HDFC Limited BUY

Please refer to important disclosures at the end of this report

Market Cap Rs5220bn/US$69.7bn Year to March FY20 FY21 FY22E FY23E Reuters/Bloomberg HDFC.BO/ HDFC IN NII (Rs mn) 1,27,480 1,49,700 1,74,862 2,01,977 Shares Outstanding (mn) 1,807.6 Net Income (Rs mn) 1,79,951 1,20,273 1,40,470 1,69,029 52-week Range (Rs) 2951/2041 EPS (Rs) 40.5 53.0 60.3 72.3 Free Float (%) 100.0 % Chg YoY 85.7 -35.8 16.5 20.3 FII (%) 72.2 P/E (x) 37.5 28.7 25.2 21.0 Daily Volume (US$/'000) 1,08,032 P/BV (x) 3.9 3.1 2.9 2.5 Absolute Return 3m (%) 18.3 Net NPA (%) 1.2 1.1 1.7 1.2 Absolute Return 12m (%) 51.5 Dividend Yield (%) 0.8 0.5 0.7 0.9 Sensex Return 3m (%) 14.6 RoA (%) 3.7 2.2 2.3 2.4 Sensex Return 12m (%) 53.3 RoE (%) 22.0 12.3 12.3 13.3

Equity Research November 2, 2021 BSE Sensex: 60138 ICICI Securities Limited is the author and distributor of this report

Q2FY22 result review, TP and earnings revision

Financials Target price: Rs3,550 Earnings revision (%) FY22E F23E PAT ↑ 4 ↑ 1

Target price revision Rs3,550 from Rs3,307 Shareholding pattern

Mar ’21

Jun ’21

Sep ’21

Promoters 0.0 0.0 0.0 Institutional investors 88.9 88.7 88.8 MFs and other 8.3 8.9 9.3 FIs/Banks 0.1 0.1 0.1 Insurance 7.5 7.2 7.2 FIIs 73.0 72.5 72.2 Others 11.1 11.3 11.2

Source: NSE Price chart

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HDFC Limited BUY Maintain Growth gaining traction; earnings beat led by lower credit cost and stable core Rs2,889

HDFC Ltd’s Q2FY22 credit cost was capped at <40bps, beating our earnings expectations. Stress pool moderated a tad with stage-3 assets coming off 10bps QoQ to 2.5% and stage-2 moderated to 6.2% (vs 6.6%). Individual segment stage-3 assets contracted 30bps QoQ to 1.3%, and for non-individual segment stage-3 increased by 40bps to 6.2%. On stress pool (stage-2/3) of 23.2%/3.9% in non-individual/individual segments, HDFC is carrying provisions of 7.83%/0.82%. Individual loan growth momentum gained traction to 16% YoY (up 4% QoQ) suggesting improving market positioning. Non-individual AUM growth is still under pressure, but pipeline suggests build-up going forward. Individual AUM growth of >15% and provisioning buffer of 2.56% of advances improve visibility on growth and credit cost outlook. Maintain BUY with a revised SoTP-based target price of Rs3,550 (earlier: Rs3,307). Key monitorables: Behaviour of 23% non-individual stress pool, and rising competition in retail segment. Stress pool moderates a tad; stage-2 appears sticky due to restructuring:

Collection efficiency for individual loans on a cumulative basis in Sep'21 was at 98% (Jun'21 at 98.3%, Mar'21 at 98.0%) and the company believes it is satisfactory given the environment. GNPAs came off to 2.0% (vs 2.24%/1.98% in Q1FY22/FY21). Stage-3 assets reduced by 10bps QoQ to 2.5%; similarly, stage-2 moderated to 6.2% (vs 6.6%). For individual segment, stage-3 assets contracted 30bps QoQ to 1.3% and stage-2 was sticky at 2.6%. For non-individual segment, stage-3 went up 40bps to 6.2% with stage-2 at 17% (vs 19%).

Restructured 1.4% of loans; 63% are individual loans and 37% non-individual: HDFC has restructured Rs73bn (vs Rs44.82bn), which is equivalent to 1.4% (0.9%) of the loanbook. Of the loans restructured, 63% are individual loans and 37% non-individual. Of this, 35% is only one large non-individual account (Shapoorji Pallonji) under restructuring while others are not big-ticket accounts. All restructured loans are classified under stage-2. ECLGS cumulative disbursement under ECGLS 1.0, 2.0 and 3.0 was Rs17.4bn (vs sanctions of Rs24.2bn).

