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After a lull of two years, Indian retail finance industry is set for a smart turnaround. With less clutter and
focus on niches, pricing power has returned to lenders, and subventions paid to manufacturers/ dealers
have been cut drastically. In-house sourcing of loans and collection has also tilted the risk-reward in favor
of lenders. Importantly, emergence of the credit bureau goes a long way in protecting asset quality. The
tribulations of the recent past, we believe, would prompt a rational stance on pricing. We expect the huge
latent demand and a rebound in profitability to drive 25% CAGR in annual disbursements to a whopping
Rs4.9trn over FY10-13. Within the space, we prefer lenders with strong product understanding, cost
efficiencies or presence in niche geographies. Private sector banks like IndusInd Bank and HDFC Bank
and specialized NBFCs like Shriram City Union, Bajaj Finance, Mahindra Finance and Shriram Transport
fit the bill. The ongoing mayhem in the markets offers a good opportunity to play this long-term theme.
Retail finance shining again! Predatory competition, high reliance on DSAs, willful defaults due to
regulatory forbearance and the economic downturn had taken the sheen off the lucrative retail finance
industry (8% CAGR over FY08-10; ~50% over FY05-08). As profitability eroded, many players were forced to
close shop. With this, competitive intensity is lower and, hence, incumbents as also new players can be
expected to adopt a reasonable stance on pricing.
Profitable growth ahead: Return of pricing power to the lenders and changed mechanics of sourcing and
collections (negligible subventions and in-house origination of loans) have turned the risk-reward in favor of
lenders. With huge latent demand, we see 25% CAGR in disbursements over FY10-13 with mortgages
remaining the largest contributor (~55% of the mix in FY13).
Niche business models offer a combination of growth and value: Financiers that offer cost efficiency, strong
product understanding or are present in niche geographies will be the key beneficiaries of the upturn in retailfinance industry. In this backdrop, IndusInd Bank, HDFC Bank, Shriram City Union, Bajaj Finance, Mahindra
Finance and Shriram Transport offer tremendous growth potential as also high visibility on earnings. With the
recent steep correction in stock prices (25-30% over the past three months), we see them as bargain bets.
INDIA RESEARCH
IT services
IDFC Securities Ltd.Naman Chambers, C-32, G- Block, Bandra-Kurla Complex, Bandra (East), Mumbai 400 051 Tel: 91-22-6622 2600 Fax: 91-22-6622 2501
SEBI Registration Nos.: INB23 12914 37, INF23 12914 37, INB01 12914 33, INF01 12914 33
For Private Circulation only Important disclosures appear at the back of this report
22 February 201
BSE Sensex: 1829
Retail FinanceLife comes full circleFinancials
Key valuation metrics
Price Mkt Cap 2yr EPS cagr RoE (%) PE (x) P/Adj. Book Value
21st Feb 2011 (Rs bn) FY11E-FY13E FY11E FY12E FY13E FY11E FY12E FY13E FY11E FY12E FY13E
Bajaj Auto Finance 634 23 35.9 17.9 21.4 23.4 9.8 7.0 5.3 1.8 1.5 1.2
HDFC 648 943 19.0 21.4 22.2 23.1 27.1 22.9 19.1 5.5 4.8 4.1
HDFC Bank 2,202 1,012 31.3 17.0 19.1 21.5 25.8 19.8 14.9 4.0 3.5 2.9
ICICI Bank 1,038 1,194 25.8 9.9 11.8 13.5 22.7 17.7 14.4 2.2 2.0 1.9Indusind Bank 230 107 33.8 19.4 19.2 21.7 18.5 13.6 10.3 2.8 2.4 2.0
Mah & Mah Finance 719 70 28.3 22.2 21.8 22.7 15.7 12.1 9.5 2.8 2.3 1.8
Shri Ram Transport 764 172 29.4 28.3 29.4 29.5 14.0 10.6 8.4 3.5 2.7 2.2
Shriram City Union Finance 510 25 28.8 22.4 24.2 24.9 10.3 7.8 6.2 2.1 1.6 1.3
State Bank of India 2,792 1,772 22.3 16.5 17.7 18.6 15.3 12.4 10.2 1.9 1.6 1.3
Source: IDFC Securities Research and Bloomberg
Pathik [email protected] 2525
Chinmaya [email protected] 2563
Kavita [email protected] 2558
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FEBRUARY 2011 2
IDFC Securities
CONTENTSInvestment Argument .....................................................................................................3
Retail Finance FY03-09: Boom and bust.........................................................................3
However, Pricing Power is Back with Financiers.........................................................6
A BIG MarketGetting BIGGER ...................................................................................9
Identifying the Target Populace ...................................................................................11
The Beneficiaries .............................................................................................................13
The Retail Loan Market ...............................................................................................16
Gold loans: Increasing share of organized players to drive growth........................17
Mortgages: A lucrative opportunity ............................................................................18
CV loans: Piggy riding the economic rebound...........................................................19
Auto loans: Low asset penetration to drive growth...................................................20
2-wheelers loans: Momentum to sustain .....................................................................21
Consumer durables: Changing business dynamics ...................................................22
Credit cards: Outstandings to rise................................................................................23
Personal loans: Treading the growth path again ........................................................24
Companies .....................................................................................................................25
Bajaj Auto Finance ..........................................................................................................26
HDFC................................................................................................................................28
HDFC Bank......................................................................................................................30
ICICI Bank .......................................................................................................................32
Indusind Bank ................................................................................................................. 34
Mahindra & Mahindra Finance ....................................................................................36
Shri Ram Transport ........................................................................................................38
Shriram City Union Finance..........................................................................................40
State Bank of India..........................................................................................................42
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FEBRUARY 2011 3
IDFC Securities
INVESTMENT ARGUMENT
The shakeout of FY08-10 has reduced competition in retail financing and
imparted pricing power to incumbents
Changed mechanics of sourcing and collections have turned the risk-reward infavor of lenders
Consumption is rising owing to higher income levels; asset penetration
remains low (~30% for 2-wheelers and 21% for passenger cars) a key positive
Huge underlying demand and a rebound in financiers profitability should
spur 25% CAGR in retail finance disbursements over FY10-13 to ~Rs4.9trn
New private sector banks (IndusInd Bank and HDFC Bank) and specialized
NBFCs (Shriram City Union Finance, Bajaj Finance, Mahindra Finance and
Shriram Transport) our key picks to play the potential boom
Exhibit 1: Retail finance from boom to bust to recovery
Source: IDFC Securities
Retail Finance FY03-09: Boom and bust
Falling interest rates, increased availability of finance and favorable changes in
income demographics led to a boom in Indias retail finance in FY03-08. However,profitability plummeted as intense competition dented yields. Also, reliance on DSAs
for loan origination, RBIs regulatory forbearance on recoveries triggering willful
defaults and the cyclical downturn in the economy led to a sharp rise in credit costs.
As a result, growth fell to just 8% CAGR over FY08-10 vs ~50% CAGR over FY05-08.
A dream run in FY03-08
Retail consumer finance space expanded by a whopping 50% CAGR over FY03-08
driven by structural factors including; (i) increasing household incomes, (ii) higher
product affordability, (iii) falling interest rates and thereby attractive financing
options, (iv) low asset penetration, and (v) favorable age demographics. Besides, the
2.0%
6.0%
10.0%
14.0%
18.0%
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY10
Personal loans /durable loans Two-wheelers
The Bust
Fierce pricing wars amongst competitors
grossly mispriced products
Compromise on prudent lending practices
Faulty sourcing strategy
The Comeback
Limited competition stable
yields
Revamped sourcing and
collections driving down
potential loan losses
Emergence of credit bureau -
a game changer
The aftermath
Interest ratesinch-up driving
up
delinquencies
The Boom
Changing income demographics high income
groups growing faster
Underpenetrated consumer finance sector
banks make entry into an NBFC dominated
space
Falling interest
rates to end-
consumers; entry ofcompetition
Declined productprofitability Players exit
business
Improvedproduct
profitability
GE Countrywide, ICICI Bank, Citifinancial, Stanchart-
Grindlays, Bajaj Auto Finance (BAF), Ashok LeylandFinance, HDFC Bank, HSBC, certain PSU Banks, SCUF,
Ford credit (Kotak Primus)
Certain PSU Banks, BAF,
HDFC Bank, SCUF
Regulatory forbearance against forceful collection of dues triggers willful
defaults in certain segments
DSA-led model for loan sourcing
CIBIL lending only to eligible
customers potentiallyreduced loan loss rates
In-house loan sourcing as well
as collections
Players
Dynamics
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FEBRUARY 2011 4
IDFC Securities
influx of banks in the consumer loan segments facilitated availability of cheap finance
and further catalysed the boom.
Exhibit 2: Consumer loans clocked 50% CAGR that doubl ed their share to ~25% of bank credit over FY03-08
Source: RBI
But lure of high returns
In the initial years (FY03-04), retail loan products offered far superior risk-adjusted
returns than corporate loans (especially top-tier), which encouraged banks to increase
share in this fast expanding market. With competitive rates offered on such products,
banks gained ground in a considerably short time span. While new NBFCs were also
foraying into the business, banks armed with a wider reach took market share
away from incumbent NBFCs. Besides personal loans, private banks started offering
loans for low-ticket items like consumer durables and 2-wheelers. At the same time,
state-owned banks became more aggressive in the car and mortgage loan segments.
