report nmims asia pac winner hdfc bank
DESCRIPTION
cfaTRANSCRIPT
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CFA Institute Research Challenge hosted by
IAIP (Indian Association of Investment Professionals) Team: Francesco D'Andrea
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We initiate coverage of HDFC bank with a sell rating and an end-of-the
year target price of Rs 583, which offers a 7.2 % downside from current
stock price.
HDFC bank, 24% owned by HDFC, has a network of more than 2,620
branches and 10,316 ATMs in 1,454 cities making it the second largest
private sector bank in India. Stable CASA ratio (46%) and NIM (4.2%) has
led to consistent profit growth for the last 10 years. We expect HDFC
Bank to deliver 20% CAGR in net earnings over FY13-15E, aided by NII
growth, despite our concerns on higher delinquency rates.
A strong performer - HDFC bank is one of the best banks in India and we
could find little fault with its strategy or management. HDFC banks net
revenues were at 5,076.8 cr for the quarter ended September 30, 2012,
an increase of 22.2% qoq. Net interest income grew by 26.7% qoq. This
was driven by loan growth of 22.9% and a NIM for the quarter of 4.2%.
The bank has always given excellent numbers on growth, profitability and
asset quality.
Growth to moderate - With its strong fundamentals, HDFC bank would
continue to grow. However we expect the growth to moderate in the
years to come and given the size of the bank (increasing base) the
historical growth levels of assets and profits of 30% CAGR are difficult to
sustain. In addition moderation of growth in Auto sector (40% of retail
loans), slower growth on CASA as the bank is concentrating on rural and
semi urban areas (70% new branches in FY11 and FY12) and expected
increased delinquency rates would put pressure on growth. The level of
competition from private banks targeting the same space on the assets
and liability side is also increasing. Based on above analysis, we expect
the profits to grow at a CAGR of 20% plus in FY13E to FY15E and assets
to grow at a CAGR of 18% in FY13E to FY15E.
Valuation - Our valuation methods lead to a target price of Rs 583 by
end of FY13. We still reiterate that HDFC bank is fundamentally a very
strong company but current prices more than reflect all the positives.
HDFC Bank has always commanded a premium valuation vis--vis its
peers due to its track record of consistent growth in earnings and
assets. But the present multiple of 4.9x P/B is not justified by the
financials and we expect it to correct going forward. The stock currently
trades at 4.2x FY13 adjusted book value.
Investment Risks - The major upside risks on the target price are 1)
stable or improved NPAs 2) stronger growth on retail book on account
of HDFC outwitting the competition by new private sector and 3) PSU
banks with stable growth in CASA.
FINANCIAL RATIOS
Book value per share 127.52
EPS 22.02
Dividend per share 4.3
Dividend yield 0.68
ROE 18.69
ROA 1.68
MARKET DATA
Market Capitalization(Rs. Cr) 137566
53 wk H/L (Rs.) 639/400
Avg. Vol. (3 m avg) 194204
Free float (%) 76.90%
Circuit Limits 762.35/508.25
Face Value (Rs.) 2
NSE code HDFCBANK
BSE Scrip Code 500180
FORWARD 12 m RATIOS:
P/BV 4.25
P/E 23.84
P/Total Assets 0.0015
BVPS 148
Source: NSE, Team Estimates
RELATIVE
PERFORMANCE
SELL
Target Price Rs.583
Current Price Rs.628
Downside 7.2%
HDFC BANK : PRETTY BUT PRICEY
HDFC and BANK NIFTY
Source:Moneycontrol.com
RETURN GROWTH
VOLATILITY P/BV
Exchange: NSE Sector: Private Sector Banks
Ticker Symbol: HDFCBANK Industry: Banks
1
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Investment Summary
Consistent earnings and quality business but expensive valuation - HDFC bank is a consistent performer in the Indian
banking sector and has distinguished itself from the rest of the pack consistently. The banks FY13 Q2 numbers were
in line with our expectations and going forward we expect slight pressure on account of increase in delinquency,
moderation in CASA, increased competition from private & public sector banks and moderation in other income.
