canfin homes absolute :reduce relative :...

July 22, 2017 Analyst: Rohan Mandora [email protected] (+91-9737065666) / Ankit Choudhary [email protected] of 13

Before reading this report, you must refer to the disclaimer on the last page.

CanFin Homes Absolute :REDUCE

Relative : Benchmark

1QFY18 Result: Estimates (), Target (), Rating () Regular Coverage -9.9% ATR in 14 months

NIMs, fresh approvals to face competitive headwinds; retain REDUCE on rich valuations BFSI

© 2017EquirusAll rights reserved

Rating Information

Price (Rs) 3,145

Target Price (Rs) 2,770

Target Date 30th Sep ‘18

Target Set On 22nd July ‘17

Implied yrs of growth (ERE) 20

Fair Value (ERE) 2,770

Fair Value (DDM) NA

Ind Benchmark BANKEX

Model Portfolio Position -

Stock Information

Market Cap (Rs Mn) 83,719

Free Float (%) 69.43 %

52 Wk H/L (Rs) 3333/1231

Avg Daily Volume (1yr) 107,192

Avg Daily Value (1yr) 220

Equity Cap (Rs Mn) 266

Face Value (Rs) 10

Bloomberg Code CANF IN

Ownership Recent 3M 12M %

Promoters 30.7 % 0.1 % -12.8 %

DII 1.6 % 0.7 % 1.0 %

FII 0.2 % -0.2 % -0.1 %

Public 67.6 % -0.6 % 11.8 %

Price % 1M% 3M% 12M%

Absolute -3.5 % 23.3 % 147.4 %

Vs Industry -6.2 % 10.8 % 118.6 %

GICHSGFIN -8.0 % 13.3 % 78.6 %

REPCOHOME -9.3 % 4.0 % -3.7 %

Consolidated Quarterly EPS forecast

Rs/Share 1Q 2Q 3Q 4Q

EPS (17A) 18.7 20.7 22.4 26.6

EPS (18E) 26.8 28.3 29.4 30.7

CanFin Homes (CANF) reported an above-expected 1QFY18 PAT of Rs 712mn (+43.2%

yoy) and a marginal deterioration in asset quality (GNPL ratio: 0.4%). With home

buyers awaiting RERA implementation, fresh approvals were weak at Rs 11.9bn (-0.4%

yoy/-14.8% qoq). While management has guided for FY18 loan book growth of ~28%

yoy, we expect it to be much lower at ~22% as builders are delaying new scheme

launches with RERA yet to be fully implemented across states; also, prepayments via

balance transfer of loans to other FIs remains a concern. We thus cut our FY18/FY19

loan book growth estimates by 5%/8% and lower our C/I ratio assumptions. Retain

REDUCE with a Sep’18 TP of Rs 2,770 (Rs 2,693 earlier) that corresponds to a 5.1x/4.5x

Sep’18/Mar’19 ABV of Rs 548/Rs 612. Loan book grows 23% yoy, approvals slid 0.4% yoy: CANF’s loan book/disbursements

increased 23.5%/9.6% yoy. Fresh approvals however remained subdued at Rs 11.9bn

(-0.4% yoy) with home buyers awaiting clarity on RERA and expecting better deals post

its implementation. The share of salaried & professionals in O/S loans declined to

74.6% vs. 75.3% in 4QFY17. Share of housing loans stayed robust at 88.7% vs. 88.2% in

4QFY17 as housing loans comprised ~90% of fresh approvals in 1Q. As CANF has ~85-90%

of new approvals towards new property purchases, delay in RERA implementation

leading to deferment of new project launches could adversely affect loan growth.

Consequently, we lower our FY18/FY19 loan book growth estimates to ~22%/24%. NIM expansion drives up NII by 34% yoy: NII increased by 34% yoy driven by NIM

expansion to 3.65%. Interest spreads improved to 2.75% vs. 2.61% in 4QFY17. Average

cost of borrowings declined 51bps qoq to 7.84% while the average yield on assets

moderated by 37bps qoq to 10.59%. CANF has started CIBIL and repayment track

record-based annual risk rating of home loan borrowers, based on which their interest

rates will be reset annually. The C/I ratio improved to 14.9% on contained 11.5% yoy

opex growth; we expect similar trends ahead and build in a C/I ratio of 15% for FY18E. Asset quality deteriorates marginally: CANF’s GNPL/ NNPL ratio rose to 0.38%/0.17%

from 0.21%/0% in 4QFY17. The company has marked 188 accounts worth Rs 295mn for

recovery. Given CANF’s safe loan mix comprising only 6% in LAP and builder loans, we

believe asset quality will remain robust, going ahead. Valuations limit upside; lower approvals/loan growth, NIM compression remain key

risks: CANF currently trades at rich valuations of 5.1x FY19 ABV/23.1x FY19 EPS, which

offer limited upside from current levels. Margin pressure due to competition from

banks and a slowdown in fresh sanctions/disbursements remain key risks. Consequently

we retain REDUCE with a Sep’18 TP of Rs 2,770 (Rs 2,693 earlier).