Exhibit 3: Product profitability envisaged in 2003
As % of average assets Mortgages Car loans 2-wheeler loans Personal loans Credit cards
Yield 11.0 13.3 22.0 17.0 23.5
Interest cost (loaded for SLR/ CRR) 6.7 6.7 6.7 6.7 7.0
Lending spread 4.3 6.6 15.3 10.3 16.5
Yield on net worth* 0.4 0.7 0.7 0.7 0.7
Net interest margin 4.7 7.3 16.0 11.0 17.2
Fees/Commissions 0.5 - - 1.0 2.0
Total revenues 5.2 7.3 16.0 12.0 19.2
Operating expenses 2.5 3.2 7.5 5.0 8.0
of which DSA commissions 1.2 1.2 2.0 4.0
Provisions 0.3 1.0 3.0 3.0 6.0
PBT 2.4 3.1 5.5 4.0 5.2
Tax 0.7 0.9 1.7 1.2 1.6PAT 1.7 2.1 3.9 2.8 3.6
Leverage (x) 19 10 10 10 10
Tier I CAR 10 10 10 10 10
RoE 34 24 42 31 40
Risk weight 50 100 100 100 100
Source: IDFC Securities Research
Outstanding consumer loans for Indian Banking system
0
1500
3000
4500
6000
FY03 FY04 FY05 FY06 FY07 FY08
(Rs bn) Outstanding consumer loans for Indian Banking system
0
1500
3000
4500
6000
FY03 FY04 FY05 FY06 FY07 FY08
(Rs bn) Consumer loans as % of non-food credit
0
8
15
23
30
FY03 FY04 FY05 FY06 FY07 FY08
(%) Consumer loans as % of non-food credit
0
8
15
23
30
FY03 FY04 FY05 FY06 FY07 FY08
(%)
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FEBRUARY 2011 5
IDFC Securities
led to predatory competition
The influx of numerous players in the consumer finance market led to intense
competition, and thereby pricing wars. As a result, yield on consumer assets tumbled
by 300-400bp over FY03-07. Dealer and manufacturer subventions (which increased
up to 5% of loans sourced) further affected yields. The lower lending rates, in turn,
mispriced the risk inherent in these products.
Delinquencies soar
Regulatory changes prevented forcible recoveries through agents and triggered
willful defaults. A spike in interest rates from FY08 exacerbated loan losses. Across
the industry, unsecured portfolios turned bad while delinquencies also rose in the
consumer durables segment. Delinquencies for some of the inefficient players soared
to ~10% of the overall consumer portfolio with the industry average at 5-6%.
Outsourced origination and dilution of lending standards
To garner a higher market share, financiers started relying heavily on outsourced
channels for loan origination. Outsourced agents (DSAs and DMAs), compensated
with hefty commissions at the time of disbursement (up to 3% of assets sourced),
paid little heed to the quality of borrowers. Focus on market share also led to lax
underwriting standards without enough regard for the borrowers repayment
capability.
Regulatory forbearance on recovery practices
After a spate of arm-twisting tactics adopted by bank recovery agents on defaulting
borrowers, the RBI prohibited the use of recovery agents (forceful collections) on
such cases. This left banks with little recourse on unsecured loans and set off willful
defaults on products like credit cards, personal loans, 2-wheelers, consumer durables.
As a result, delinquencies rose to as high as 20-30% in some of these portfolios.
Exhibit 4: Surge in delinquencies Profitabili ty plummeted
Source: IDFC Securities Research
Growth potential and lucrativereturns led to influx of myriad
players in the space
Landscape turned ugly withunsecured loans turning bad
and delinquencies rising inconsumer durables
Unsavory practices likeforcible recoveries prompted
the RBI to intervene
Delinquencies in consumer durables & personal loans
8.0
14.9
3.6
3.0
0.0
4.0
8.0
12.0
16.0
2006 2007 2008 2009
(%) Product RoA
3.6
1.5
3.92.8
1.91.2
(1.6)(0.6)
(0.2)
-2.0
3.0
8.0
13.0
Personal Loans 2 Wheelers Credit Cards
FY03 FY06 FY08 FY10
12.0
(%)
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FEBRUARY 2011 6
IDFC Securities
However, Pricing Power is Back with Financiers
Competition in consumer financing space stands reduced significantly which has
meant return of pricing power to financiers. New entrants, only a handful so far,
have not been predatory and the stance is likely to be maintained in view of the
industrys fresh-in-mind experience. Higher yields, changed sourcing mechanics
and lower operating expenses have turned the risk-reward in favor of financiers.
Consolidation in the industry
Stress on yields (a function of competition), higher operating expenses (DSA
commissions and dealer payouts) and credit costs sharply eroded retail financiers
profitability. Losses soared in these portfolios with some lenders taking write-offs till
as late as FY10. Saddled with losses in multiple consumer portfolios, many players
chose to exit the business.
imparts pricing power to financiers
Pricing has improved significantly due to reduced competition and the cautiousstance adopted by incumbents. With players focusing on profitability, product yields
now build in high operating costs as also credit losses, recognizing the inherently
risky nature of consumer lending. This is evident from the fact that even as funding
costs fell to multi-year lows in FY10, players still did not relent on pricing.
Exhibit 5: Product yields have rebounded
2.0
6.0
10.0
14.0
18.0
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY10
Personal loans / durable loans Two-wheelers
Source: Industry estimates; IDFC Securities Research
In-house sourcing check on credit costs
Having realized the perils of the DSA model, players are now entrusting sourcingand collections to their own staff. These employees are generally housed in a separate
subsidiary, which enables the lenders to control credit quality, as agents are paid on
business acquired as well as serviced. The role of DSAs, thus, has been significantly
curtailed.
In-house sourcing as againstDSAs earlier ensures bettecredit quality
Benign competition andprudent strategies have
increased financiersprofitability
Many NBFCs and some largeprivate banks went downunder in these portfolios
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FEBRUARY 2011 7
IDFC Securities
Exhibit 6: The proportion of loans sourced through DSAs has come off significantly
DSA expense (% of loans)
1
2
3
3 3 3
2
1
0.0
0.7
1.4
2.1
2.8
3.5
FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10
(%)
Source: Industry estimates; IDFC Securities Research
Check on sourcing costs
Subventions paid to manufacturers and dealers have disappeared as financiers have
realized that product profitability leaves no room for such paybacks. The Indian
market is gradually moving towards the global practice of manufacturer subsidizing
financier to reduce end-consumer borrowing costs (rather than vice versa). Fees
charged on disbursements now largely compensate for sourcing costs.
Exhibit 7: Subventions have declined
5,000
6,500
5,000
3,000
5.0
4.0
2.0
1.8
0
1,700
3,400
5,100
6,800
FY03E FY08E FY09E FY10
0.0
1.5
3.0
4.5
6.0
Manufacturer subventions per car (Rs - LHS) Dealer payouts (% - RHS)
Source: Industry estimates; IDFC Securities Research
Extensive use of credit bureau curtails willful defaultsCredit bureaus (the biggest being CIBIL) have gained significant relevance in the past
few years. CIBIL has ~90m customers and ~160m consumer trade lines that cover
most of the borrower populace in the top 50 cities of India. While CIBILs penetration
is still low in commercial lending (~45%), it is improving as members contribute to
the database. Financiers increasing reliance on credit bureau reports is leading to a
substantial reduction in potential loan loss rates. Hit rates for credit records have
crossed 70% in certain segments (~20% two years ago) and CIBIL reports are
emerging as a primary eligibility criterion in the consumer financing segment.
CIBILs extensive databasehas been critical in helping
lenders take effective creditdecisions
Manufacturer subsidizing
financier model has helpedreduce costs for the borrower
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FEBRUARY 2011 8
IDFC Securities
The database covers credit history and credit score of customers, which can be
accessed by the lenders. With an instant query to CIBIL, lenders can now ensure that
customers have the right credit history. Use of CIBIL reports deters concurrent
borrowings and serial defaulters, enabling informed and objective credit decisions.
CIBIL the largest credit bureauPromoted by SBI and HDFC (40% stake each), D&B Information Services (10%) and TransUnion International (10%),
Credit Information Bureau of India (CIBIL) was established in 2002 on the recommendations of a working group of
RBI. TransUnion and Dun & Bradstreet are the equity and technical partners respectively. The shareholding pattern
has now been diversified to include various entities representing varied categories of credit grantors. CIBILs business
model is based on the principle of reciprocity, which means that only members that have submitted all their credit
data may access credit information reports from CIBIL.
As of September 2010, CIBIL had an information base of ~160m consumer trades and 6m commercial trades. CIBIL
now has a member base of 280+ institutions including banks, FIs, NBFCs, credit card companies, Housing Finance
Companies and state financial institutions. CIBIL has enabled lenders to access centralized, comprehensive and
reliable borrower information, thereby enabling them to make informed decisions. Members send their data on a
monthly/ quarterly basis to CIBIL in a specific format.
The promise of higher profitability
A revamped sourcing model and benign competition have imparted strong pricing
power to financiers which, along with lower loss rates and curtailed opex, has driven
a marked improvement in profitability in the consumer finance space. RoEs on
consumer loans now range from 20% to 60%. Going forward, we expect that the
fresh in mind outcome of cut-throat competition would prompt players to maintain
a rational stance on pricing even as new players enter the business.