Considering its superior business quality, its relative value compared to its peers is most obvious during challenging
times. However, given that its current valuations are above the intrinsic value and the multiples well above the intrinsic
levels, we expect the stock to moderately correct from current levels. The stock has had an excellent run up in the near
past and has consistently outperformed both the Nifty and the sectoral index. We expect the prices to correct and the
stock to trade at its long term average 1 year forward P/ABV multiple of 3.9x which gives a target price of Rs 583.
Concerns amid strong fundamentals - Although the banks business looks formidable with strong fundamentals and
the bank has given excellent performance numbers, we believe current valuations more than reflect these positives,
but ignore risks. We see the following key risks going forward: a) The past performance of the bank could prove to be
an impediment for it in the future. With the high base, the growth in assets and operating profit at historical levels of
30% looks difficult to sustain. We expect a likely slowdown in asset growth and operating profit to mean levels of 20%
on an average. b) potential downside to profitability due to increased competition from private and public sector banks
which target the same business (as the other focus sectors like infra have nearly dried out) and increased delinquency
rates on account of unfavourable macroeconomics. c) moderation in CASA growth at around 16% levels compared to
its own excellent past growth numbers, as market share stagnates due to expansion of branches in lower yielding
rural/semi-urban areas and competition from smaller banks that are expanding at a faster pace.
According to our estimates, we expect HDFC bank to trade in the 3-4x P/BV band in the longer term. Any valuation
which offers an upside from current expensive levels would depend on a sustained ROE improvement outlook over
20%+ or an extremely favourable macro condition, which we do not foresee in near term.
The key upside risks to our target price lie in: (1) any positive news on asset quality; (2) sudden revival in the economy
due to turnaround in macro environment; (3) more than expected growth in loan book of the bank in spite of sluggish
economic outlook; and (4) changing risk perceptions of private banks and they getting perceived as less riskier
compared to public sector banks. If any of these factors has a greater impact than we expect, the stock could have
difficulty achieving our target price.
2
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Promoter
23%
FII 32%
DII 10%
Others 35%
Shareholding Pattern
Source: NSE India, Team Estimates
Business Overview
Incorporated in the year 1994, HDFC Bank commenced operations as
a Scheduled Commercial Bank in January 1995. HDFC bank is
headquartered in Mumbai and is promoted by HDFC - India's premier
housing finance company. HDFC Bank has had strong and steady
growth over the past 10 years and continues to grow at more than
25%. HDFC Bank acquired Times Bank in 2000 and Centurion Bank of
Punjab in 2008.
The Bank at present has an enviable network of 2,544 branches
spread in 1,399 cities across India. The Bank also has 10,235
networked ATMs across these cities. HDFC Bank's mission is to be a
World-Class Indian Bank and it has been continuously progressing
towards achieving its mission and today with a total business of 4.5
lakh cr, it is the 2nd largest private sector bank in the country. Along
with achieving excellent returns (ROA of 1.68% and ROE of 18.69%) for
all its stakeholders, the bank has always maintained the highest level
of ethical standards, professional integrity, corporate governance and
regulatory compliance.
HDFC Bank offers a wide range of commercial and transactional
banking services and treasury products to its wholesale and retail
customers. The bank has three key business segments: Wholesale
Banking Services, Retail Banking Services and Treasury. Together they
offer a complete suite of products to meet diverse customers`
requirements.
HDFC banks has two subsidiaries
HDFC securities Limited - a leading AAA / Stable (CRISIL) rated
brokerage firm offering integrated financial solutions for both retail and
institutional investors. HDFC bank holds 63% ownership interest in
HDFC securities.