Credit cost lower QoQ as non-individual stress pool steady: Credit cost was at <40bps, which aided the beat on earnings. It carries provisioning of 0.83% (vs 0.75%) on individual loans and 7.83% (vs 8.35%) on non-individual loans. Cumulatively provisions are 2.56% (vs 2.64%) on the overall stress pool (stage-2 at 6.2% and stage-3 at 2.5%). It created additional covid provision of Rs2.73bn to take cumulative covid provisions to Rs13bn (~20bps of loans). With this buffer, incremental provisioning requirement will be capped at 0.4%/0.4% over FY22E/FY23E, respectively.

INDIA

Research Analysts:

Kunal Shah [email protected] +91 22 6637 7572 Renish Bhuva [email protected] +91 22 6637 7465 Chintan Shah [email protected] +91 22 6637 7658 Piyush Kherdikar [email protected] +91 22 6637 7465

HDFC, November 2, 2021 ICICI Securities

2

Individual loan growth momentum strong with 16% YoY growth; moderation seen in non-individual book: Individual loan disbursements grew 44% YoY / 48% QoQ to Rs380bn (vs Rs255bn in Q1FY21) with growth in home loans seen in both affordable housing segment as well as high-end properties. This supported growth in the individual loanbook at 16% (vs 13.6% in Q1FY22 / 12.4% in FY21). Individual disbursements in Oct’21 were the highest-ever in a non quarter-end month. Nevertheless, growth in the overall loanbook was restricted to 10%. Moderation was primarily due to 4.8% YoY decline in non-individual loans. Among non-individual loans, LRD is showing improved traction and also, incrementally, developers are launching new projects. There is a healthy pipeline of LRD and project loan proposals and non-individual growth would turn positive by the end of FY22E. Overall, we are building-in loan growth of 14%/16% for FY22E/FY23E, respectively.

Some insights on individual loan customer profile: 1) 79% of the new customers were salaried, while 21% were self-employed in individual segment in Q2FY22; 2) individual segment comprises 78% of the loanbook followed by 9% for construction finance, 8% for LRD and balance 5% corporate loans; 3) 30% of home loans in terms of volume and 14% in value terms were to customers from EWS and LIG customers. ATS was Rs1.11mn for EWS category and Rs1.94mn for LIG category during Q2FY22; 4) overall ATS was Rs3.27mn (vs Rs3.09mn in Q1FY22); and 5) 89% of new loan applications during Q2FY22 were received through digital channels.

Spreads stable; unwinding of liquidity to support NIMs: Interest expenses were down by 11% YoY / flat QoQ thereby supporting margins at 3.6%. Loan spreads continued at 2.29% (flat QoQ, 2.27% YoY) – of which individual loan spreads were flat QoQ at 1.93% (vs 1.91% YoY) and non-individual was up 5bps QoQ / 22bps YoY at 3.37%. Further unwinding of liquidity will support NIMs of 3.3% / 3.2% in FY22E / FY23E, respectively.

HDFC reported Q2FY22 PAT of Rs37.8bn – up 26% QoQ and ahead of expectations (of Rs33bn) due to much lower credit cost of <40bps (at Rs4.5bn against expectations of Rs9bn). NII growth was flat QoQ as against our expectations of 3% increase. Q2FY22 earnings included:

o Dividend income in Q2FY22 of Rs11.7bn vs Rs160mn QoQ and Rs3.2bn in Q2FY21

o Profit on sale of investments was nil vs Rs2.63bn in previous sequential quarter

o ESOPs fair valuation would lead to Rs1.22bn charge on P&L, a tad lower than the past three quarters’ average of ~Rs1.4bn

o It has assigned loans of Rs71.3bn vs Rs30.3bn in Q2FY21 (Rs272bn in past 12 months) to HDFC Bank


3

Table 1: Q2FY22 result review (P/L) (Rs mn, year ending March 31)