Exhibit 8: Product profitability has seen a marked improvement
(%) Mortgages LAP Cars Consumer Durables Personal Loans (cross sell) 2 wheelers
Yield 9.5 11.8 10.5 27.0 33.0 24.0
Interest cost 7.0 7.0 7.0 7.0 7.0 7.0
Lending spread 2.5 4.8 3.5 20.0 26.0 17.0
Yield on net worth 0.5 0.5 0.5 0.5 0.5 0.5
NIM 3.0 5.3 4.0 20.5 26.5 17.5
Fees 0.2 1.2 1.0 0.0 0.7 1.5
Total revenue 3.2 6.5 5.0 20.5 27.2 19.0
Operating expenses 0.8 2.3 2.0 15.0 5.0 10.0
Provisions 0.5 0.4 1.0 4.0 7.0 4.0
PBT 2.0 3.8 2.0 1.5 15.2 5.0
Tax 0.6 1.3 0.7 0.5 5.0 1.7
PAT 1.3 2.5 1.3 1.0 10.2 3.4Tier I CAR 9.0 9.0 9.0 15.0 15.0 15.0
Risk weight on loans 75.0 100.0 100.0 125.0 125.0 125.0
Leverage 14.8 11.1 11.1 5.3 5.3 5.3
RoE 20.7 30.8 16.2 6.4 64.5 21.2
Source: IDFC Securities Research
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FEBRUARY 2011 9
IDFC Securities
A BIG Market Getting BIGGER
With one of the worlds youngest population, India offers a perfect ground for
growth of retail finance. Though improving income demographics, and thereby
higher affordability, have led to a rise in penetration of retail assets it remains low.
We expect the huge untapped demand and rebound in profitability for financiers tospur a boom in retail finance in the coming years. We expect annual disbursements to
clock a high 25% CAGR over FY10-13 to a significant ~Rs4.9trn in FY13.
Young population, with a huge appetite for spending
About 480m Indians (41% of the population) are between 15 and 40 years of age and
have high material aspirations unlike their previous generations. Traditionally, most
Indians have been wary of credit. That is changing as young people take loans to buy
things they cannot otherwise afford.
Exhibit 9: Burgeoning midd le income HHs ideal market for retail loans!
Source: Asian Demographics; IDFC Securities Research
Higher-income bracket growing faster
Over the past couple of years, household incomes have grown on the back of the 8-
9% GDP growth. Meanwhile, income distribution has significantly changed, with
higher-income categories growing much faster than lower income ones. This creates a
large and growing base of middle and upper income households an ideal target
market for retail loans. The number of households in the lowest category has
declined in absolute terms from 41m to 31m over FY05-10. According to Asian
Demographics, the two lowest income categories should decline from 46% of the total
to 36% over the next five years.
Improving affordability leads to higher demand
Over the past five years, the increase in per capita income and reduction in prices of
entry level consumer durables have led to a surge in addressable households for such
products.
17.1 18.1 12.8 11.2 9.3
39.4 39.7
33.230.6
27.0
31.0 30.0
35.236.5
37.6
7.5 7.310.6 11.9
13.9
4.1 4.0% 6.6 7.7 9.6
0.5 0.5% 0.8 1.0 1.30.4 0.4% 0.8 1.0 1.4
0
25
50
75
100
2000 2005 2010 2012 2015
0 - 54,381 54,382 - 108,763 108,764 - 217,526 217,527 - 326,289
326,290 - 652,578 652,579 - 870,104 870,105 plus2010
0 to 14
31%
15 to 24
18%
65 plus
6%
25 to 64
45%
A credit-hungry youngergeneration spells betterdynamics for financiers
Middle and high incomehomes, the ideal target spacefor retail loans, are increasing
Proportion of HHwith annual incomebelow Rs10m fallingto 36% from 46% over
FY10-15
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FEBRUARY 2011 10
IDFC Securities
Exhibit 10: Asset prices stable affordability rising
Source: IDFC Securities Research
Asset penetration is still low
The target population is still significantly underpenetrated. Penetration has been low
so far given the largely credit-averse mindset of the Indian populace and because
loans have not been easily available at affordable rates. Penetration levels in most
asset products have been expanding over the past six years but there is a lot of room
to grow.
Exhibit 11: Penetration leaves ample scope to expand
Source: IDFC Securities Research
Penetration of finance in cars
and 2-wheelers still offersscope for growth in the next
few years
Weighted avg vehicle price (adjusted for inflation)
3.2
2.8
2.6 2.72.7
2.5
2.3 2.1
2.0
0.0
0.7
1.4
2.1
2.8
3.5
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10
(Rs m)
Prices (Rs) FY05 FY10
Color TVs 20,000 6,000
Refrigerators 12,000 7,000
ACs 20,000 20,000
Washing Machines 17,000 12,000
Cars penetration in India
1620
21
0.0
7.5
15.0
22.5
FY05 FY10 FY12E
(%)
20
25
28
27
38
43
22
30
33
0.0 10.0 20.0 30.0 40.0 50.0 (%)
FY05
FY10
FY12E
Rural Urban Total
1.6
122.0
10.0
235.0
0
50
100
150
200
250
India Korea Malaysia USA
Credit cards / total population(%)
Mortgage/ GDP
7
26
29
84
0
30
60
90
(%)
India Korea Malaysia USA
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FEBRUARY 2011 11
IDFC Securities
Identifying the Target Populace
Mapping retail loan products to households
Based on disposable income of each category of consumers, we have identified the
target population for retail finance products. Most financiers also have internal
qualification norms stipulating minimum household income and debt servicingcapacity.
Exhibit 12: The affordability matrix target households for retail products
HH income (Rs p.a.) Financial products that can be marketed
0 - 54,000 Top 35% for consumer durables and 2-wheelers
54,000 110,000 Mortgages, 2-wheelers, consumer durable loans
110,000 - 220,000 Personal loans, consumer durables, mortgages, 2-wheelers, cars
220,000 - 330,000 All products
330,000 650,000 All products
650,000 - 870,000 All products except loans for small-ticket durables that may be bought without
financing
870,000 plus All products except loans for small-ticket durables & 2-wheelers that may bebought without financing
Source: IDFC Securities Research
Loan installment for products
Our discussions with financiers indicate that they look for a loan installment to gross
income ratio of 35-50%. The lower end of this range is for smaller assets like
consumer durables and 2-wheelers, which may not be as necessary as a mortgage.
Mortgage financiers typically stipulate an income to installment ratio of 50%. This
ratio is often higher for high-value loans (e.g., cars) as many borrowers (especially
small businessmen) have large amounts of unaccounted income which financiers
factor in to determine their debt-servicing capacity.
Exhibit 13: Monthly installments for various products
Installment Loan amount Tenor IRR Min annual income Fraction to service loan
(Rs) (years) (%) of target HH (Rs) (%)
Mortgages 2,418 225,000 15.0 10.0% 64,476 45%
Car loans 4,948 225,000 5.0 11.5% 197,933 30%
Two-wheelers 871 23,450 3.0 20.0% 34,859 30%
Consumer durables 768 8,000 1.0 27.0% 46,088 20%
Source: IDFC Securities Research
Quantifying the target populace
We have quantified the target segment based on the income distribution ofhouseholds. We have taken a part (or whole) of each segment depending on the
ability to repay loans. In the lowest income category, only the top 35% represent a
target market for retail loans, and that too only for consumer durables and 2-
wheelers.
Financiers set qualifiers basedon minimum income and debt
servicing capacity
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FEBRUARY 2011 12
IDFC Securities
Exhibit 14: Mapping the retail loan products to target households
Household income
(Rs p.a.) % HH Average Avg monthly Max Inst as Target Households (%)
(m #) income inc a % of Inc Mortgages Cars 2w CD PL CC
0 - 54,000 12.8 31.3 27,191 2,266 25 - - 35 15 - -
54,000 110,000 33.2 81.2 81,573 6,798 35 80 - 100 100 - -
110,000 - 220,000 35.2 86.1 163,145 13,595 40 100 15 100 100 50 -
220,000 - 330,000 10.6 26.0 271,908 22,659 40 100 100 100 100 100 100
330,000 450,000 3.9 9.6 380,671 31,723 40 100 100 100 100 100 100
450,00 - 650,000 2.7 6.5 543,815 45,318 40 100 100 100 100 100 100
650,000 - 870,000 0.8 2.0 761,341 63,445 50 100 100 100 - 100 100
870,000 plus 0.8 2.0 1,000,000 83,333 50 100 100 - - 100 100
Source: IDFC Securities Research
A large and growing target population
We have identified a target population for retail loans for each class of assets based
on the criteria already discussed. The target population for retail loan products has
been expanding at 8-15% across various retail asset products. We estimate 10-15%CAGR in the target population across categories over the next couple of years. This is
likely to be driven by a burgeoning middle class, changing income demographics and
an increasing propensity to take credit.
Exhibit 15: A huge target population base
Target HH (m)
Finance product FY05 FY10 FY13E
Mortgages 185.5 197.3 202.2
Cars 54.8 59.1 73.2
2-W 192.7 222.5 235.4
CD 201.9 214.2 228.2PL 61.6 89.2 127.0
CC 61.6 46.1 56.3
Source: IDFC Securities Research
Disbursements to register 25% CAGR over FY10-13E
We expect 25% CAGR for the retail finance market over the next two years, led by
robust demand for mortgages, car loans and 2-wheelers. Backed by CIBIL, we also
expect unsecured segments like credit cards and personal loans to increase gradually.