Revised Estimates % Change

FY18E FY19E FY18E FY19E

NII 5,324 6,337 -1.9% -9.2%

Provisions 260 350 -10.8% -6.7%

PAT 3,066 3,623 2.8% -5.9%

EPS 115 136 2.8% -5.9%

Advances 162,136 200,849 -4.9% -7.5%

Borrowings 144,487 179,830 -2.7% -4.1%

Standalone Financials

Rs. Mn YE Mar FY17A FY18E FY19E FY20E

Interest Income 13,061 15,157 18,308 22,287

Interest Expense 8,840 9,833 11,971 14,604

Net Interest Inc. 4,221 5,324 6,337 7,683

Other Income 470 616 792 951

Operating Exp 807 890 1,117 1,341

Provisions 182 260 350 442

PAT 2,353 3,066 3,623 4,385

Loan and Advance 133,130 162,136 200,849 241,018

Borrowings 118,720 144,487 179,830 215,796

Investments 161 89 93 107

NIM 3.5 % 3.6 % 3.5 % 3.5 %

Prov/ Avg Adv 0.14 % 0.22 % 0.22 % 0.22 %

Rs Per Share FY17A FY18E FY19E FY20E

EPS 88.4 115.2 136.1 164.7

Adjusted EPS 88.4 115.2 136.1 164.7

Book Value 404.3 493.0 612.3 757.7

Adjusted BVPS 404.3 493.0 612.3 757.7

DPS 10.0 12.0 14.0 16.0

P/E (x) 35.6 27.3 23.1 19.1

Adj P/B (x) 7.8 6.4 5.1 4.2

Adj ROE (%) 24.1 % 25.7 % 24.6 % 24.0 %

RoA (%) 1.9 % 2.1 % 2.0 % 2.0 %

mailto:[email protected]


Canfin Homes Absolute – REDUCE Relative – Benchmark -9.9% ATR in 14 Months

July 22, 2017 Analyst: Rohan Mandora [email protected] (+91-9737065666)/ / Ankit Choudhary [email protected] of 13

Quarterly performance

Particulars

%Variation (Rs. mn) 1QFY18 1QFY18E 1QFY17 4QFY17 1QFY18E 1QFY17 4QFY17 Net interest income (NII) 1,234 1,120 919 1,189 10.1% 34.3% 3.8% Other income 122 122 103 157 0.2% 18.3% -22.0% Total income 1,356 1,242 1,022 1,345 9.2% 32.7% 0.8% Operating expenses 203 207 182 233 -2.0% 11.5% -13.2%

Staff expenses 103 115 94 96 -10.0% 10.2% 7.6% Other expenses 99 92 88 137 7.9% 12.8% -27.6%

Operating profit 1,153 1,035 840 1,112 11.4% 37.3% 3.7% Total provisions 42 79 55 7 -47.7% -24.5% 484.5% Profit before tax 1,112 956 785 1,105 16.3% 41.6% 0.6% Tax 400 344 288 396 16.1% 38.8% 0.9% Profit after tax 712 612 497 709 16.4% 43.2% 0.5%

Balance sheet (Rs. mn) 1QFY18 1QFY18E 1QFY17 4QFY17 % change vs. Est. % change yoy % change qoq Advances 138,080 133,226 111,830 133,130 3.6% 23.5% 3.7% Gross NPL (Rs mn) 523

272 280

92.5% 86.8%

Net NPL (Rs mn) 234

44 -

430.4% -




July 22, 2017 Analyst: Rohan Mandora [email protected] (+91-9737065666)/ / Ankit Choudhary [email protected] of 13

Ratios (%) 1QFY18 1QFY18E 1QFY17 4QFY17

bp change y-y bp change q-q Profitability ratios

Yield on Advances – Cal 10.49%

11.0% 10.6%

-47 -12

Cost of Borrowing 7.84%

8.6% 8.4%

-76 -51 NIM – Cal 3.6%

3.3% 3.6%

28 -1

RoaA 2.1%

1.8% 2.2%

28 -7 RoaE 25.5% 21.7% 21.9% 388 368

Asset Quality

Gross NPL ratio 0.38%

0.2% 0.2%

14 17 Net NPL ratio 0.17%

0.0% 0.0%

13 17

Coverage ratio (reported) 55.3%

83.8% 100.0%

-2,849 -4,472 Business & Other Ratios

Cost-income ratio - Calc 14.9% 17.8% 17.3% -284 -240 Non int. inc / total income 9.0%

10.1% 11.6%

-110 -263

CAR 19.2% 19.5% 18.5% -36 67

Source: Company, Equirus Securities




July 22, 2017Analyst: Rohan Mandora [email protected] (+91-9737065666)/ / Ankit Choudhary [email protected] 4 of 13

Exhibit 1: Advance growth slows to 23% yoy on muted approvals and disbursements

Source: Company, Equirus Securities Exhibit 2: The housing: non-housing loan mix stands at ~89%:11%

Source: Company, Equirus Securities Exhibit 3: Asset quality sees marginal increase with PCR falling to ~55% levels


Exhibit 4: C/I ratio improves further from 17.35% to less than 15%

Source: Company, Equirus Securities Exhibit 5: NIM expansion driven by faster re-pricing of liabilities

Source: Company, Equirus Securities Exhibit 6: Share of market borrowing increases from to 52% to 44% in 1QFY17