HDB Financial Services - a leading Non Banking Financial Company
(NBFC) that offers customized financial solutions to both retail and
commercial customers which include asset backed loans, Loans for
personal and business purposes, Commercial vehicle loans, life
insurance and general insurance etc. HDFC bank holds 97.4%
ownership interest in HDBFS.
HDFC bank also has ownership interest in two associates, Atlas
Documentary Facilitators Company Private Limited (29.0% stake) and
International Asset Reconstruction Company Private Limited (29.4%
stake).
HDFC bank has always stuck with a predominantly non price strategy
model because of the existing regulatory framework and the
complementarities built into the system. But because of its excellent
management, impeccable execution, product and technological
innovation and excellent asset quality, the bank has been a consistent
performer over the last 10 years with strong growth in profit (bottom
line growth of over 30%), high profitability (ROE of over 17%) and low
NPLs (GNPA of 0.9% and NNPA 0.18%). The bank has achieved pre
provisioning operating margin growth at 35% & 28% CAGR over the last
10 & 5 years & PAT at 33% & 35% respectively.
Mar-09 Mar-10 Mar-11 Mar-
12
Cities 528 779 996 1399
Branches 1412 1725 1986 2544
ATMs 3295 4232 5471 8913
Source: Annual Report
0
0.5
1
1.5
2
New Pvt
Banks Avg
All SCB Avg
HDFC Bank
All Pvt Banks Avg
ROA
Source: RBI website, Team Estimares
1051890.677
1226708.623
5,90,067
7,50,426
19,54,200
24,67,064
4,83,209
5,87,294
Ad
van
ces
Dep
osi
ts
Business Comparison
All Pvt Banks Avg HDFC Bank
All SCB Avg New Pvt Banks Avg
Source: RBI website, Team Estimares
3
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Industry Overview (see Appendix 1)
Banking in India is resilient, however, under extreme shocks, some
banks could face moderate liquidity problems and their profitability
could be affected. The banks in India have been found to be deeply
interconnected, which can bring about magnification of shocks. The
threat of contagion is relatively lesser due to RBI regulation on
interbank exposure.
Asset quality management Net NPAs for the private banking sector
have been falling since 2008-09, however, we notice that that rose
during crisis period. There is a possibility of NPAs rising going forward.
Also, rising SME loans in their portfolio tend to be sticky and can be
harmful in a volatile interest rate scenario.
Favourable Demographic trends point towards an increase in demand
for retail as well as other banking services. Retail banking will benefit
due to a demographic shift to a younger and larger labour force and
emergence of a large middle class, increasing demand for affordable
and accessible banking. Also, households earning more than Rs.
500,000 per annum are expected to grow the fastest, thus raising
demand for wealth management and other allied facilities for HNIs.
Having said this consumption growth has weakened given the fall in
real incomes. (See Appendix 1 A)
Increased pressure on NIMs is anticipated by the banking sector due
to the increase in competition. This implies greater dependence on
fee incomes and other sources of revenue generation like cross-
selling. Cross-selling will emerge as a very important source of
revenues because this potential is relatively untapped in India
compared to global benchmarks.
Credit Growth and GDP: Recent fuel price hikes and inadequate rain
are likely to exert upward pressure on inflation rate. There are also
misgivings about the inflationary impact QE 3 would have on
commodity prices. To keep inflation in check, the RBI is less likely to
lower policy rates any more in the immediate future. 2013 GDP
growth forecasts have been revised downward to 4.9-5.3%, with the
IMF giving a conservative number of 4.9%. It has been observed that
the banking sector grows at about a 2.5 multiple of the GDP growth.
We put the expected growth figure in the range 12.25%-13.25% for
the sector.
Sectoral Impacts: In Power, The CCEA has approved a restructuring
plan for State Electricity Board loans through bank credit, Bank credit
to the the sector rose to 7.2 % of all bank lending in March 2012. SEB
discoms have doubtful repayment ability. In Auto, High inflation,
economic uncertainty and high fuel prices led to the steepest monthly
fall in 4 years in auto sales in September 2012 .