Consumer durables financing will also continue to grow, though slower due to the
limited number of financiers and short tenure of the products.
Target segment for retailloans has been expanding
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FEBRUARY 2011 13
IDFC Securities
Exhibit 16: Retail finance disbur sement growth to accelerate
Source: IDFC Securities Research
The Beneficiaries
Among the prime requirements for succeeding in the retail finance business are a
well-managed cost structure, relationships with borrowers/ manufacturers, presence
in rural and semi-urban areas (characterized by under-developed banking habits)
and robust operating processes. Tight control on operating costs and lower credit
defaults would ensure profitability even in low-yield segments like mortgage.
Growth with profitability to drive valuations
We like financiers that offer either cost efficiency or strong product understanding, or
have established presence in niche geographies. Such competencies empower thelenders to pass on higher costs to borrowers and maintain profitability across
business cycles. Therefore, we prefer new private sector banks and specialized
NBFCs to ride the opportunity in the sector. These players, we believe, offer
tremendous growth potential with high visibility on earnings.
Current valuations offer an attractive opportunity to accumulate
The stocks have corrected sharply (25-30%) over the past couple of months, and are
now trading at their long-term average valuations. Prevailing concerns over margin
sustainability as also growth, we believe, are overplayed and, after the recent
correction, valuations are extremely attractive.
FY10
CVs12.8%
Mortgages55.3%
Car finance
12.6% UtilityVehicles
3.7%
2 Wheelers3.5%
Credit cards8.2%
Personal Loans3.2%
Consumerdurables0.7%
We believe players with strongcost structures and presence
in under-penetrated areasstand the best chance to win
Concerns are overdone andcurrent valuations are very
attractive; accumulate
FY13E
CVs13.7%
Mortgages55.4%
Car finance
13.2%Utility Vehicles
4.1%
2 Wheelers3.1%
Credit cards6.6%
Personal Loans2.9%
Consumerdurables
1.0%
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FEBRUARY 2011 14
IDFC Securities
Exhibit 17: Valuations off their peaks
Source: IDFC Securities Research
Our preferred picks
We reiterate our positive bias and recommend accumulating these stocks to play the
long-term growth potential of the retail finance industry. New private sector banks
(e.g., IndusInd Bank and HDFC Bank) and NBFCs (Shriram City Union Finance, Bajaj
Finance, Mahindra Finance and Shriram Transport) are our key picks to play the
potential upturn in retail finance.
0.0
1.0
2.0
3.0
4.0
5.0
Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Feb-11
Axis Bank PB (x) Average
0.0
1.5
3.0
4.5
6.0
Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Feb-11
HDFC Bank PB (x) Average
0.0
0.5
1.0
1.5
2.0
2.5
Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Feb-11
SBI PB (x) Average
0.0
1.0
2.0
3.0
4.0
Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Feb-11
ICICI Bank PB (x) Average
0.0
0.5
1.0
1.5
2.0
Mar -04 Mar -05 Mar-06 Mar-07 Mar-08 Mar -09 Mar-10 Feb-11
PNB PB (x) Average
0.0
0.5
1.0
1.5
2.0
Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Feb-11
Union PB (x) Average
Axis Bank 1 yr fwd P/B (x) HDFC Bank 1 yr fwd P/B (x)
SBI 1 yr fwd P/B (x) ICICI Bank 1 yr fwd P/B (x)
Pun ab National Bank 1 r fwd P/B x Union Bank 1 r fwd P/B x
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FEBRUARY 2011 15
IDFC Securities
Exhibit 18: Valuation metrics
Price Mkt Cap 2yr EPS cagr RoE (%) PE (x) P/Adj. Book Value
21st Feb 2011 (Rs bn) FY11E-FY13E FY11E FY12E FY13E FY11E FY12E FY13E FY11E FY12E FY13E
Bajaj Auto Finance 634 23 35.9 17.9 21.4 23.4 9.8 7.0 5.3 1.8 1.5 1.2
HDFC 648 943 19.0 21.4 22.2 23.1 27.1 22.9 19.1 5.5 4.8 4.1
HDFC Bank 2,202 1,012 31.3 17.0 19.1 21.5 25.8 19.8 14.9 4.0 3.5 2.9ICICI Bank 1,038 1,194 25.8 9.9 11.8 13.5 22.7 17.7 14.4 2.2 2.0 1.9
Indusind Bank 230 107 33.8 19.4 19.2 21.7 18.5 13.6 10.3 2.8 2.4 2.0
Mah & Mah Finance 719 70 28.3 22.2 21.8 22.7 15.7 12.1 9.5 2.8 2.3 1.8
Shri Ram Transport 764 172 29.4 28.3 29.4 29.5 14.0 10.6 8.4 3.5 2.7 2.2
Shriram City Union Finance 510 25 28.8 22.4 24.2 24.9 10.3 7.8 6.2 2.1 1.6 1.3
State Bank of India 2,792 1,772 22.3 16.5 17.7 18.6 15.3 12.4 10.2 1.9 1.6 1.3
Source: Bloomberg and IDFC Securities Research
Exhibit 19: The Indian retail fin ance market a snapshot
(Rs bn) Annual disbursements FY08-10 Major financiers/ Market Annual disb ursements FY10-13E
FY10 CAGR (%) share (%) FY10 FY13E CAGR (%)
Car finance
Car sales value (Rs bn) 822 16 HDFC Bank: 30-35% 1,541 23
Finance penetration (%) 68 SBI: 25-30% 71
Car finance market (Rs bn) 415 ICICI Bank: 10-12% 850 27
yoy growth (%) 40 8 23
Housing finance
Organized housing finance 1,404 9 HDFC: 23% 2,720 25
market (Rs bn) SBI: 25%
ICICI Bank: 12%
LIC Housing: 11%
Personal loans
Personal loans (Rs bn) 80 26 HDFC Bank: 40-45% 143 21
SBI: 20%
Credit cards
Annual spends (Rs bn) 618 3 ICICI bank: 27% 1,005 18
Credit card loans outstanding (Rs bn) 207 4 HDFC Bank: 22% 322 16
SBI: 10%
Axis Bank: 3%
Two-wheelers
Sales (Rs bn) 375 17 HDFC Bank, Bajaj Finance 679 22
Financing penetration (%) 35 IndusInd Bank, Kotak Bank 32
Two-wheeler credit (Rs bn) 88 (9) SCUF 152 20
Commercial vehicles
Sales (Rs bn) 409 3 HDFC Bank, ICICI Bank 801 25
Financing penetration (%) 96 SBI, IndusInd Bank, Sundaram Finance 97
CV credit (Rs bn) 324 (1) Tata Motor Fin, Shriram Transport 671 27Consumer durables (AC/ refrigerator/ CTV)
Sales (Rs bn) 263 13 Bajaj Finance: 50-60% 429 18
% financing 7 11
Consumer durable financing (Rs bn) 18 13 47 37
Total annual retail asset market (Rs bn) 2,538 8 4,906 25
Source: IDFC Securities Research
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FEBRUARY 2011 16
IDFC Securities
THE RETAIL LOAN MARKETSIEmergingMarketsPDF in-ladderup from 122.169.101.224 on 2011-09-19 07:35:27 EDT. DownloadPDF.
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FEBRUARY 2011 17
IDFC Securities
Gold loans: Increasing share of organized players to drive grow th
Industry sources estimate a stock of ~20,000 tonnes of gold with Indian households, of which ~10% is expected to have
been monetized in the form of gold loans. Of this, organized financiers penetration (NBFCs and banks) is estimated at
only ~25% while the remaining 75% lies with unorganized money lenders and pawn brokers. Going forward, as
NBFCs and banks penetrate deeper into rural and semi-urban geographies, a significant portion of this market is
expected to move from unorganized to the organized segment. While the recent RBI directive excluding gold loans
from agriculture loans for the purpose of priority sector lending is likely to impact NIMs of NBFCs, growth rates are
unlikely to be impacted materially. We expect organized market to see ~27% CAGR over FY10-13E to reach a portfolio
size of Rs1,259bn.
The organized market is dominated by players such as Manappuram Finance, Muthoot Finance, Shriram City Union
Finance and select banks. Decline in gold prices and slower growth remain the key risks to valuations of these
financiers.