Q2FY21 Q1FY22 Q2FY22 % YoY % QoQ Income statement

Income from Operations 1,10,020 1,06,471 1,06,831 -2.9 0.3 Interest expenses 73,991 65,219 65,735 -11.2 0.8 Net operating income 36,028 41,252 41,096 14.1 -0.4 Other income 7,308 10,161 15,434 111.2 51.9 Net Operating income 43,336 51,412 56,529 30.4 10.0 Employee cost 1356 1735 1580 16.6 (8.9) Depreciation 360 377 386 7.4 2.4 Other costs 1943 3395 3332 71.5 (1.8) Operating expenses 3,658 5,506 5,299 44.8 (3.8) Pre-provisioning profit (PPoP) 39,678 45,906 51,231 29.1 11.6 Provisions & Writeoffs 4,360 6,860 4,520 3.7 (34.1) Exceptional items -6 2,630 0

PBT 35,318 39,046 46,711 32.3 19.6 Tax 6,617 9,039 8,906 34.6 (1.5) Tax Rate (%) 18.7 23.1 19.1 33 bps -409 bps

PAT 28,701 30,007 37,805 31.7 26.0 PAT (adjusted for exceptional) 28,707 27,377 37,805 31.7 38.1 EPS (Rs) 16.2 16.6 20.9 29.0 25.9 Loan AUM (Rs mn) 54,02,700 57,41,360 59,73,388 10.6 4.0 -Individuals (Rs mn) 40,40,180 44,94,910 39,11,950 -3.2 -13.0 -Non-Individuals (Rs mn) 13,62,520 12,46,450 20,61,438 51.3 65.4 Loan Outstanding (Rs mn) 47,51,210 50,04,900 52,07,978 9.6 4.1 Off-book (%) 12.1 12.8 12.8 75 bps -2 bps Yield on loans (%) 9.3 8.4 8.1 -122 bps -38 bps Cost of borrowings (%) 6.9 5.9 5.8 -111 bps -10 bps Spread - Calculated (%) 2.3 2.5 2.2 -11 bps -29 bps NIM - reported (%) 3.3 3.7 3.6 30 bps -10 bps GNPL (% of total loans) 1.81 2.24 2.00 19 bps -24 bps Provisions as a % of AUM 0.08 0.12 0.08 -1 bps -5 bps Leverage (x) 5.4 5.1 5.3 -10 bps 23 bps Capital Adequacy 20.7 22.0 22.4 170 bps 40 bps Tier I 19.5 21.3 21.6 210 bps 30 bps Tier II 1.2 0.7 0.8 -40 bps 10 bps

Source: Company data, I-Sec research

Table 2: Q2FY22 result review (balance sheet) (Rs mn, year ending March 31)

Q2FY21 Q1FY22 Q2FY22 % YoY % QoQ Equity capital 3,590 3,612 3,616 0.7 0.1 Reserves 9,97,740 11,18,289 11,14,560 11.7 (0.3) Share-holders Funds 10,01,330 11,21,900 11,18,177 11.7 (0.3) Total debt 42,08,990 43,84,130 46,27,370 9.9 5.5 Current liabilities & Provisions 1,98,178 1,71,723 1,82,382 (8.0) 6.2 Derivative financial instruments 4,623 17,107 14,469 213.0 (15.4) Total sources of funds 54,13,121 56,94,860 59,42,398 9.8 4.3

Loans & advances 47,38,934 48,73,070 50,74,648 7.1 4.1 Investments 6,11,780 6,88,440 6,95,046 13.6 1.0 Other current assets -3,114 73,346 89,280 (2966.8) 21.7 Cash and bank balances 3,833 11,562 38,286 898.8 231.1 Fixed assets 9,604 9,963 10,197 6.2 2.4 Deferred tax assets 17,494 16,719 18,021 3.0 7.8 Derivative financial instruments 34,590 21,760 16,920 (51.1) (22.2) Total uses of funds 54,13,121 56,94,860 59,42,398 9.8 4.3



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Table 3: Stress pool moderates a tad; stage-2 appears sticky due to restructuring (Rs bn, year ending March 31)