0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

0

50

100

150

1Q

FY15

2Q

FY15

3Q

FY15

4Q

FY15

1Q

FY16

2Q

FY16

3Q

FY16

4Q

FY16

1Q

FY17

2Q

FY17

3Q

FY17

4Q

FY17

1Q

FY18

Rs 000' Advances YoY Growth

0%

20%

40%

60%

80%

100%

4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18

Housing Loans Non-Housing Loans

0.0%

25.0%

50.0%

75.0%

100.0%

0.00%

0.10%

0.20%

0.30%

0.40%

2Q

FY15

3Q

FY15

4Q

FY15

1Q

FY16

2Q

FY16

3Q

FY16

4Q

FY16

1Q

FY17

2Q

FY17

3Q

FY17

4Q

FY17

1Q

FY18

GNPA NNPA Provision Coverage

10%

15%

20%

25%

30%

35%

40%

1Q

FY15

2Q

FY15

3Q

FY15

4Q

FY15

1Q

FY16

2Q

FY16

3Q

FY16

4Q

FY16

1Q

FY17

2Q

FY17

3Q

FY17

4Q

FY17

1Q

FY18

2.0%

2.5%

3.0%

3.5%

4.0%

6.0%

8.0%

10.0%

12.0%


Average Yield on Assets Average Cost of Borrowing NIM - RHS

19.0%

27.0%

2.0%

52.0%

Banks NHB DEP Market Borrowings




Exhibit 7: Weak growth in 1QFY18 disbursements and approvals

Particulars (Rs Mn) 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18

Loan Book 63,550 70,370 76,340 82,370 87,170 93,030 98,950 106,430 111,830 119,800 126,880 133,130 138,080

QoQ Growth

10.7% 8.5% 7.9% 5.8% 6.7% 6.4% 7.6% 5.1% 7.1% 5.9% 4.9% 3.7%

YoY Growth

37.2% 32.2% 29.6% 29.2% 28.3% 28.8% 28.2% 25.1% 23.5%

Approvals 8,000 10,470 9,120 9,110 8,730 10,990 10,860 13,600 11,910 15,170 13,510 13,920 11,860

QoQ Growth

30.9% -12.9% -0.1% -4.2% 25.9% -1.2% 25.2% -12.4% 27.4% -10.9% 3.0% -14.8%

YoY Growth

9.1% 5.0% 19.1% 49.3% 36.4% 38.0% 24.4% 2.4% -0.4%

Disbursements 7,120 9,050 8,530 8,760 8,070 9,490 9,680 11,980 10,520 12,990 12,070 12,340 11,530

QoQ Growth

27.1% -5.7% 2.7% -7.9% 17.6% 2.0% 23.8% -12.2% 23.5% -7.1% 2.2% -6.6%

YoY Growth

13.3% 4.9% 13.5% 36.8% 30.4% 36.9% 24.7% 3.0% 9.6%

Repayment 2,010 2,230 2,560 2,730 3,270 3,630 3,760 4,500 5,120 5,020 4,990 6,090 6,580

Repayment/Opening Loans

3.5% 3.6% 3.6% 4.0% 4.2% 4.0% 4.5% 4.8% 4.5% 4.2% 4.8% 4.9% 12m rolling Approvals/Avg

Loans 52.1% 49.7% 46.5% 45.3% 46.8% 47.6% 48.4% 48.0% 45.5% 43.6%

12 m rolling

Repayment/Avg Loans 13.5% 14.3% 14.9% 15.3% 16.1% 17.1% 17.3% 17.4% 17.7% 18.2%


Exhibit 8: Share of salaried & professional class in O/S loans declines further to ~75%


Salaried & Professionals 84.4% 83.6% 82.8% 81.7% 80.4% 79.2% 77.8% 76.7% 75.3% 74.6%

Non Salaried Class - Self Employed & Non Professionals 15.1% 15.9% 16.7% 17.8% 19.1% 20.5% 21.9% 23.0% 24.4% 25.1%

Builders Loans 0.3% 0.3% 0.3% 0.3% 0.3% 0.2% 0.2% 0.2% 0.1% 0.1%

Staff Loans 0.2% 0.2% 0.1% 0.2% 0.1% 0.1% 0.2% 0.1% 0.1% 0.1%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Source: Company, Equirus Securities




Concall takeaways Business update

Incremental approvals have been weak as home buyers await RERA

implementation. The company has seen a pick-up in July in states with RERA

implementation.

CANF is seeing intense pricing competition from banks.

Best rates offered by CANF are ~8.5%/~8.25% on specific rural/urban housing

refinance schemes.

The company has started CIBIL and repayment track record-based annual risk

rating of borrowers, based on which borrower interest rates will be reset

annually.

Balance sheet

100% of the book is backed by mortgages with 75% of the business generated

from the salaried class and the remaining from the non-salaried one.

Avg. yields for home loans (HL) are ~10% and non-HL at ~12.5%. There is no

pricing difference for normal HLs and HLs under PMAY-CLSS.

<50% of HL are sourced through DSAs.

About 9-10% of new loans originated are in the self-construction segment with remaining mostly primary (new) sales.

The company has marked 188 accounts amounting to Rs 295mn for recovery.

CANF disbursed ~7,200 loans in 1QFY18.

About 95% of loans sanctioned in 1QFY18 are to individuals with income of

<Rs 1.8mn, of which 53% have an annual income of <Rs 0.6mn.

Branches

CANF has approvals for 11 branches, 10 satellite offices and 30 affordable

housing centers (AHLC) for FY18. The company opened 5 branches, 4 satellite

centers and 12 AHLCs during 1QFY18.

Guidance

CANF’s loan book growth is in line with its vision of achieving a figure of

Rs 350bn by 2020.

The company plans to enhance focus on affordable housing with a proper mix of

non-housing segments.

The salaried & professional class would continue to be CANF’s niche segment.

The company plans to come up with a rights issue of up to Rs 10bn by 3QFY18.