Exhibit 20: Growth rates to be sustained
Source: Manappuram, IDFC Securities Research
Exhibit 21: NBFCs have an edge over banks
Source: IDFC Securities Research
Organized market share (Rs bn)
416
616
798
1,017
1,259
0
300
600
900
1200
1500
2009 2010 2011E 2012E 2013E
Organized players 25% market share
Specialized NBFCs Manappuram & Muthoot Finance
Other NBFCs SCUF, Reliance Consumer Finance,
Mahindra & Mahindra Finance
Banks Indian Bank, Indian Oversees Bank, Federal Bank
Cooperative banks
Organized players 25% market share
Specialized NBFCs Manappuram & Muthoot Finance
Other NBFCs SCUF, Reliance Consumer Finance,
Mahindra & Mahindra Finance
Banks Indian Bank, Indian Oversees Bank, Federal Bank
Cooperative banks
(% ) NBFCs Bank
Yield 24.0 12.0
Interest cost 10.0 5.0
Lending spread 14.0 7.0
NIM 15.0 7.0
Fees - 0.2
Total revenue 14.0 7.2
Operating expenses 7.0 2.5
Provisions 0.5 0.5
PBT 6.5 4.2
Tax 2.1 1.4
PAT 4.4 2.8
27%CAGR FY10-13E
Higher interest rates in lieu of
Lower turnover time
Cash disbursal ability
Minimum documentation
Host of product features
Segment more profitable forNBFCs
Provisions expensesremain low due to highliquidity value ofunderlying collateral
Market size: Rs.1,259bn (FY13E)
FY10-13E CAGR: 27%
IRR: 24-25%
Market size: Rs.1,259bn (FY13E)
FY10-13E CAGR: 27%
IRR: 24-25%
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FEBRUARY 2011 18
IDFC Securities
Mortgages: A lucrative opportunity
Though the housing industry is flourishing, supply has generally lagged demand led by; (i) rising disposable incomes,
(ii) increasing nuclearization of families, and (iii) easy availability of finance and tax sops. Housing shortage in India is
estimated to be ~80m units (20.5m units of urban and 59m units of rural housing) as of end-2010. After a minor blip in
2009, housing finance segment grew rapidly in FY10 supported by favorable interest rates, increase in transaction
volumes and increasing property prices. We expect socio-economic changes like rapid urbanization, shrinking size of
families and rising consumer affordability to be the key drivers affecting volume growth and, hence, housing finance
demand in the long term. We expect mortgage disbursements to increase at ~25% CAGR over FY11-13.
Exhibit 22: Housing short age in India estimated at 79.7m uni ts by end-2010
Urban housing shor tage Rural housing shor tage
Source: CRISIL
Exhibit 23: Macroeconomic factors suppor ting housing demand
Source: IDFC Securities Research
0.8
2.6 2.6 3.2 3.1
15.1
18.419.3
20.521.7
0
6
12
18
24
2001E 2005E 2008E 2010E 2014E
Immediate shortage Total shortage(m units)
Improved affordability
Rising disposable incomes
Tax incentives (interest and principal repayments
deductible)
Affordable interest rates
Favorable demographics
60% of Indias population below 30 years of age
Rapid rise in new households
Increasing urbanization
Currently, only 28% of the Indian population lives in cities
Improved affordability
Rising disposable incomes
Tax incentives (interest and principal repayments
deductible)
Affordable interest rates
Favorable demographics
60% of Indias population below 30 years of age
Rapid rise in new households
Increasing urbanization
Currently, only 28% of the Indian population lives in cities
3430.1
26.7 26
19.7
6259.4 59.2
64.3
53.8
0
17
34
51
68
2001E 2005E 2008E 2010E 2014E
Immediate shortage Total shortage(m units)
Mortgage Disbursements
768866
1,0971,188 1,170
1,404
1,755
2,194
2,720
0
500
1,000
1,500
2,000
2,500
3,000
FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E
(Rs bn)
See 25% CAGRahead
Market size: Rs2,720bn (FY13E)
FY10-13E CAGR: 25%
IRR: 9-10%
Key players: HDFC, LICHF, SBI, ICICI Bank
Market size: Rs2,720bn (FY13E)
FY10-13E CAGR: 25%
IRR: 9-10%
Key players: HDFC, LICHF, SBI, ICICI Bank
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FEBRUARY 2011 19
IDFC Securities
0
100
200
300
400
FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E
(000)MHCV Trucks LCV truck sales
CV loans: P iggy riding the economic rebound
Slow economic growth and weak industrial production had significantly reduced CV sales, leading to a decline in CV
finance disbursements in FY09. Sales rebounded sharply in FY10, which led to ~41% yoy growth in CV disbursements.
With the economic revival also reducing the uncertainty associated with transporters earnings and their ability to
spend, LTV for such loans is on the rise. Robust growth in underlying CV sales (we see a ~20% CAGR) and higher
LTVs are likely to drive 27% CAGR in CV disbursements over FY10-13. Finance penetration in the CV market is at
historic high levels (~90% of vehicles are financed) and is expected to remain elevated even in the long term. Small and
first-time fleet operators remain the riskier segment, and hence serviced by niche financiers only.
Exhibit 24: Robust sales outlook ov er the next few years
Source: SIAM; IDFC Securities Research
Exhibit 25: LTVs to rise Traction in CV sales to propel the disbursement momentum
Source: IDFC Securities Research
Sales bounced back inFY10; expected torow at 25% CAGR
90 90 91
87 87 8889 90
60 60
76
73 7375
77 78
50
60
70
80
90
100
(%)
FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E
MHCVs LTV LCVs LTV New CV financing market (Rsbn)
206
298332
222
324
441
553
671
0
150
300
450
600
750
FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E
27%CAGR
Market size: Rs671bn (FY13E)
FY10-13E CAGR: 27%
IRR: 14-15%
Key players: New private banks, NBFCs
Market size: Rs671bn (FY13E)
FY10-13E CAGR: 27%
IRR: 14-15%
Key players: New private banks, NBFCs
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FEBRUARY 2011 20
IDFC Securities
Auto loans: Low asset penetration to drive growth
Autos (cars and utility vehicles) witnessed a healthy 17% CAGR over FY06-08. Led by liquidity constraints and
concerns around weak asset quality as also the slowdown in auto sales, auto finance penetration and LTV declined to
68% and 72% respectively in FY09. After stagnating in 2009, higher consumer confidence and rising incomes led to a
rebound in auto sales in FY10. We expect the ongoing robust vehicle sales and favorable finance scenario to increase
finance penetration and LTV to 71% and 78% by 2013. We expect cars and UV disbursements to witness 27% CAGR
over FY10-13 to Rs850bn.
Exhibit 26: Robust sales outloo k over the next two years % of cars financed also set to rise
Source: Industry research; IDFC Securities Research
Exhibit 27: Financiers profitabil ity has revived with lower sourcing costs Expect 27% CAGR in disbursements over FY10-13
Source: IDFC Securities Research
5,000
6,500
5,000
3,000
5.0
4.0
2.0
1.8
0
1,700
3,400
5,100
6,800
FY03E FY08E FY09E FY10
0.0
1.5
3.0
4.5
6.0
Manufacturer subventions per car (Rs - LHS) Dealer payouts (%- RHS)
55 56
4035 34 33 32
75
70 65 67 6870 70
55 55
75 75
0
20
40
60
80
FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E
%Financed LTV %
2 Wheeler Finance market
88
103
119
107
75
88
111
133
152
0
40
80
120
160
FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E
(Rs bn)
820 8821,077
1,204 1,220
1,527
1,908
2,271
2,680
241 261 303330 332
423533
618717
0
600
1,200
1,800
2,400
3,000
FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E
('000)Cars UVs
Market size: Rs850bn (FY13E)
FY10-13E CAGR: 27%
IRR: 10-12%
Key players: HDFC Bank, SBI, ICICI Bank, IndusInd Bank, Kotak Bank
Market size: Rs850bn (FY13E)
FY10-13E CAGR: 27%
IRR: 10-12%
Key players: HDFC Bank, SBI, ICICI Bank, IndusInd Bank, Kotak Bank
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FEBRUARY 2011 21
IDFC Securities
2-wheelers loans: Momentum to sustain
High interest rates and strict lending norms led to a significant reduction in credit sales of 2-wheelers, and thereby
decline in 2W finance penetration to 40% in FY09 from 56% in FY08. Over the next couple of years, we expect finance
penetration to stabilize at lower levels of ~34% as an increasing proportion of 2W sales will come from the rural
markets where cash deals abound. Higher provisioning expenses and declining yield on loans drove a decline in 2W
finance in FY08. We expect profitability to increase in the near future as stringent underwriting norms are likely to
curtail credit expenses and fewer players in the market are likely to keep yields high.
In FY10, 2W sales grew by a strong 26% yoy led by i) buoyant rural demand, ii) Sixth Pay Commission payout, and iii)
a benign interest rate regime. We expect a robust sales CAGR of 19% over FY10-13 (though finance penetration would
come-off) to drive a 20% CAGR in disbursements over FY10-13.
Exhibit 28: Rising income levels to drive robus t sales Finance penetration to decline
Source: SIAM; IDFC Securities Research
Exhibit 29: Tighter underwriting & less clutter drive profit ability improvement Expect 21% CAGR in disbursements over FY10-13
Source: IDFC Securities Research
Domestic 2w (# )
6,2097,056
7,8727,249 7,438
9,371
11,714
13,705
15,761
0
4,000
8,000
12,000
16,000
FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E
('000)
RoA3.9
1.9
(0.6)
3.3
(1.0)
-
1.0
2.0
3.0
4.0
FY03 FY06 FY08 FY10
2 Wheeler Finance market
88
103
119
107
75
88
111
133
152
0
40
80
120
160
FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E
(Rs bn)
55 56
4035 34 33 32
75
7065 67
68 70 70
55 55
75 75
0
20
40
60
80
FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E
%Financed LTV %
Market size: Rs152bn (FY13E)
FY10-13E CAGR: 20%
IRR: 24-25%
Key players: HDFC Bank, SCUF, BAF, IndusInd Bank, SBI, NBFCs
Market size: Rs152bn (FY13E)
FY10-13E CAGR: 20%
IRR: 24-25%
Key players: HDFC Bank, SCUF, BAF, IndusInd Bank, SBI, NBFCs
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FEBRUARY 2011 22
IDFC Securities
Consumer durables: Changing business dynamics
Profitability in consumer durables financing has improved significantly due to low competition and caution exercised
by existing players. Product yields are now a high 24-25% (17-20% earlier), protecting lenders against potential credit
losses (5-6% on the higher side) and raising RoAs to ~1% (from losses earlier). Many NBFCs and banks exited
consumer durables in 2008, which led to a decline in finance penetration to a meager 2%. However, the current
scenario is different as benign competition has increased the pricing power of active players. Backed by a huge latent
demand, increased finance availability is expected to improve finance penetration to 11% by FY13. We expect the
macro-economic improvement and increased availability of consumer finance to drive an 18% CAGR in consumer
durable sales and 37% CAGR in disbursements over FY10-13.
