest in the equity of other NOFHCs
Investment in equity by the bank in the entities engaged in financial and
nonfinancial activities, outside the Promoter Group will be restricted to 10% and
the aggregate of all such investments should not exceed 20% of the bank’s paid-
up share capital and reserves
10 July 2017
15

Financials
Additional conditions for NBFCs promoting / converting into a
bank
The NBFCs eligible to for a license will have three options
n
n
n
n
n
Activities undertaken by the NBFC are not permitted to be undertaken by banks,
In such cases, the activities undertaken by the NBFC which banks are allowed to
undertake, will have to be transferred to the new bank
If all the activities undertaken by it are allowed to be undertaken by a bank then
convert the NBFC into a bank. However In such a case, the NBFC shall have a
minimum networth of INR 5b
Convert the NBFC into a bank and divest the activities which banks are not
allowed to undertake departmentally. In such a case, the bank shall have a
minimum networth of INR5b.
Under the above options promoters will have to set up NOFHC. RBI will consider
allowing the bank to take over and convert existing NBFC branches into bank
branches only in Tier 2 to 6 centers
Existing branches in Tier 1 centers can only be converted with prior permission
of RBI and subjected to condition of opening 25% of these branches in
unbanked centers.
Click here for further details
The on tap banking license guidelines which came out in 2016, allowed mono-line
business to be run separately. However, RBI usually goes by the guideline under
which the entity got the banking license. So the ball lies in the RBI’s court
Some of the key aspects of the 2016 Guidelines include
n
n
n
n
n
resident individuals and professionals having 10 years of experience in banking
and finance at a senior level are also eligible to promote universal banks
large industrial houses are excluded as eligible entities but are permitted to
invest in the banks up to 10 per cent
Non-Operative Financial Holding Company (NOFHC) has been made non-
mandatory in case of promoters being individuals or standalone
promoting/converting entities who/which do not have other group entities
Not less than 51 per cent of the total paid-up equity capital of the NOFHC shall
be owned by the promoter/promoter group, instead being wholly owned by the
promoter group
Existing specialised activities have been permitted to be continued from a
separate entity proposed to be held under the NOFHC subject to prior
approval from the Reserve Bank and subject to it being ensured that similar
activities are not conducted through the bank as well.
10 July 2017
16

Financials
NOTES
10 July 2017
17

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