Exhibit 9: ROE-ROA Tree Analysis

Particulars FY16A FY17A FY18E FY19E FY20E

Yield on Interest Earning Assets 11.1% 10.9% 10.3% 10.1% 10.1%

Cost of Funds 9.1% 8.3% 7.5% 7.4% 7.4%

Net Interest Margin 3.2% 3.5% 3.6% 3.5% 3.5%

Advances (A) 106,430 133,130 162,136 200,849 241,018

Investments (B) 149 161 89 93 107

Interest Earning Assets (C)(A+B) 106,579 133,291 162,225 200,941 241,125

Average Interest Earning Assets (D) 94,549 119,935 147,758 181,583 221,033

NII/Avg Int Earning Assets 3.2% 3.5% 3.6% 3.5% 3.5%

Non Int Inc/Avg Int Earning Assets 0.4% 0.4% 0.4% 0.4% 0.4%

Total Income/Avg Int Earning Assets 3.6% 3.9% 4.0% 3.9% 3.9%

Op. Costs/Avg Int Earning Assets 0.7% 0.7% 0.6% 0.6% 0.6%

PPI/Avg Int Earning Assets 2.9% 3.2% 3.4% 3.3% 3.3%

Provisions/Avg Int Earning Assets 0.2% 0.2% 0.2% 0.2% 0.2%

Taxes/Avg Int Earning Assets 1.0% 1.1% 1.2% 1.1% 1.1%

Return on Avg Int Earning Assets 1.7% 2.0% 2.1% 2.0% 2.0%

Extraordinary item 0.0% 0.0% 0.0% 0.0% 0.0%

Adj Return on Avg Int Earning Assets 1.7% 2.0% 2.1% 2.0% 2.0%

Productivity (Avg Int Earning Assets/Avg Total Assets) 98.9% 98.9% 99.3% 99.5% 99.5%

Return on Average Total Assets 1.6% 1.9% 2.1% 2.0% 2.0%

Leverage (Average Total Assets/Average Equity) 11.6 12.4 12.5 12.4 12.2

Return on Average Equity 19.0% 24.1% 25.7% 24.6% 24.0% Source: Company, Equirus Sec




Company Snapshot How we differ from Consensus

- Equirus Consensus % Diff Comment

EPS FY18E 115.2 114.2 0.9 %

We believe consensus numbers are yet to

be updated

FY19E 136.1 145.4 -6.4 %

NII +

Other

Inc

FY18E 5,940 7,999 -25.7 %

FY19E 7,129 10,441 -31.7 %

PAT FY18E 3,066 3,056 0.3 %

FY19E 3,623 3,923 -7.6 % Our Key Investment arguments: Loan growth for the company is moderating even as

asset quality remains healthy and C/I ratio contained.

Key Assumptions 2016A 2017A 2018E 2019E 2020E

Yields on Advances (%) 11.1% 10.9% 10.3% 10.1% 10.1%

Cost of Funds (%) 9.1% 8.3% 7.5% 7.4% 7.4%

NIMs (%) 3.2% 3.5% 3.6% 3.5% 3.5%

NII Growth (%) 69.4% 40.3% 26.1% 19.0% 21.2%

PPI Growth (%) 80.1% 42.1% 30.0% 19.0% 21.3%

Provisions Growth (%) 36.2% -6.2% 42.5% 35.0% 26.1%

PAT Growth (%) 82.2% 49.8% 30.3% 18.2% 21.0%

Advances Growth (%) 29.2% 25.1% 21.8% 23.9% 20.0% Key Risks: Margin pressure due to rate competition, and slowdown in fresh sanctions/

disbursements. Key Triggers: Healthy growth in fresh sanctions and disbursements with improving

margins.

Sensitivity to Key Variables % Change % Impact on EPS

Net Interest Income 10 % 17.5 %

Provisioning Costs 10 % -1.0 %

Loans & Advances Growth 10 % 3.6 %

ERoE Valuations & Assumptions

Rf Ke Term. Growth RoE in Terminal Yr

6.8 % 14.0 % 5.0 % 21 %

-

FY18E FY19-22E FY23-27E FY28-37E

PAT Growth

30.3 % 20.3 % 18.1 % 18.4 %

Dividend Payout (%)

10.4 % 14.5 % 13.6 % 13.6 %

BV growth

0.2 0.2 0.2 0.2

RoE (%)

25.7 % 23.1 % 20.9 % 19.7 %

-

Years of strong growth

1 5 10 20

Valuation as on date (Rs)

1,023 1,303 1,623 2,530

Valuation as of 30th Sep’18

1,120 1,427 1,777 2,770

Our target price of Rs. 2,770 implies 20 years of high growth with average RoE of 21.5%,

cost of equity of 14% and terminal growth of 5% on ERoE basis. Company Description:

CANF was incorporated in 1987; Canara Bank owns 30.0% stake in the company. CANF has

a pan-India presence with 120 branches and 50 satellite offices. Four southern states

(Karnataka, Tamil Nadu, Andhra Pradesh and Kerala) constitute ~76% of its loan book.

Comparable valuation Mkt Cap

Rs. Mn.