Exhibit 30: Profitability rebounds
Source: Industry research; IDFC Securities Research
Exhibit 31: Growth ahead
Source: IDFC Securities Research
Segment turns profitable1.1(5.6)PAT
Lower credit costs due to better
borrower 'selection'
Higher technology and fixed
costs
Sharp improvement as dealer
payouts have disappeared
Comments
16.58.5Lending spread
NowThen(% of assets)
25.017.0*Yield
(8.3)
8.0
10.0
9.7
0.0
9.7
1.2
1.7
4.0
12.0
17.7
0.0
17.7
1.2
PBT
Fees
Total revenue
Operating expenses
Provisions
NIM
Yield on networth
Segment turns profitable1.1(5.6)PAT
Lower credit costs due to better
borrower 'selection'
Higher technology and fixed
costs
Sharp improvement as dealer
payouts have disappeared
Comments
16.58.5Lending spread
NowThen(% of assets)
25.017.0*Yield
(8.3)
8.0
10.0
9.7
0.0
9.7
1.2
1.7
4.0
12.0
17.7
0.0
17.7
1.2
PBT
Fees
Total revenue
Operating expenses
Provisions
NIM
Yield on networth
157173 186
206229
263
308
364
429
12
1415
7
2
7
910
11
0
125
250
375
500
FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E
(Rs bn)
0
4
8
12
16Consumer durable sales (LHS) Finance penetration (% - RHS) Consumer durable Finance market
19
24
28
14
5
18
28
36
47
0
10
20
30
40
50
FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E
(Rs bn)
Market size: Rs47bn (FY13E)
FY10-13E CAGR: 37%
IRR: 25-27%
Key players: SCUF, BAF, select regional NBFCs
Market size: Rs47bn (FY13E)
FY10-13E CAGR: 37%
IRR: 25-27%
Key players: SCUF, BAF, select regional NBFCs
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FEBRUARY 2011 23
IDFC Securities
Credit cards: Outstandings to rise
The credit-card industry saw intense competition in FY05-07. Banks, to garner incremental market share, increasingly
used DSA agents and relaxed card issuance standards, leading to a sharp increase in number of cards issued over
FY05-06. However, the ethos of the industry has changed since then. The economic downturn and incidence of willful
defaults in 2009 generated high losses for card issuers, compelling many NBFCs and banks to exit the segment. The
credit-card market is now dominated by private banks with ICICI Bank and HDFC Bank constituting 49% of the total
segment. Services of credit bureaus like CIBIL have also gained prominence, which deters willful defaults. To keep
credit losses in check, banks have decreased the use of DSA agents and have been largely cross-selling products to
own customers using the branch network. Over FY10-13, we expect a mere 5% CAGR in the number of credit cards
issued. Rising disposal incomes and greater acceptability of credit cards would lead to 18% CAGR in average spend
over FY10-13E. Overall, we expect credit card outstandings to increase by 16% over FY10-13.
Exhibit 32: The market still dominated by private banks Rising volumes
Source: RBI; banks, IDFC Securities Research
Exhibit 33: and a steady rise in spends to drive growth in portf olios
Source: RBI, IDFC Securities Research
13.0
17.3
23.1
27.5
24.7
18.3 18.319.2
21.210.0
9.0
7.3
8.3
10.5
12.8
0
8
15
23
30
FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E0
4
7
11
14Number of cards (m - LHS) No of transactions per card (RHS)Credit cards outstanding
ICICI Bank
27%
HDFC Bank
22%SBI
10%
Axis Bank
3%
Others
38%
64
91
134
193
280
207
189
236
322
26.8
42.8
33.531.0
32.025.0
32.4 33.2
30.0
-
100
200
300
400
FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E
0
11
22
33
44Credit card outstanding (Rs bn) Revolver (%)
See 13% CAGR an impact ofcross selling to internal
consumers and use of CIBIL
19,759 19,55717,888
21,049
26,461
33,727 34,401
39,561
47,474
-1.0
-8.5
17.7
25.7 27.5
2.0
15.0
20.0
0
15,000
30,000
45,000
60,000
FY05 FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E-10
0
10
20
30Average spends (Rs - LHS) yoy growth (%- RHS)
Market size: Rs322bn (FY13E)
FY10-13E CAGR: 16%
IRR: ~40%
Key players: ICICI Bank, HDFC Bank, SBI, foreign banks
Market size: Rs322bn (FY13E)
FY10-13E CAGR: 16%
IRR: ~40%
Key players: ICICI Bank, HDFC Bank, SBI, foreign banks
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FEBRUARY 2011 24
IDFC Securities
Personal loans: Treading the growth path again
Personal loan portfolios faced significant losses over FY08-09, as stringent collection norms by the RBI led to a surge in
willful defaults in the segment. Consequently, a number of players exited the sector which imparted pricing power to
existing players. Banks and other financials companies have increasingly started using services of CIBIL to choose
customers with good repayment history. Banks (which have the larger share of the market) are now focusing on their
existing client base than depending on DSA agents to source new customers. Though the segment remains one of the
most profitable for banks, we expect them to expand cautiously in the near term. We expect personal loan
disbursement to increase by 21% over FY10-13.
Exhibit 34: HDFC Bank the pro fit leader
Source: Banks, IDFC Securities Research
Exhibit 35: Increasing reliance on CIBIL to curtail credit costs Cautious growth ahead
Source: IDFC Securities Research
Increasing use of CIBIL
Banks now lend only to customers with a healthy
credit history
Curtail of willful defaults
Focus on existing customers only
Check on repayment capacity and earnings along
with credit history
Internal sourcing only as against DSAs and DMAs
earlier
Increasing use of CIBIL
Banks now lend only to customers with a healthy
credit history
Curtail of willful defaults
Focus on existing customers only
Check on repayment capacity and earnings along
with credit history
Internal sourcing only as against DSAs and DMAs
earlier
Personal loans
HDFC Bank
45%
Axis Bank
10%
Others
26%
ICICI Bank
19%
3
4
10
7
2.8
1.19
-0.21
10.2
0
3
6
9
12
FY03 FY06 FY08 FY10
(4)
-
4
8
12Provisioning cost (%- LHS) RoA (%- RHS)
80.088
110
143
200.0188
204
245
0
65
130
195
260
FY10 FY11E FY12E FY13E
Personal loan disbursements (Rs bn) Personal loan outstandings (Rs bn)
Market size: Rs143bn (FY1 3E)
FY10-13E CAGR: 21%
IRR: 30-35%
Key players: HDFC Bank, SBI, PNB, SCUF, BAF, foreign banks
Market size: Rs143bn (FY13E)
FY10-13E CAGR: 21%
IRR: 30-35%
Key players: HDFC Bank, SBI, PNB, SCUF, BAF, foreign banks
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IDFC Securities
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FEBRUARY 2011 26
IDFC Securities
Bajaj Auto Finance (BAF), a diversified retail financier, is working to gain scale and grow its
assets ~3.9x by FY13E. BAF, with its focused distribution network in Indias top ~70 cities and a
capable management, has captured a slot among the top-3 in 2W and consumer durables. It is
now foraying into secured business lines to build a balanced risk book. While the unsecured
loan book is expected to clock ~30% CAGR over FY10-13, secured assets (~65% of total loans in
FY13E) will help the balance sheet achieve scale. Driven by growing volumes and steady credit
costs, we expect BAF to deliver 70% CAGR in earnings and a jump in RoE from 8% in FY10 to
23% in FY13. Current valuations of 1.5x FY12E and 1.2x FY13E adjusted BV are attractive in
context of the stellar growth and peer valuations. We reiterate Outperformer on the stock with a
12-month price target of Rs990 (8x FY13E earnings and 1.9x FY13E adjusted BV).
Building a sustainable consumer franchise: Historically focused on 2W and consumer durable
loans, BAF has added four more segments personal and small business loans, loans against
property (LAP), loan against shares (LAS) and construction equipment to its portfolio. Emphasis
on affluent customers and enhanced usage of credit bureau have ensured better asset quality even
in the riskier segments. A strong risk management framework, wide distribution network and
cross-selling strategy have also helped BAF generate superior profitability in unsecured businesses.
Robust growth outlook: With focus on building a diversified consumer franchise, BAF is looking
to attain balance sheet scale via secured segments. Entry into new secured product segments is
expected to drive 62% CAGR in loans over FY10-13. These segments would form ~65% of the loan
book by FY13E from ~30% currently. While margins would likely soften hereon due to entry into
secured segments, robust business traction (41% CAGR in disbursements) is expected to drive animpressive 43% CAGR in NII over FY10-13.