Bankex and WPI The Bankex and the WPI show a strong positive
correlation. However, we observe that the Bankex or inflation tends to
move about the WPI in the short run. In other words, we see the
Bankex coming back to the WPI line after deviating in the short run.
We expect Bankex to rise in the medium run as the inflation is not
expected to come down due to the aforementioned factors.
0 2 4 6 8
Private banks
Foreign Banks
Public Banks
Global best practices benchmark range
Source: IBA-FICCI, Team Estimates
Financial Products available per customer
0
20
40
60
80
100
120
140
160
180
0
2000
4000
6000
8000
10000
12000
14000
16000
Mar
-04
Dec
-04
Sep
-05
Jun-
06
Mar
-07
Dec
-07
Sep
-08
Jun-
09
Mar
-10
Dec
-10
Sep
-11
Jun-
12
Source: BSE, Team Estimates
BANKEX
WPI
45.1 38.2 36
44.7 50 51.1
13.9 16.3 17.9
2001 2011 2016 Source: Census of India, Team Estimates
Demographics - boost to Retail Banking
Below 20 20-50 50 and above AGE:
40
50
60
70
80
Source: Google Public Data
Bank credit (as a % of GDP)
4
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Competitor Analysis (see Appendix 2)
HDFC Bank is highly valued by the markets on account of (1) consistent
growth (2) Asset quality which withstood during economic downturn (3)
Qualified and Performance driven management. However analysis of
the ratios reveals that HDFC Bank is not the lone bank with these
qualities.
Private sector banks like Yes Bank and Kotak Mahindra bank fare better
than HDFC Bank on parameters like ROA, ROE and % growth in
deposits. Though the GNPA ratio of HDFC Bank is at all time low, it is
HDFC Bank has the most favourable CASA deposit ratio at 48.4%,
however this is a 8.8% decline from FY11 on account of cannibalization
of CASA deposits to term deposits which offered attractive interest
rates. The growth in CASA deposits for all the big banks is much lower
as compared to the new generation banks as their asset base and
reach is very high.
The Bank's performance on per employee basis is the lowest although it
has been improving over the years. Ratios such as Profit per employee,
Business per employee are the lowest and the bank has a long way to
catch up. Wages as a percentage of total expenses is one of the highest
in the industry.
The five forces Score Rationale
Bargaining power of suppliers
2
The Brand name HDFC coupled with the fact that it's one of the industry leaders, leads to a low bargaining power of suppliers
Threat of substitutes
4
HDFC faces tough competition from the other top banks. For almost every HDFC product, there is a substitute in ICICI and to a great extent in Axis as well
Bargaining power of customers
3
HDFC is a leading bank providing world class facilities which acts as a benchmark. However, other banks are adept at innovating to attract customers.
Threat of new entrant
2 There are high regulatory barriers to entry
Industry rivalry 3 The industry sees a tough competition from its peers which are equally well placed.