Price

Target

Target

Date

EPS P/E BPS P/B RoE Div Yield

Company Reco. CMP FY17A FY18E FY19E FY17A FY18E FY19E FY17A FY18E FY17A FY18E FY19E FY17A FY18E

CanFin REDUCE 3,145 83,719 2,770 Sep -18 88.4 115.2 136.1 35.6 27.3 23.1 404.3 6.4 24 % 26 % 25 % 0.3 % 0.4 %

GIC Housing NR 557 29,971 NR NR 23.1 33.0 39.8 24.1 16.9 14.0 135.9 3.5 17 % 17 % 18 % 0.9 % 1.1 %

REPCO Home Fin NR 801 50,109 NR NR 24.0 34.1 43.3 33.3 23.5 18.5 152.7 4.5 17 % 17 % 18 % 0.3 % 0.3 %




Standalone quarterly earnings forecast and key drivers Rs in Mn 1Q17A 2Q17A 3Q17A 4Q17A 1Q18E 2Q18E 3Q18E 4Q18E 1Q19E 2Q19E 3Q19E 4Q19E FY17A FY18E FY19E FY20E

Interest Income 2,993 3,203 3,407 3,458 3,566 3,680 3,855 4,057 4,259 4,450 4,672 4,928 13,061 15,157 18,308 22,287 Interest Expense 2,074 2,193 2,304 2,269 2,332 2,375 2,493 2,633 2,773 2,904 3,056 3,238 8,840 9,833 11,971 14,604

Net Interest Income 919 1,010 1,103 1,189 1,234 1,305 1,361 1,424 1,485 1,546 1,616 1,689 4,221 5,324 6,337 7,683

Non Interest Income 103 121 89 157 122 156 164 173 183 193 202 214 470 616 792 951

Total Income 1,022 1,131 1,193 1,345 1,356 1,461 1,526 1,597 1,669 1,738 1,818 1,904 4,691 5,940 7,129 8,634

Operating and Other Expenses 182 198 194 233 203 215 229 243 257 271 286 302 807 890 1,117 1,341 Staff Cost 94 100 104 96 103 110 118 126 134 142 151 160 394 458 586 704 Other Operating Expenses 88 98 89 137 99 105 111 117 123 129 136 143 413 432 531 637 Pre-Provision Income 840 933 999 1,112 1,153 1,246 1,297 1,354 1,412 1,467 1,532 1,601 3,884 5,049 6,011 7,293 Provisions and Write-offs 55 60 60 7 42 69 72 76 81 85 89 95 182 260 350 442 PBT 785 873 939 1,105 1,112 1,177 1,224 1,277 1,330 1,382 1,442 1,507 3,702 4,790 5,661 6,851 TAX 288 322 343 396 400 424 441 460 479 497 519 542 1,349 1,724 2,038 2,466 Extraordinary 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 PAT 497 551 596 709 712 753 783 817 851 884 923 964 2,353 3,066 3,623 4,385 EPS 19 21 22 27 27 28 29 31 32 33 35 36 88 115 136 165

Key Drivers

YoA 11.0 % 11.1 % 11.0 % 10.6 % 10.5 % 10.4 % 10.4 % 10.3 % 10.3 % 10.2 % 10.2 % 10.1 % 10.9 % 10.3 % 10.1 % 10.1 %

CoF 8.5 % 8.4 % 8.3 % 7.8 % 7.7 % 7.6 % 7.5 % 7.5 % 7.5 % 7.5 % 7.5 % 7.4 % 8.3 % 7.5 % 7.4 % 7.4 %

NIM 3.4 % 3.5 % 3.6 % 3.7 % 3.6 % 3.7 % 3.7 % 3.6 % 3.6 % 3.5 % 3.5 % 3.5 % 3.5 % 3.6 % 3.5 % 3.5 %

C/I Ratio 17.8 % 17.5 % 16.2 % 17.3 % 14.9 % 14.7 % 15.0 % 15.2 % 15.4 % 15.6 % 15.8 % 15.9 % 17.2 % 15.0 % 15.7 % 15.5 % CD Ratio 112.0 % 111.1 % 111.5 % 112.1 % 112.5 % 112.5 % 112.5 % 112.2 % 112.2 % 112.2 % 112.2 % 111.7 % 112.1 % 112.2 % 111.7 % 111.7 %

Non-Interest Income/ Total Income 10.1 % 10.7 % 7.5 % 11.6 % 9.0 % 10.7 % 10.8 % 10.8 % 11.0 % 11.1 % 11.1 % 11.2 % 10.0 % 10.4 % 11.1 % 11.0 %

ROA 1.8 % 1.9 % 1.9 % 2.2 % 2.1 % 2.1 % 2.1 % 2.1 % 2.0 % 2.0 % 2.0 % 2.0 % 1.9 % 2.1 % 2.0 % 2.0 %

ROE 22.1 % 23.4 % 24.1 % 27.1 % 26.0 % 26.1 % 25.5 % 25.3 % 25.1 % 24.5 % 24.1 % 24.0 % 24.1 % 25.7 % 24.6 % 24.0 %

Sequential Growth (%)

NII 6.0 % 9.9 % 9.2 % 7.7 % 3.8 % 5.8 % 4.3 % 4.6 % 4.3 % 4.1 % 4.6 % 4.5 %

TI 3.7 % 10.6 % 5.5 % 12.8 % 0.8 % 7.7 % 4.4 % 4.7 % 4.5 % 4.2 % 4.6 % 4.7 % PPI 3.9 % 11.0 % 7.1 % 11.3 % 3.7 % 8.0 % 4.1 % 4.4 % 4.3 % 3.9 % 4.4 % 4.5 %

Provisions and Write-offs 290.1 % 9.1 % 0.0 % -88.2 % 484.5 % 66.4 % 5.0 % 5.5 % 6.0 % 5.0 % 5.0 % 6.0 %