Sep-20

% of total Dec-20

% of total Mar-21

% of total Jun-21

% of total Sep-21

% of total

Total Gross Assets 4,741 100.0% 4,827 100.0% 4,972 100.0% 5,000 100.0% 5,204 100.0% Gross Stage 1 4,404 92.9% 4,375 90.6% 4,540 91.3% 4,538 90.8% 4,752 91.3% Gross Stage 2 233 4.9% 342 7.1% 315 6.3% 332 6.6% 321 6.2% Gross Stage 3 104 2.2% 110 2.3% 116 2.3% 130 2.6% 130 2.5% Total Net Assets 4,618 100.0% 4,704 100.0% 4,842 100.0% 4,868 100.0% 5,070 100.0% Net Stage 1 4,391 92.6% 4,366 90.4% 4,529 91.1% 4,527 90.5% 4,738 91.1% Net Stage 2 174 3.7% 282 5.8% 257 5.2% 274 5.5% 273 5.3% Net Stage 3 53 1.1% 56 1.2% 56 1.1% 67 1.3% 59 1.1% Total Provisions 123 2.60% 123 2.56% 130 2.62% 132 2.64% 133 2.56% ECL Provision Stage 1 13 0.3% 9 0.2% 11 0.2% 11 0.2% 14 0.3% ECL Provision Stage 2 59 25.3% 60 17.6% 59 18.6% 58 17.5% 48 15.0% ECL Provision Stage 3 51 49.0% 54 49.5% 61 52.1% 63 48.3% 71 54.8%

Note: % in total provisions refers to coverage ratio Source: Company data, I-Sec research

Table 4: Maintaining coverage of 15% & 55% on Stage2 & Stage 3 respectively Exposure at Default (EAD) (Rs bn) Individual Non-Individual Total Stage 1 3,75,718 96.1% 99,501 76.8% 4,75,219 91.3% Stage 2 10,148 2.6% 21,998 17.0% 32,146 6.2% Stage 3 4,999 1.3% 7,994 6.2% 12,993 2.5% EAD Total 3,90,865 100.0% 1,29,493 100.0% 5,20,358 100.0%

Expected Credit Loss (ECL) (Rs bn) Individual Non-Individual Total Stage 1 961 0.26% 444 0.45% 1,405 0.30% Stage 2 987 9.73% 3,822 17.37% 4,809 14.96% Stage 3 1,254 25.09% 5,872 73.46% 7,126 54.84% ECL Total 3,202 35.07% 10,138 91.28% 13,340 70.10%

ECL / EAD (%) Individual Non-Individual Total Stage 1 0.26% 0.45% 0.30% Stage 2 9.73% 17.37% 14.96% Stage 3 25.09% 73.46% 54.84% ECL / EAD 0.82% 7.83% 2.56%


Table 5: SoTP-based target price


Subsidiary/Associate/JV % stake Basis Multiple/TP

/CMP Total valuation

(Rs mn) Per share value (Rs)

HDFC Bank 19.2% Target Price 1955.0 15,52,143 860 HDFC Standard Life 50.0% Target Price 806.0 6,09,783 338 HDFC ERGO General Insurance 50.5% Book Value 3.0 29,582 16 HDFC AMC 52.7% Market value 2730.0 2,29,176 127 HDFC Venture Capital 80.5% AUM 10.0% 884 0 Bandhan Bank 9.9% Target Price basis 390 46,574 26 Value of subs (post holdco discount)

1,368

Core Mortgage Business

Book Value 3.5 39,38,039 2,182 Total SOTP Valuation (Rs) 64,06,181 3,550


5

Q2FY22 Conference Call Takeaways

Macro trends

Business during Q1 was disrupted due to covid second wave. Sharp recovery in business from June onwards

The demand for home loans continues to remain strong. The increasing sales momentum and new project launches augurs well for the housing sector. Interest rates have been stable

Inflation trajectory is within RBI guidance

Asset quality, CE & credit cost

CE at 98% for individual loans in Q2 (cumulative including arrears). CE (pre-covid) also was around 98%. CE at 98% is considered fairly satisfactory.

Stage-3 assets came off 10bps QoQ to 2.5%; similarly stage-2 moderated to 6.2% (vs 6.6%).

For individual segment, Stage-3 assets contracted 30bps QoQ to 1.3%, stage-2 was sticky at 2.6%.

For non-individual segment, stage-3 went up 40bps to 6.2% and stage-2 at 17% (vs 19%).

It carries provisioning of 0.83% (0.75%) on individual loans and 7.83% (vs 8.35%) on non-individual loans. Cumulatively provisions are 2.56% (vs 2.64%) on overall stress pool (stage-2 at 6.2% and stage-3 at 2.5%.

Asset quality has improved significantly during Q2 for individual loans.