ROA% 5year 3year 2year 1year
HDFC Bank 1.51 1.57 1.63 1.68
ICICI Bank 1.19 1.30 1.41 1.47
Axis Bank 1.46 1.58 1.61 1.61
Yes Bank 1.51 1.52 1.47 1.42
Kotak Bank
1.52 1.80 1.86 1.86
SBI 0.93 0.85 0.82 0.91
ROE% 5year 3year 2year 1year
HDFC Bank 17.33 17.25 17.72 18.69
ICICI Bank 9.68 9.61 10.43 11.20
Axis Bank 19.10 19.59 19.82 20.29
Yes Bank 20.82 21.49 22.10 23.07
Kotak Bank
12.32 14.25 14.61 11.37
SBI 15.39 14.38 14.17 15.72
Source: Annual Report, Team Estimates
GNPA % 5year 3year 2year 1year
HDFC Bank 1.37 1.16 1.03 1.02
ICICI Bank 3.75 4.06 3.85 3.58
Axis Bank 1.05 1.13 1.07 1.04
Yes Bank 0.30 0.24 0.22 0.22
Kotak Bank 2.17 1.70 1.49 1.29
SBI 3.03 3.36 3.64 4.18
Growth in CASA
Deposits %
Growth in Business
% CASA Ratio %
18.40 19.96 48.40
9.20 11.44 43.50
16.30 17.54 42.00
71.50 8.52 16.30
41.00 30.70 32.20
14.10 13.99 46.60
Profit per employee (in lacs)
Business per
employee (in lacs)
Wages as % Total
Expenses
8 669.1 14.42
9 2273.3 11.47
14 1228.0 10.41
20 1544.5 8.45
9 799.5 16.4
5 1196.6 19.01
0
2
4
Bargaining power of suppliers
Threat of substitutes
Bargaining power of
customers:
Threat of new entrant
Industry rivalry
Porter's 5 Forces Model
Source: Team Estimates
Source: Annual Report, Team Estimates
5
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Financial Analysis:
Operating performance and revenue:
Robust Revenues - FY12 has been characterized by strong growth in revenues
at CAGR 22% over last 5 years, primarily driven by an increase in both net
interest income and other income. Non Interest Income has grown at a steady
rate of 22% on account of growth in Fees & commission, foreign exchange &
derivative commission and Gain/Loss in revaluation or sale of investment.
HDFC Bank has increased its focus on the 3 mentioned areas, as it contributes
to about 20% of their total income.
We expect a growth of 20% in Interest earned during FY13 to FY 15 on account
of
-Interest on advances will grow at 10-10.25% of Net Advances, in comparison
to a growth of 10.5% in FY12 on account of an expected decline in the growth
of both retail and wholesale loan book.
-Growth in income from investment wil l be in l ine with FY12 at
6.6% of Net investment. This leads to a growth of 23 -30% growth
in income from investment. - Interest on investment with RBI and
Banks are on short term basis and hen ce it is assumed to be the
same as in FY 12.
-Interest on investment with RBI and Banks are on short term basis and hence
it is assumed to be the same as in FY 12.
-Growth in Non interest Income is expected to be 16-18% with major growth
seen in fees and commission. Other income is expected to remain at 20% of
total income earned due to increased focus of Bank to expand in this segment.
Weaker Margins : Interest expense increased sharply in FY11 on account of
increase in saving deposit base interest rate from 3.5% to 4%. This caused the
cost of funds to increase from 4.21% to 5.54%. In Nov 2011 RBI deregulated
savings interest rates; however most of the banks have not increased their
saving interest rate. HDFC bank has a stable margin of 4.2%, however we expect
it to subside to 4.06% in FY13 and subsequently, increase to 4.29% in FY15.
Net Profit expected to weaken Banks net profit rose to Rs. 5167.1 cr from Rs.
3926.4 cr, rising by over 31% in comparison to 15% growth in pre-provisioning
operating profits. This was on account of low provisioning in FY12 due to growth
in healthy assets leading to lowering of NPA levels. The bank continues to
maintain 80% provision coverage ratio. The EPS rose by about 30% from Rs. 17
per share to Rs. 22.11 per share.
Our projections for FY13-15 show the growth in pre-provisioning operating profit
to be 20% which is in line with the growth over the past few years. However due
to increased wholesale loan exposure to perceived sensitive sectors, we expect
the NPA levels to increase marginally from historic low levels; this calls for
higher provisioning.