PAT 4.8 % 10.7 % 8.2 % 18.9 % 0.5 % 5.7 % 4.0 % 4.3 % 4.2 % 3.8 % 4.4 % 4.4 %

EPS 4.8 % 10.7 % 8.2 % 18.9 % 0.5 % 5.7 % 4.0 % 4.3 % 4.2 % 3.8 % 4.4 % 4.4 %

Advances 5.1 % 7.1 % 5.9 % 4.9 % 3.7 % 5.0 % 5.5 % 6.0 % 5.0 % 5.0 % 6.0 % 6.0 %

Borrowings 5.4 % 7.9 % 5.6 % 4.3 % 3.4 % 5.0 % 5.5 % 6.3 % 5.0 % 5.0 % 6.0 % 6.5 %

Total Business 5.2 % 7.5 % 5.8 % 4.6 % 3.6 % 5.0 % 5.5 % 6.1 % 5.0 % 5.0 % 6.0 % 6.2 % Yearly Growth (%)

NII 43.5 % 42.4 % 39.1 % 37.1 % 34.3 % 29.2 % 23.4 % 19.8 % 20.4 % 18.5 % 18.7 % 18.7 % 40.2 % 26.1 % 19.0 % 21.2 %

TI 46.4 % 41.2 % 30.3 % 36.5 % 32.7 % 29.2 % 27.9 % 18.7 % 23.1 % 19.0 % 19.2 % 19.2 % 37.9 % 26.6 % 20.0 % 21.1 %

PPI 55.0 % 46.8 % 33.8 % 37.6 % 37.3 % 33.5 % 29.8 % 21.7 % 22.4 % 17.8 % 18.1 % 18.3 % 42.1 % 30.0 % 19.0 % 21.3 %

Provisions and Write-offs 57.1 % -20.0 % -14.3 % -49.6 % -24.5 % 15.1 % 20.8 % 977.2 % 95.3 % 23.3 % 23.3 % 23.9 % -6.2 % 42.5 % 35.0 % 26.1 %

PAT 54.9 % 55.7 % 41.3 % 49.4 % 43.2 % 36.8 % 31.4 % 15.3 % 19.6 % 17.4 % 17.8 % 17.9 % 49.8 % 30.3 % 18.2 % 21.0 % EPS 54.9 % 55.7 % 41.3 % 49.4 % 43.2 % 36.8 % 31.5 % 15.3 % 19.6 % 17.4 % 17.8 % 17.9 % 49.7 % 30.3 % 18.2 % 21.0 %

Advances 28.3 % 28.8 % 28.2 % 25.1 % 23.5 % 21.0 % 20.6 % 21.8 % 23.3 % 23.3 % 23.9 % 23.9 % 25.1 % 21.8 % 23.9 % 20.0 %

Borrowings 29.1 % 29.0 % 29.4 % 25.3 % 22.9 % 19.6 % 19.5 % 21.7 % 23.6 % 23.6 % 24.2 % 24.5 % 25.3 % 21.7 % 24.5 % 20.0 %

Total Business 28.7 % 28.9 % 28.8 % 25.2 % 23.2 % 20.3 % 20.1 % 21.7 % 23.4 % 23.4 % 24.0 % 24.2 % 25.1 % 21.8 % 23.9 % 20.0 %




Standalone Financials

P&L (Rs mn) FY17A FY18E FY19E FY20E

Balance Sheet (Rs mn) FY17A FY18E FY19E FY20E

Cash Flow (Rs mn) FY17A FY18E FY19E FY20E

Interest Income 13,061 15,157 18,308 22,287 Equity Capital 266 266 266 266 Operating PBT 3,702 4,790 5,661 6,851

Interest Expense 8,840 9,833 11,971 14,604 Reserve 10,497 12,858 16,033 19,905 Provisions & Depn. 182 260 350 442

NII 4,221 5,324 6,337 7,683 Deposits 0 0 0 0 Changes in Dep 0 0 0 0

Operating Exp 807 890 1,117 1,341 Borrowings 118,720 144,487 179,830 215,796 Changes in Borr 24,280 25,767 35,343 35,966

PPI 3,884 5,049 6,011 7,293 Current liabilities 5,097 5,351 5,792 6,221 Changes in Inv -91 665 441 429

Provisions 182 260 350 442 Total Liabilities 134,580 162,962 201,921 242,187 Changes in L&A -26,663 -28,999 -38,713 -40,170

Non Int Inc 470 616 792 951 Net Fixed Assets 100 59 66 76 Changes in Others -124 -58 -26 -95

Profit Before Taxes 3,702 4,790 5,661 6,851 Loans and Adv 133,130 162,136 200,849 241,018 Net Cash Ops -62 702 1,018 956

Tax 1,349 1,724 2,038 2,466 Investments 161 89 93 107 Net Cash from Inv -13 -20 -7 -10

Rep PAT bef ext 2,353 3,066 3,623 4,385 Int Earning Assets 133,291 162,225 200,941 241,125 Net Cash from Fin -370 -705 -449 -513

Extraordinary 0 0 0 0 Cash 181 120 332 324 Cash Generation -445 -23 563 434

Adjusted PAT 2,353 3,066 3,623 4,385 Other LTA - - - - Ending Cash Balance 181 120 332 324

EPS (Rs) 88.4 115.2 136.1 164.7

OCA 1,008 559 582 663 RoE (%) 24.1 % 25.7 % 24.6 % 24.0 %

Adj EPS 88.4 115.2 136.1 164.7 Total Assets 134,580 162,962 201,921 242,187 Adjusted RoE (%) 24.1 % 25.7 % 24.6 % 24.0 %

BVPS (Rs.) 404.3 493.0 612.3 757.7 Yield 10.9 % 10.3 % 10.1 % 10.1 % RoA(%) 1.9 % 2.1 % 2.0 % 2.0 %