Loans disbursed under Emergency Credit Line Guarantee Scheme (ECLGS) stood at Rs 17.38bn

Cumulative covid provision at Rs 13.04bn (no plans to reverse the same in near-term)

Going ahead, company would see further decline in credit cost over the next 2-3 years

Individual NPA 1.1% and Non-Individual NPA at 4.69%

Restructuring

Restructuring at 1.4% of loan book (OTR 1 is 0.9%)

Restructuring break-up: 63% individual and 37% non-individual (Of total restructuring, 35% is in respect of one non individual account)

Maximum extension of tenure under restructuring is as per regulations

All restructured loans are classified under Stage 2


6

Disbursements

Q2FY22 Individual disbursements were up 48% QoQ/44% YoY. Individual disbursements in the month of October 21 were the highest ever in a non-quarter end month.

During H1FY22, individual approvals and disbursements grew by 67% YoY and 80% YoY respectively. Growth in home loans was seen in both, the affordable housing segment as well as in high end properties. The increasing sales momentum and new project launches augurs well for the housing sector.

89% of new loan applications were received through digital channels.

30% of home loans approved in volume terms and 14% in value terms have been to customers from the Economically Weaker Section (EWS) and Low Income Group (LIG).

75% incremental growth in loan book in Q2 was towards individual loans while rest was non-individual. Among non-individual, it was largely LRD

LRD is seeing stiff competition and has thinner margins compared to individual or non-individual. However, asset quality in LRD is also quite superior compared to other loans

96% of incremental growth in loan book during H1FY22 is towards individuals while 4% is non individuals

Pick-up in non-individual loan book largely due to LRD, though it is still down YoY

Thrust on affordable housing continues with 60% of home loans (in volume) and 14% (in value) were to EWS/LIG segment

Average ticket size for home loan in EWS segment at Rs 1.11mn and in LIG at Rs 1.94mn

Construction finance space - saw nearly 3 years of slowdown largely due to no launch of new projects. But in the past 12 months, huge demand from customers looking to buy property has resulted in developers launching new projects. A lot of demand is showing up in Tier 2 cities especially in Gujarat. With this momentum building up, there would be growth visible in individual as well as developer loans.

Loan book

Loan book break-up: Individual 78%, Construction finance 9%, LRD 8% and Corporate 5%

Penetration level in India is quite low at 11% (emerging markets is ~25%) which provides ample scope for all players to grow and expand

Incremental growth in loan book is Salaried towards 79% and Self-employed is 21%

Prepayments at 9.6% (annualised) of opening loan book for H1FY22

As per historical average, total prepayments done during the year is 10-12% of the opening balance


7

Margins and spreads

Margins at 3.6% were impacted due to negative carry of excess liquidity

Spread at 2.29% (individual 1.93% and non-individual 3.37%

All the players in the market are managing their spreads and margins well

Liability profile

Always raising money which is the cheapest source of funds for the company

Of the Incremental borrowings in H1FY22, 36% is from bank loans and 53% is via deposits

Investments in group companies at Rs200bn (no incremental addition during the quarter)

Of the total Rs 1.11tn, 84% of borrowings are linked to external benchmark

Miscellaneous

Dividend income of Rs 11.71bn from group companies

Charge in P&L on account of stock options: Rs 2.68bn vs. RS 0.47bn YoY

Investment in Bandhan Bank is a financial investment and there are certain investments which the company has been holding since years

Q1FY22 Conference Call Takeaways

Asset quality

Individual NPAs increased due to slippages on account of the impact of the second wave of the pandemic. Collection efforts were hindered due to the recovery teams being unable to do field visits during the lockdown period. Provision coverage on Stage 2 - 18% and coverage on Stage 3 - 47%.

Confident that as situation normalizes, credit cost would see a significant reduction in coming years

Stage-3 assets similarly increased 30bps QoQ 2.6%; stage-2 similarly increased to 6.6%.

For individual segment, Stage-3 assets similarly increased 40bps QoQ 1.6%; stage-2 similarly to 2.5 (from 2.0%).

For non-individual segment, stage-3 was steady at 5.8% and stage-2 at 19%.