Preferred play on consumer finance; Outperformer: NII momentum, coupled with steady credit
costs, would drive 70% CAGR in BAFs earnings over FY10-13E. Also, increasing leverage would
lead to a steep rise in RoE to 23% by FY13E. We see BAF as an attractive vehicle to ride the upturn
in consumer financing.
Key valuation metrics
Year to 31 Mar FY09 FY10 FY11E FY12E FY13E
Net profit (Rs mn) 339 894 2,367 3,329 4,370
yoy growth (%) 68.6 163.6 164.8 40.6 31.3
Shares in issue (mn) 36.6 36.6 36.6 36.6 36.6
EPS (Rs) 9.3 24.4 64.7 91.0 119.4
EPS growth (%) 68.6 163.6 164.8 40.6 31.3
PE (x) NM 25.9 9.8 7.0 5.3
Book value (Rs/share) 297.5 314.9 360.7 425.0 509.5
P / BV ( x) 2.1 2.0 1.8 1.5 1.2
ROAE (%) 3.1 7.8 17.9 21.4 23.4
Source: IDFC Securities Research, Priced as of 21st Feb, 2011
Price performance
Bloomberg: BAF IN 6m avg daily vol. (m): 0.09
1-yr High/ Low (Rs): 839 / 283 Free Float (%): 44.5
Reason for report: Company update
Rs634
Mkt Cap: Rs23.2bn; US$514m
OUTPERFORMER
Bajaj FinanceThe surv ivor
Pathik [email protected] 22525
60
120
180
240
300
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Bajaj Auto Finance Sensex
Chinmaya [email protected] 22563
Kavita [email protected] 22558
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FEBRUARY 2011 27
IDFC Securities
Income statement
Year to 31 Mar (Rs m) FY09 FY10 FY11E FY12E FY13E
Net interest income 3,452 6,080 9,173 13,712 17,785
yoy growth (%) 44.3 76.1 50.9 49.5 29.7
Other income 899 1,065 1,205 1,635 2,091
yoy growth (%) (3.5) 18.5 13.2 35.6 27.9Net revenue 4,350 7,145 10,379 15,346 19,876
yoy growth (%) 30.9 64.2 45.3 47.9 29.5
Operating expenses 2,204 3,196 4,629 6,882 8,517
yoy growth (%) 14.1 45.0 44.8 48.7 23.8
Provisions 1,636 2,606 2,216 3,495 4,836
PBT 510 1,343 3,533 4,969 6,523
yoy growth (%) 70.2 163.1 163.1 40.6 31.3
Provision for tax 171 449 1,166 1,640 2,152
PAT 339 894 2,367 3,329 4,370
yoy growth (%) 68.6 163.6 164.8 40.6 31.3
Balance sheet
Year to 31 Mar (Rs m) FY09 FY10 FY11E FY12E FY13E
Loan book on BS 23,704 40,258 80,614 123,051 171,748
yoy growth (%) (18.1) 69.8 100.2 52.6 39.6
Total assets 30,164 48,226 90,294 135,195 187,236
yoy growth (%) (22.7) 59.9 87.2 49.7 38.5
Networth 10,887 11,525 13,200 15,556 18,647
Loan funds 16,114 32,268 69,114 107,671 150,635
Gearing (no of times) 2.8 4.2 6.8 8.7 10.0
Ratio Analysis
Year to 31 Mar (Rs m) FY09 FY10 FY11E FY12E FY13E
Net int. margin/avg assets 10.0 15.5 13.2 12.2 11.0Non-fund rev./avg assets 2.6 2.7 1.7 1.4 1.3
Operating exp./avg assets 6.4 8.2 6.7 6.1 5.3
Cost/Income 50.7 44.7 44.6 44.8 42.9
Prov./avg b/s loan assets 6.2 8.1 3.7 3.4 3.3
PBT/Average assets 1.5 3.4 5.1 4.4 4.0
RoA 1.0 2.3 3.4 3.0 2.7
RoE 3.2 8.0 19.1 23.2 25.6
Tax/PBT 33.6 33.4 33.0 33.0 33.0
Provisioning coverage 32.1 55.0 80.0 93.7 102.7
Growth in loan assets (18.1) 69.8 100.2 52.6 39.6
Growth in loan funds (3.1) 100.2 114.2 55.8 39.9
Disbursements composition
0
25
50
75
100
(%)
FY09 FY10 FY11 FY12 FY13
Consumer Durables 2 &3-WheelerPersonal & Small Bus. Loans Mortgages + LAP
Construction Equipment Loan against Securities
Disbursements growth
Disbursements (Rs m)
0
7500
15000
22500
30000
Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11
Shareholding pattern
11.5%
55.2%
13.0%
6.7%
113.6%
Foreign
Promoters
Institutions
Non PromoterCorporate Holding
Public &Others
As of December 2010
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FEBRUARY 2011 28
IDFC Securities
HDFC Bank, backed by a strong liability franchise and experienced management, has consistently
delivered the best risk-adjusted returns in the retail finance space. The bank has a dominant
presence across a comprehensive suite of secured as well as unsecured retail products. Scale (1,780
branches as of December 2010) has enabled the bank to cross-sell for loan origination, which has
also imparted resilience to asset quality across interest rate cycles. With pricing sufficiently
cushioned for credit costs, NIMs have sustained at elevated levels of 4-4.2%. We expect robust loan
growth and stable NIMs which, coupled with high CASA and lower provisions, will drive a 32%
CAGR in PAT over FY10-13E. At 3.5x FY12E adjusted book, we reiterate Outperformer with a 12-
month price target of Rs2,610 (4.1x FY12E adjusted BV ).
Consistent growth with profitability a rare combination: Owing to its strong CASA deposit base,HDFC Banks funding costs are the lowest in the retail finance business. This imparts significant
pricing power to the bank, and thereby the ability to gain market share. However, the bank has
chosen a prudent pricing strategy and registered a steady and above-industry rise in retail loans.
Contained delinquencies and high yields maximize the risk-adjusted returns on the portfolio.
Presence across product spectrum: Retail finance constitutes 57% of HDFC Banks total loan book.
The bank has a dominant presence across product retail finance categories like auto, commercial
vehicle loans, loan against securities, 2-wheeler, personal loans and credit cards. The bank has
leveraged on its large customer base and strong brand name to achieve healthy profitability even in
unsecured categories.
Attractive valuations; Outperformer: Robust credit growth, steady margins, high CASA ratio and
lower provisioning are expected to drive a 32% CAGR in HDFC Banks PAT over FY10-12. We expect
credit costs to normalize from ~110bp to ~70bp in FY11-13, which would further improve RoA over
FY10-13E. We see further synergies from the CBoP merger (in terms of fee income and expenses)
fructifying over the next few quarters. At 3.5x FY12E adjusted book, we reiterate Outperformer with a
12-month price target of Rs2,610.