Bank's exposure to sensitive sectors (as of March 31, 2012)
As a percentage of total exposure
Power Roads Telecom Commercial real Estate
Capital Market
Textile Iron and
Steel Total
HDFC Bank 2.2% 6.1% 1.0% 2.9% 3.4% 0.9% 1.9% 18.3%
ICICI Bank 5.4% 5.7% NA 5.5% 4.7% 0.7% 4.1% 26.2%
Axis Bank 3.3% 2.0% 1.2% 4.7% 2.0% 1.8% 2.3% 17.3%
Yes Bank 3.0% 4.7% 1.4% 3.7% 1.1% 0.4% 1.6% 15.9%
Kotak Mahindra Bank 3.6% NA NA 9.6% 2.0% NA 0.2% 15.3%
Source: Annual Reports
1.95%
1.41%
1.05% 1.02% 1.05% 1.14% 1.19%
0.63%
0.31% 0.19% 0.18% 0.21% 0.24%
0.25%
68.43%
78.42%
82.51%
82.38%
80.48%
79.51%
78.76%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
Source: Annual Report, Team Estimates
Non Performing Assets
GNPA(%)
NNPA(%)
Provision Coverage Ratio
0
5000
10000
15000
20000
25000
Source: Annual Report, Team Estimates
NII & PAT
NII PAT
CAGR~20.72%
CAGR~26.08%
6
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Dividends - The Bank has a defined policy of distributing 20-25% of its PAT as
dividends to its shareholders.
Balance sheet and financing:
As on March 31, 2012, HDFC Banks total balance sheet size was Rs. 337,909
cr an increase of 21.8% yoy over Rs. 277,353 cr as on March 31, 2011.
Total Deposits increased 18.3% from Rs. 208,586 cr as on March 31, 2011 to
Rs. 246,706 cr as on March 31, 2012. Savings account deposits grew by 16.6%
to Rs. 73,998 cr while current account deposits were stagnant at Rs. 45,408 cr
as on March 31, 2012.However CASA deposits stood at 48.4% of total deposit,
down from 52.7% in FY11.
Our expectation for FY13 is a growth of 15% in Demand deposit, 16-18% growth
in Savings deposit and a 20% growth in term deposit. This will lead to CASA
deposits reducing to 45% levels .FY13 will see a continuing shift towards term
deposits as the interest rates are not expected to subside significantly.
Banks loan growth was driven by an increase of 33.7% in retail advances to Rs.
107,126 cr, and an increase of 10.5% in wholesale advances to Rs. 89,764 cr.
Advances are expected to improve by 20% YoY due to increased focus on
growing the retail loan book . However other private sector banks like Axis bank
and ICICI bank have now shifted their focus on growing their retail loan portfolio
which would result in moderation of HDFC banks loan book. The Bank has a
market share of 3.9% in total system deposits and 4.3% in total system
advances. The Banks Credit Deposit (CD) Ratio was 79.2% as on March 31,
2012 and is expected to improve to 79.54% by FY15.
Valuation (see Appendix 3 and 4) We initiate the coverage of HDFC bank with a SELL rating and a price target of Rs 583
HDFC Bank has outperformed its peers over the last few years in terms of high
NIM(4.2) , low NPA(net NPA 0.2%) and growth in EPS(30%) .However due to
deteriorating macro economic conditions and the expansion of the bank into
semi urban areas , we believe that there will be an incremental increase in NPA
levels which will exert pressure on the bottom line . A valuation of P/ABV of 3.9x
and P/E of 22x in FY 2013 are a result of the following expectation:
-Decrease in growth of CASA deposits as the bank has opened around 70% of
the new branches in Tier II to Tier VI cities. The growth in deposits from these
new branches will be lower than traditional values as these branches will have
lesser number of transactions and also a lower balance.
-Increasing competition from new private sector banks as they are expanding
rapidly, especially in the urban areas. This will put pressure on the already
stable and dominant banks.
-Increase in NPA levels from historic low levels which will be difficult for the bank
to maintain. We expect slippage to increase by 10 bps in comparison to 0.81%of
net advances in FY12.