It carries provisioning of 0.75% on individual loans and 8.35% on non-individual loans. Cumulatively provisions are 2.64% on overall stress pool

The collection efficiency for individual loans on a cumulative basis in June 2021 stood at 98.3% compared to 98.0% in March 2021


8

July collection efficiency was strong at 98.3%

Credit cost was 50bps, of which 13bps was on account of additional covid provision fo Rs1.73bn

Rs10.17bn provision is covid-related as of Q1FY22 (which is included under ECL)

There were quite a few resolution in non-individual which resulted in lower Stage 2 as well as Stage 3 for non-individual book

Total write-offs for Q1FY22 at ~Rs5.3bn (principal value) which is almost non-individual

Total provisions carried by the company at Rs 131.89bn which is 128% higher than Rs 57.78bn that is required as per regulator

Restructuring & ECLGS

As at June 30, 2021, Rs 44.82bn (OTR 1.0 Rs37bn + OTR 2.0 Rs7bn) has been restructured or request received under the RBI’s Resolution Framework for COVID-19 Related Stress. This is equivalent to 0.9% of the loan book. Of the loans restructured, 38% are individual loans and 62% non-individual loans. Of the total restructured loans, 62% is in respect of just one account. There is only one large non-individual account under restructuring.

Request received under OTR 2.0- Rs 7.78bn (15bp of loanbook)

All restructured loans are classified under Stage 2

ECLGS disbursements Rs14.55bn (from sanction of Rs25.09) until Q1FY22 under ECLGS 1.0 & 2.0.

Rs2.66bn under ECLGS 3.0 which is 5bps of loanbook

AUM & Disbursements

Disbursements in July were 14% higher MoM and June disbursements were 70% higher MoM

July 2021 disbursements were up 64% higher YoY

Sharp pick up in disbursements in the month of July 21, which was the highest ever in a non-quarter month

Individual loan disbursements grew 181% YoY. Growth in home loans was seen in both, the affordable housing segment and high-end properties. There was a preference for ready to move in properties compared to under construction properties.

22% growth in individual loans (after adding back loans sold in the preceding 12 months)

Disbursements between April to July 2021 i.e. four months were 108% of the disbursement levels achieved during the first six months of the previous year

33% of home loans and 14% in value terms were to customers from EWS & LIG customers wherein ATS was Rs 1.11mn for EWS category and Rs 1.93mn for LIG category


9

Loan book composition: Individual 78% vs 74% YoY, Construction finance 10%, LRD 6% and corporate loans 6%

Overall portfolio ATS stands at Rs 3.09mn

During the quarter ended June 30, 2021, 88% of new loan applications were received through digital channels.

Disbursements during April and May of the current financial year were somewhat impacted, business has reverted to normalised trends in the months of June and July.

July 2021 disbursements were the highest ever in a non-quarter end month.

LRD book will grow well and company has healthy pipeline of LRD as of now

Individual disbursements: Rs 125.81bn for July 2021, March at Rs 160bn and February was lower than July 2021

Disbursements: Q1FY22 – Rs 255.18bn and Q1FY21 – Rs 95.74bn

~81% of new customers are salaried, while 19% are self-employed in individual segment for Q1FY22

Rs 3.09mn ATS in Q1FY22

Out of the new business during the quarter, 37% business from West and 4% from East

Loan book composition: New 56%, Resale 36% and self-construction 8%

NIMs and spreads steady

Spreads at 2.29%; Net Interest Margin at 3.7%

Lower cost of funds is aiding margins

Spreads on the individual loan book was 1.93% and on the non-individual book was 3.32% (3.22%).

Sourcing mix

HDFC Sales - 53%, HDFC Bank - 30% and third party - 17%

83% of loans sourced directly or via its associates

Investments in HDFC group companies

Continue to hold all investments in HDFC group companies

Unrealised gain between market price and carrying cost was Rs 2.61tn

Miscellaneous

Expect a sharp cut in tax rate in H2FY21 due to higher dividends

Stand committed to ESG parameters

Covid second wave was severe in terms of health and mortality, but damage to economy was less severe than Q1FY21

85% of employees have received at least one dose of vaccine


10

No ongoing discussion with HDFC Bank on reverse merger

Company goes back up to 12 years to get the title history of the property, if required

There is no NW adjustments other than ESOP allotment and premium received on ESOP

Indiabulls partnership is yet to begin and company is also in the process of getting into tie-up with others as well.