.Key valuation metrics
Year to 31 Mar FY09 FY10 FY11E FY12E FY13E
Net profit (Rs m) 22,449 29,487 39,199 51,029 67,732
yoy growth 41.2 31.3 32.9 30.2 32.7
Shares in issue (m) 425 458 460 460 460
EPS (Rs) 53 67 85 111 147
EPS growth (%) 17.6 26.5 28.0 29.9 32.7
PE (x) 41.7 33.0 25.8 19.8 14.9
Adj. Book Value (Rs/share) 353.1 473.7 544.3 636.7 755.8
P/ Adj Book (x) 6.2 4.6 4.0 3.5 2.9
RONW (%) 16.1 16.1 17.0 19.1 21.5
Source: IDFC Securities Research, Priced as of 21st Feb, 2011
Price performance
Bloomberg: HDFCB IN 6m avg daily vol. (m): 0.93
1-yr High/ Low (Rs): 2540/1629 Free Float (%): 76.6
Reason for report: Company update
Rs2202
Mkt Cap: Rs1008bn; US$22.4bn
OUTPERFORMER
HDFC BankThe profit leader
Pathik [email protected] 22525
80
100
120
140
160
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
HDFC Bank Sensex
Chinmaya [email protected] 22563
Kavita [email protected] 22558
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FEBRUARY 2011 29
IDFC Securities
Income statement
Year to 31 Mar (Rs bn) FY09 FY10 FY11E FY12E FY13E
Net interest income 74.2 83.9 106.1 131.5 168.2
yoy growth (%) 42.0 13.0 26.5 23.9 28.0
Other income 33.2 38.1 41.4 52.1 62.2
yoy growth (%) 50.5 14.7 8.6 25.9 19.4Trading profits 4.1 3.5 -0.8 1.5 1.5
Non trading income 29.0 34.6 42.2 50.6 60.7
Net revenue 107.4 121.9 147.5 183.6 230.4
yoy growth (%) 44.5 13.5 20.9 24.5 25.5
Operating expenses 55.3 57.6 69.3 86.6 103.7
yoy growth (%) 47.7 4.2 20.2 25.0 19.7
Provisions 19.1 21.4 19.7 20.8 25.7
PBT 33.0 42.9 58.5 76.2 101.1
yoy growth (%) 44.7 30.0 36.4 30.2 32.7
Provision for tax 10.5 13.4 19.3 25.1 33.4
PAT 22.4 29.5 39.2 51.0 67.7
yoy growth (%) 41.2 31.3 32.9 30.2 32.7
Balance sheet
Year to 31 Mar (Rs bn) FY09 FY10 FY11E FY12E FY13E
Customer assets 1,053.5 1,330.8 1,777.1 2,287.0 2,914.0
yoy growth (%) 9.2 26.3 33.5 28.7 64.0
SLR portfolio 521.6 510.5 520.0 689.6 949.1
Cash & bank balances 175.1 299.4 254.5 330.9 430.1
Total assets 1,832.7 2,224.6 2,639.9 3,410.2 4,412.2
Networth 150.5 215.2 246.6 287.4 341.6
Deposits 1,428.1 1,674.0 2,024.4 2,674.4 3,517.8
yoy growth (%) 18.6 17.2 20.9 32.1 73.8
- Current (%) 19.9 22.2 19.0 19.0 19.0
- Savings (%) 24.4 29.8 31.0 31.0 31.0- Term (%) 55.6 48.0 50.0 50.0 50.0
Borrowings 91.6 129.2 142.1 198.9 278.5
Ratio Analysis
Year to 31 Mar (%) FY09 FY10 FY11E FY12E FY13E
Net int. margin/avg assets 4.4 4.1 4.4 4.3 4.3
Non-fund rev./avg assets 1.9 1.9 1.7 1.7 1.6
Operating exp./avg assets 3.2 2.8 2.8 2.9 2.7
Cost/Income 51.5 47.3 47.0 47.2 45.0
Prov./avg customer assets 1.7 1.6 1.0 0.8 0.8
PBT/Average assets 1.9 2.1 2.4 2.5 2.6
RoA 1.3 1.5 1.6 1.7 1.7
RoE 16.1 16.1 17.0 19.1 21.5
Tax/PBT 32.0 31.3 33.0 33.0 33.0
Tier I Capital adequacy 10.6 13.3 11.4 10.3 9.6
GrossNPA 2.0 1.4 1.3 1.1 1.2
Net NPA 0.6 0.3 0.2 0.1 0.2
Provisioning coverage 68.4 78.4 87.2 91.9 87.1
Growth in customer assets 9.2 26.3 33.5 28.7 27.4
Growth in deposits 18.6 17.2 20.9 32.1 31.5
Retail loan composition
0
25
50
75
100
(%)
FY06 FY07 FY08 FY09 FY10 9MFY11
Auto Loans Personal Loans CVs 2-Wheelers
Business Banking Credit Cards Home Loans Others
Retail loans proportion
0
25
50
75
100
(%)
FY07 FY08 FY09 FY10 9MFY110
15
30
45
60
Corporate loans (LHS)
Retail loans (LHS)
Retail loan (%- RHS)
Shareholding pattern
48.5%23.5%
10.2%
8.5%
9.3%
ForeignPromoters
Institutions
Non PromoterCorporate Holding
Public &Others
As of December 2010
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FEBRUARY 2011 30
IDFC Securities
HDFC, Indias leading mortgage financier, has shown remarkable consistency with a 25-30% yoy
increase in disbursements and sanctions over the past decade. Despite fewer branches vis--vis
banks and a wholesale funding mix, the lender has maintained its competitive edge on the back
of: (i) focus on a single product line, (ii) ~30% of its loans disbursed to developers, and (iii)
distribution through direct selling agents and its associate, HDFC Bank. A strong brand and AAA
credit rating have helped the company create a diversified funding profile, which has bolstered
spreads to a high of 2.0-2.5% even in adverse business cycles. We expect robust growth in
disbursals and stable margins to drive 34% CAGR in NII over FY10-13. Valuing the core business
at 4.2x FY12E book and attributing Rs170 per share of value to subsidiaries, we assign a 12-month
price target of Rs750. Reiterate Outperformer.
Robust growth in disbursements: HDFC registered a strong 25% CAGR in disbursements over
FY07-10, driven by high demand in the mortgage industry, improved affordability, increased
urbanization and favorable demographics. With demand drivers in place and a more benign
competitive scenario, we expect disbursements to jump 20%, and thereby the loan book to expand
by 20% CAGR, over FY10-13.
Margins likely to remain stable: Given its dynamic funding mix (proportion of low cost retail
funding increases in a rising interest rate environment), we expect HDFCs borrowing costs to
remain largely immune to rising wholesale rates. With the recent withdrawal of teaser rate loans
reducing competitive intensity, we expect the lender to regain its pricing power, which will further
support margins. We expect margins to remain stable at 3.8% over FY11-12.
An attractive proposition; Outperformer: Strong growth in the loan book and stable margins are
estimated to drive 20% CAGR in PAT with average RoE of 22% over FY10-13. At 4.8x FY12 P/BV,
HDFC offers immense value and is one of our top picks in the financials space. Further, given the
recent negative news flow on the mortgage finance industry, HDFC stands to benefit with its clean
image. A severe slowdown in residential real estate volumes and a sharp spike in interest costs are
key risks to our call.
Key valuation metrics
Year to 31 Mar FY09 FY10 FY11E FY12E FY13E
Net profit (Rs m) 22,825 28,265 34,798 41,214 49,260
yoy growth (%) (6.3) 23.8 23.1 18.4 19.5
Shares in issue (m) 1,422 1,436 1,455 1,455 1,455
EPS (Rs) 16 20 24 28 34
EPS growth (%) (6.4) 22.7 21.5 18.4 19.5
PE (x) 40.4 32.9 27.1 22.9 19.1
Book value (Rs/share) 92 106 119 136 157
P/ BV (x) 7.0 6.1 5.5 4.8 4.1
RONW (%) 18.2 20.0 21.4 22.2 23.1
Source: IDFC Securities Research, Priced as of 21st Feb, 2011
Price performance
Bloomberg: HDFC IN 6m avg daily vol. (m): 3.37
1-yr High/ Low (Rs): 861/489 Free Float (%): 100
Reason for report: Company update
Rs648
Mkt Cap: Rs950bn; US$21.1bn
OUTPERFORMER
HDFCSteady performer
Pathik [email protected] 22525
80
100
120
140
160
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
HDFC Sensex
Chinmaya [email protected] 22563
Kavita [email protected] 22558
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Income statement
Year to 31 Mar (Rs bn) FY09 FY10 FY11E FY12E FY13E
Net interest income 34.1 38.1 47.4 57.3 68.4
yoy growth (%) 20.8 11.8 24.4 20.9 19.4
Other income 1.5 4.7 5.2 4.6 5.3
yoy growth (%) (81.7) 200.3 12.1 (11.9) 15.8Trading profits 0.3 2.1 2.7 1.5 1.5
Non trading income 1.3 2.6 2.5 3.1 3.8
Net revenue 35.6 42.8 52.6 61.9 73.7
yoy growth (%) (2.9) 20.0 23.1 17.6 19.1
Operating expenses 3.2 3.2 3.9 4.4 5.0
yoy growth (%) 2.4 21.8 21.8 10.5 14.1
Operating profit 32.7 39.7 48.9 57.8 69.1
yoy growth (%) (4.0) 21.6 23.1 18.2 19.4
Provisions 0.5 0.6 0.6 0.6 0.7
PBT 32.2 39.2 48.3 57.2 68.4
yoy growth (%) (4.6) 21.7 23.4 18.4 19.5
Provision for tax 9.4 10.9 13.5 16.0 19.2
PAT 22.8 28.3 34.8 41.2 49.3yoy growth (%) (6.3) 23.8 23.1 18.4 19.5
Balance sheet
Year to 31 Mar (Rs bn) FY09 FY10 FY11E FY12E FY13E
Loan book 852.0 979.7 1,175.6 1,410.7 1,692.9
yoy growth (%) 16.2 15.0 20.0 20.0 20.0%
Investment portfolio 104.7 107.3 114.0 119.8 125.9
out of which equity 48.4 86.0 86.9 87.9 89.0
Total assets 1,016.6 1,166.4 1,377.2 1,626.9 1,924.6
Networth 131.4 152.0 172.9 198.1 229.0
Total Debt 838.6 965.7 1,146.7 1,360.7 1,615.1
Gearing 6.4 6.4 6.6 6.9 7.1
Ratio Analysis
Year to 31 Mar (%) FY09 FY10 FY11E FY12E FY13E
Net int. margin/avg assets 3.66 3.49 3.73 3.81 3.85
Non-fund rev./avg assets 0.17 0.43 0.41 0.31 0.30
Operating exp./avg assets 0.34 0.30 0.31 0.29 0.28
Cost/Income 8.88 7.57 7.49 7.04 6.74
Prov./avg assets 0.05 0.05 0.05 0.04 0.04
PBT/Average assets 3.46 3.59 3.80 3.81 3.85
RoA 2.45 2.59 2.74 2.74 2.77
RoE 18.20 19.95 21.42 22.22 23.07
Tax/PBT 29.09 27.82 28.00 28.00 28.00
Disbursement growth
0
250
500
750
1000
FY06 FY07 FY08 FY09 FY10 FY11E FY12E FY13E
-
7.5
15.0
22.5
30.0Disbursements (Rs bn - LHS) yoy growth (%- RHS)
Advances composition (%)
0
25
50
75
100
(%)
FY06 FY07 FY08 FY09 FY10 Q3FY11
Individuals Corporates Other
Shareholding pattern
74.5%
13.3%
1.5% 10.7%
Foreign
Institutions
Non PromoterCorporate Holding
Public &Others
As of December 2010
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After two years of a cautious stance, ICICI Bank is geared to accelerate growth in its retail
portfolio. The bank has redrawn its strategy to focus on collateralized as against unsecured loans
earlier. It has changed tack from price aggression