Adj BVPS (Rs.) 404.3 493.0 612.3 757.7 Cost of Funds 8.3 % 7.5 % 7.4 % 7.4 % Adjusted RoA (%) 1.9 % 2.1 % 2.0 % 2.0 %

DPS (Rs.) 10.0 12.0 14.0 16.0 P&L Provisions 182 260 350 442

CAR(%) 18.5 % 18.6 % 18.4 % 18.9 %

Provision/Avg Loans 0.1 % 0.2 % 0.2 % 0.2 % Cost to Income 17.2 % 15.0 % 15.7 % 15.5 %

P/E 35.6 27.3 23.1 19.1

NIMs (%) 3.5 % 3.6 % 3.5 % 3.5 % Cost to Average Asset 0.7 % 0.6 % 0.6 % 0.6 % Adj P/E 29.0 20.2 16.5 13.1

NII Growth 40.2 % 26.1 % 19.0 % 21.2 % L&A Growth 25.1 % 21.8 % 23.9 % 20.0 % P/BV 7.8 6.4 5.1 4.2

Adj PAT Growth (%) 49.8 % 30.3 % 18.2 % 21.0 % Leverage 12.5 12.4 12.4 12.0 Adj P/BV 7.8 6.4 5.1 4.2

Adj EPS Growth (%) 49.7 % 30.3 % 18.2 % 21.0 % Advances/Borrowings 112.1 % 112.2 % 111.7 % 111.7 % Div Payout (%) 11.3 % 10.4 % 10.3 % 9.7 %

Adj BVPS Growth 22.6 % 21.9 % 24.2 % 23.8 % Change in Provisions -6.2 % 42.5 % 35.0 % 26.1 % Div Yield(%) 0.3 % 0.4 % 0.4 % 0.5 %

Dividend Gr. (%) 0.0 % 20.0 % 16.7 % 14.3 %

GNPA 0.2 % 0.2 % 0.2 % 0.3 %

Tax Rate (%) 36.4 % 36.0 % 36.0 % 36.0 %

NNPA 0.0 % 0.0 % 0.0 % 0.0 %

TTM P/E vs. 2 yr forward EPS growth

TTM P/B vs. 2 yr forward ROE

0%

7%

14%

21%

28%

35%

42%

49%

0

700

1400

2100

2800

3500

Sep/12

Mar/

13

Sep/13

Mar/

14

Sep/14

Mar/

15

Sep/15

Mar/

16

Sep/16

Mar/

17

Sep/17

Mar/

18

Sep/18

5x

10x

15x

20x

25xEPS Growth

0%

6%

12%

18%

24%

30%

0

800

1600

2400

3200

4000

Sep/12

Mar/

13

Sep/13

Mar/

14

Sep/14

Mar/

15

Sep/15

Mar/

16

Sep/16

Mar/

17

Sep/17

Mar/

18

Sep/18

RoE

2.0x

3.0x

4.0x

5.0x

6.0x




Historical Standalone Financials P&L (Rs mn) FY14A FY15A FY16A FY17A

Balance Sheet (Rs mn) FY14A FY15A FY16A FY17A

Cash Flow (Rs mn) FY14A FY15A FY16A FY17A

Interest Income 5,571 7,879 10,444 13,061 Equity Capital 205 266 266 266 Net Profit 1,064 1,372 2,539 3,702

Interest Expense 4,228 6,103 7,435 8,840 Reserve 4,318 7,449 8,514 10,497 Depreciation 44 142 194 182

Net Interest Income 1,343 1,776 3,009 4,221 Deposits 0 0 0 0 Changes in Dep 0 0 0 0

Operating Exp 441 550 668 807 Borrowings 52,685 69,409 94,780 118,720 Changes in Borr 17,296 9,740 32,014 24,280

PPI 1,111 1,517 2,733 3,884 Current liabilities 1,648 6,219 4,386 5,097 Changes in Inv 469 -366 2,134 -91

Provisions 44 142 194 182 Total Liabilities 58,856 83,344 107,946 134,580 Changes in L&A -18,404 -24,296 -24,569 -26,663

Non Int Inc 210 291 391 470 Net Fixed Assets 78 93 89 100 Changes in Others 10 -598 -98 -124

Profit Before Taxes 1,064 1,372 2,539 3,702 Loans and Adv 58,484 82,370 106,430 133,130 Net Cash from Ops 170 -14,518 11,247 -62

Tax 309 512 968 1,349 Investments 149 149 149 161 Net Cash from Inv -10 -15 4 -13

Rep PAT bef ext 755 860 1,571 2,353 Int Earning Assets 58,634 82,519 106,579 133,291 Net Cash from Fin -156 2,332 -505 -370

Extraordinary -2 -2 0 0 Cash 92 80 174 181 Cash Generation 4 -12,200 10,746 -445

Adjusted PAT 757 862 1,571 2,353 Other LTA - - - - Ending Cash Balance 92 80 174 181

EPS (Rs) 37.0 41.5 59.0 88.4 OCA 53 651 1,104 1,008 RoE (%) 17.9 % 14.1 % 19.0 % 24.1 %

Adj EPS 37.0 41.5 59.0 88.4 Total Assets 58,856 83,344 107,946 134,580 Adjusted RoE (%) 17.9 % 14.1 % 19.0 % 24.1 %

BVPS (Rs.) 220.8 289.8 329.8 404.3 Yield 11.2 % 10.8 % 10.7 % 10.6 % RoA(%) 1.5 % 1.2 % 1.6 % 1.9 %