11

Chart 1: Credit cost lower QoQ as non-individual stress pool steady

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Chart 2: Stress pool moderates a tad; stage-2 appears sticky due to restructuring

1.41 1.50 1.57 1.59

2.28 2.20 2.19 2.28 2.342.60 2.50

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Source: Company data, I-Sec research Note: Mar-18 onwards, numbers are under IND-AS

Chart 3: Adequately covered given the collateralised nature of lending

43.5 39.8

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Chart 4: Individual loan growth momentum strong with 16% YoY growth; moderation seen in non-individual book

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Chart 5: Individual AUM growing in double digit

3,441 3,568 3,706 3,824 3,918 3,940 4,042 4,202 4,404 4,497 4,677

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Chart 6: Among non-individual loans, LRD is showing improved traction

1,1781,191

1,1221,230 1,250

1,372 1,361 1,320 1,295 1,245 1,296

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Developer AUM YoY growth (RHS)



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Chart 7: Spreads stable across quarters

2.30 2.25 2.26 2.27 2.27

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Chart 8: Unwinding of liquidity will support NIMs

3.3 3.3 3.2 3.3 3.43.1

3.3 3.4 3.53.7 3.6

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NIM - Reported


Chart 9: Regular sell-downs to HDFC Bank continues

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11.411.611.812.012.212.412.612.813.013.213.4

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Off book AUM (%)



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Chart 10: Mix largely stable over the past few quarters

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0102030405060708090

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Deposits Term Loans Bonds & debentures


Chart 11: Opex as % of AUM well contained

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Chart 12: Cost-to-income ratio range-bound

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Chart 13: Capital adequacy healthy at 22%

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Financial summary Table 6: Profit and Loss statement (Rs mn, year ending March 31)

FY19 FY20 FY21 FY22E FY23E Interest earned 3,92,402 4,37,493 4,35,847 4,46,676 5,20,313 Interest expended 2,78,377 3,10,014 2,86,148 2,71,814 3,18,336 Net interest income 1,14,026 1,27,480 1,49,700 1,74,862 2,01,977 Other income 41,378 1,50,140 45,911 49,724 59,295 Operating expenses 5,457 5,455 7,251 8,217 9,176 Employee costs 5,054 5,793 9,141 11,931 8,884 Depreciation 665 1,477 1,588 1,564 1,727 Pre-provisioning op profit 1,40,538 2,64,894 1,77,631 2,02,873 2,41,485 Provisions & contingencies 9,350 59,131 29,480 26,294 30,198 Profit before tax 1,31,188 2,05,763 1,48,151 1,76,579 2,11,287 Income taxes 34,863 25,813 27,878 36,109 42,257 Net profit 96,325 1,79,951 1,20,273 1,40,470 1,69,029


Table 7: Balance sheet (Rs mn, year ending March 31)

FY19 FY20 FY21 FY22E FY23E Share Capital 3,443 3,464 3,608 3,616 3,616 ESOPs Reserves and surplus 7,70,112 8,58,117 10,84,219 11,87,218 13,56,248 Minority Interest Borrowings 36,52,660 41,91,020 44,13,650 51,09,230 58,85,826 Current liabilities & provisions 1,61,561 1,88,335 1,74,509 2,10,261 2,39,937 Total liabilities & stockholders' equity 45,87,776 52,40,936 56,75,986 65,10,326 74,85,627 Loans & advances 40,07,600 43,99,430 48,52,940 56,37,551 65,45,790 Fixed assets 6,442 9,861 9,864 11,242 13,665 Investments 4,65,617 6,49,444 6,86,368 7,23,126 7,82,735 Cash and Balance 15,963 34,257 11,448 29,289 23,856 Current assets 83,845 1,32,265 98,813 94,277 1,12,134 Deferred tax assets 8,309 15,679 16,553 14,842 7,447 Total assets 45,87,776 52,40,936 56,75,986 65,10,326 74,85,627



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Table 8: Key ratios (Year ending March 31)

FY19 FY20 FY21 FY22E FY23E Growth: AUM 14.7 11.9 10.3 13.6 16.4 Net Interest Income 18.5 11.8 17.4 16.8 15.5 Total Non-Interest Expenses -22.0 -14.4 41.3 20.8 -8.9 Pre provisioning operating profits -8.2 88.5 -32.9 14.2 19.0 PAT -12.1 86.8 -33.2 16.8 20.3 EPS -16.9 85.7 -35.8 16.5 20.3 Yields, interest costs and spreads (%) NIM on AUM 3.01 3.03 3.24 3.33 3.32 Yield on loan assets 9.85 9.91 9.00 8.07 8.13 Average cost of funds 8.13 7.90 6.65 5.71 5.79 Interest Spread on loan assets 1.72 2.00 2.35 2.36 2.34 Operating efficiencies Non-interest income as % of total income 9.5 25.5 9.5 10.0 10.2 Cost to income ratio (%) 13.0 10.0 12.0 12.4 9.8 Op.costs/avg AUM (%) 0.3 0.3 0.3 0.4 0.3 No. of employees (estimate) 2,745 2,915 3,085 3,255 3,425 No. of branches 341 356 371 386 401 Average annual salary (Rs) 18,41,275 19,87,238 29,63,079 36,65,490 25,93,920 Annual inflation in average salary(%) 11.4 7.9 49.1 23.7 -29.2 Salaries as % of non-int.costs (%) 34.0 45.5 50.8 54.9 44.9 NII /employee (Rs mn) 4,154 4,373 4,853 5,372 5,897 AUM/employee(Rs mn) 1,683 1,773 1,847 1,989 2,200 AUM/ branch (Rs mn) 13,546 14,516 15,361 16,771 18,787 Capital Structure Debt-Equity ratio 4.7 4.9 4.1 4.3 4.3 Leverage (x) 5.9 6.1 5.2 5.5 5.5 CAR (%) -standalone 19.2 17.7 22.2 21.6 21.2

Tier 1 CAR (%) -standalone 17.6 16.6 21.5 20.4 20.0 Tier 2 CAR (%) - standalone 1.6 1.1 0.7 1.2 1.2 Asset quality and provisioning GNPA (%) 1.4 2.3 2.3 3.3 2.2 NNPA (% ) 0.8 1.2 1.1 1.7 1.2 GNPA 57,430 1,02,730 1,16,320 1,86,039 1,44,007 NNPA 32,440 53,810 55,750 98,601 79,204 Coverage ratio (%) 43.5 47.6 52.1 47.0 45.0 Return ratios & capital management RoAA (%) 2.2 3.7 2.2 2.3 2.4 RoAE (%) 13.5 22.0 12.3 12.3 13.3 Payout ratio (%) 33.3 12.5 20.2 25.3 26.7 Valuation Ratios EPS (Rs) 42.5 40.5 53.0 60.3 72.3 EPS (core business) (Rs) 67.9 71.3 54.5 47.9 39.9 Price to Earnings (adj) 35.8 37.5 28.7 25.2 21.0 BVPS (Rs) 449.4 497.4 603.0 658.6 752.1 BVPS (core business) (Rs) 338.3 387.1 486.5 530.7 611.3 Price to Book (adj) 4.5 3.9 3.1 2.9 2.5 Dividend yield (%) 0.7 0.8 0.5 0.7 0.9



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Table 9: DuPont analysis (Rs mn, year ending March 31)

FY19 FY20 FY21 FY22E FY23E Interest earned 10.4 10.4 9.4 8.5 8.5 Interest expended 7.3 7.4 6.2 5.2 5.2 Gross Interest Spread 3.0 3.0 3.2 3.3 3.3 Provisioning for NPAs 0.2 1.4 0.6 0.5 0.5 Net Interest Spread 2.8 1.6 2.6 2.8 2.8 Operating cost 0.4 0.3 0.4 0.4 0.3 Lending spread 2.4 1.3 2.2 2.4 2.5 Non-interest income 1.1 3.6 1.0 0.9 1.0 Operating spread 3.5 4.9 3.2 3.4 3.5 Tax 0.9 0.6 0.6 0.7 0.7 Return on average loan assets 2.5 4.3 2.6 2.7 2.8 Effective leverage (average loan assets/ average equity)(x) 5.3 5.1 4.7 4.6 4.8 RoAE 13.5 22.0 12.3 12.3 13.3



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New I-Sec investment ratings (all ratings based on absolute return; All ratings and target price refers to 12-month performance horizon, unless mentioned otherwise) BUY: >15% return; ADD: 5% to 15% return; HOLD: Negative 5% to Positive 5% return; REDUCE: Negative 5% to Negative 15% return; SELL: < negative 15% return

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