Adj BVPS (Rs.) 220.8 289.8 329.8 404.3 Cost of Funds 9.6 % 10.0 % 9.1 % 8.3 %

Adjusted RoA (%) 1.5 % 1.2 % 1.6 % 1.9 %

DPS (Rs.) 6.5 7.0 10.0 10.0

P&L Provisions 44 142 393 182

CAR(%) 13.8 % 18.4 % 20.7 % 18.5 %

Provision/Avg Loans 0.1 % 0.2 % 0.2 % 0.1 % Cost to Income 28.4 % 26.6 % 19.6 % 17.2 % P/E 85.1 75.9 53.3 35.6

NIMs (%) 2.7 % 2.5 % 3.2 % 3.5 % Cost to Average Asset 0.9 % 0.8 % 0.7 % 0.7 % Adj P/E 85.1 75.9 53.3 35.6

NII Growth 40.3 % 32.2 % 69.4 % 40.2 % L&A Growth 45.8 % 40.8 % 29.2 % 25.1 %

P/BV 14.2 10.9 9.5 7.8

Adj PAT Growth (%) 39.5 % 13.9 % 82.6 % 49.8 % Leverage 13.0 10.8 12.3 12.5 Adj P/BV 14.2 10.9 9.5 7.8

Adj EPS Growth (%) 40.0 % 12.1 % 42.4 % 49.7 % C/D Ratio 111.0 % 118.7 % 112.3 % 112.1 % Div Payout (%) 17.6 % 21.6 % 16.9 % 11.3 %

Adj BVPS Growth 15.3 % 31.3 % 13.8 % 22.6 % Change in Provisions (%) -420.1 % 220.7 % 36.2 % -6.2 % Div Yield(%) 0.2 % 0.2 % 0.3 % 0.3 %

Dividend Gr. (%) 62.5 % 7.7 % 42.9 % 0.0 %

GNPA 0.2 % 0.2 % 0.2 % 0.2 %

Tax Rate (%) 29.0 % 37.3 % 38.1 % 36.4 %

NNPA 0.0 % 0.0 % 0.0 % 0.0 %




Equirus Securities

Research Analysts Sector/Industry Email

Equity Sales E-mail

Abhishek Shindadkar IT Services [email protected] 91-22-43320643 VishadTurakhia [email protected] 91-22-43320633

Ashutosh Tiwari Auto, Metals & Mining [email protected] 91-79-61909517 Subham Sinha [email protected] 91-22-43320631

Depesh Kashyap Mid-Caps [email protected] 91-79-61909528 SwetaSheth [email protected] 91-22-43320634

Devam Modi Power & Infrastructure [email protected] 91-79-61909516 Viral Desai [email protected] 91-22-43320635

DhavalDama FMCG, Mid-Caps [email protected] 91-79-61909518 BinoyDharia [email protected] 91-22-43320632

Manoj Gori Consumer Durables [email protected] 91-79-61909523 Dealing Room E-mail

Maulik Patel Oil and Gas [email protected] 91-79-61909519 Ashish Shah [email protected] 91-22-43320662

Praful Bohra Pharmaceuticals [email protected] 91-79-61909532 IleshSavla [email protected] 91-22-43320666

Rohan Mandora Banking & Financial Services [email protected] 91-79-61909529 Manoj Kejriwal [email protected] 91-22-43320663

Associates E-mail Dharmesh Mehta [email protected] 91-22-43320661

Ankit Choudhary [email protected] 91-79-61909533 SandipAmrutiya [email protected] 91-22-43320660

Ashdeep Kaur [email protected] 91-79-61909595 Compliance Officer E-mail

Bharat Celly [email protected] 91-79-61909524 Jay Soni [email protected] 91-79-61909561

Harshit Patel [email protected] 91-79-61909522

Meet Chande [email protected] 91-79-61909513

ParvaSoni [email protected] 91-79-61909521

Pranav Mehta [email protected] 91-79-61909514

RonakSoni [email protected] 91-79-61909525

Samkit Shah [email protected] 91-79-61909520

ShreepalDoshi [email protected] 91-79-61909541

Vikas Jain [email protected] 91-79-61909531

Rating & Coverage Definitions: Absolute Rating • LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap >Rs 5 billion andATR >= 20% for rest of the companies • ADD: ATR >= 5% but less than Ke over investment horizon • REDUCE: ATR >= negative 10% but <5% over investment horizon • SHORT: ATR < negative 10% over investment horizon Relative Rating • OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon • BENCHMARK: likely to perform in line with the benchmark • UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Investment Horizon Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion.

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We, Rohan Mandora/Ankit Choudhary, author to this report, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or

their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Disclosures

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Capital Market (Reg. No. INB231301731), Futures & Options Segment (Reg. No.INF231301731) of the National Stock Exchange of India Ltd. (NSE) and on Cash Segment (Reg. No.INB011301737) of Bombay Stock

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merchant banking services, private equity, mergers & acquisitions and structured finance.

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directors and employees may from time to time have positions or options in the company and buy or sell the securities of the company (ies) mentioned herein. ESPL and its associates collectively do not own (in

their proprietary position) 1% or more of the equity securities of the subject company mentioned in the report as the last day of the month preceding the publication of the research report. ESPL or its Analyst or

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(a) has not received any compensation from the subject company in the past twelve months; (b) has not managed or co-managed public offering of securities for the subject company in the past twelve months;

(c) has not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (d) has not received any compensation for products

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subject company.

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Disclosure of Interest statement for the subject Company Yes/No If Yes, nature of such interest

Research Analyst’ or Relatives’ financial interest No

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Research Analyst’ or Relatives’ material conflict of interest No

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