64%
66%
68%
70%
72%
74%
76%
78%
80%
82%
0
50,000
1,00,000
1,50,000
2,00,000
2,50,000
3,00,000
3,50,000
4,00,000
4,50,000
Source: Annual Report, Team estimates
Growth in Deposits & Advances
Deposit Advances
Credit Deposit Ratio
58.18% 61.01% 56.79% 49.65% 54.41%
0%
20%
40%
60%
80%
100%
FY08 FY09 FY10 FY11 FY12
Source: Annual Report
Loan Book Mix
Wholesale Loan Book Retail Loan Book
44.37%
52.03%
52.69%
48.40%
46.47%
45.82%
45.31%
0%
20%
40%
60%
80%
100%
120%
Source: Annual Report, Team Estimates
CASA & Term Deposits
Term Deposit (%) CASA(%)
7
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Valuat ion:
We have valued the stock using 3 methods: Residual Income method, Gordon
growth Model and Relative valuation. The Residual income analysis is based on
sum of parts method where we have valued the main business of the bank and
its two subsidiaries HDFC Securities (HDFCsec) and HDB Financial services
separately. We have followed this approach as the two subsidiaries are
relatively small in size and the risk in their line of business is very different from
the parent bank.
Residual Income method:
The value per share using two stage residual income method is Rs 583. The
methodology followed to arrive at the intrinsic price is as follows:
Profit after Tax (PAT) : The growth in PAT is estimated to be around 20% YoY
during FY2013-2015. We expect some pressure on PAT due to increase in
provisioning on account of increasing NPA in the coming years.
Equity Cost: The book value is expected to increase 17% , in line with FY 12 .
Excess Returns: It is observed that HDFC bank gives returns in excess of
investor expectations during economic upswing. The excess returns have been
estimated till FY 2015, after which we assumed a nominal growth of 15% in PAT
and a ROE of 17% to estimate the book value for next 22 years. The bank is
then expected to grow at 3% till perpetuity.
Gordon Growth Model:
The value per share using Two stage Gordon growth model is Rs 568. The
methodology followed to arrive at the intrinsic price is as follows:
Two stage is appropriate to value the bank as its revenues are growing at more
than 20% YoY .We expect the high growth to continue for at least 25 years as
there is huge potential for the Indian economy to grow and mature. The
perpetual growth rate is estimated to be 3%.
Relat ive Valuation Method:
We have compared HDFC bank with ICICI bank and Axis bank as these banks
are comparable in terms of the customers they cater to within the Indian
markets. The multiples used to value the bank are P/BV , P/E and P/Total
Asset as these are primary drivers for a bank.
We have not considered the price from relative valuation in the final value as
HDFC bank commands a premium compared to its peers in all the three
multiples used .
Final Price:
Residual income model is a stable model which gives maximum value to the
current book value and the impact of terminal value is minimal. However
Gordon growth model is extremely sensitive to its inputs and sensitivity
analysis shows volatility in the target price. Hence we assign a weight of 70%
to the value using Residual income model and 30% to Gordon growth model.
SOTP Valuation Methodology
Particulars Basis Multiple Stake(%) Value
HDFC Bank
RI and Gordon Growth
3.5x 100% 589
HDFC Securities
DCF 63.02% 2.17
HDB Financial
Gordon Growth
97.03% 2.13
Total Value of HDFC Bank
Rs. 593
COMPONENTS OF A TWO STAGE GORDON GROWTH MODEL
ROE 18.69%
High growth period 25
Payout for 25 years 20%
Growth rate for 25 years 20%
Stable Firm
Growth till perpetuity 3%
Payout ratio 84%
cost of equity 16.72%
Target P/BV 3.8x
FY13E Book Value per share 148
Target Price Rs. 561
Source: Team Estimates
Gro
wth
in E
PS
Sensitivity Analysis Gordon Growth
Model Rs. Payout Ratio
561.391 20% 21% 22% 23% 24% 25%
15% 239 245 251 257 263 269
16% 282 289 295 302 308 315
17% 334 341 349 356 363 370
18% 396 404 413 421 429 437
19% 471 480 489 499 508 517
20% 561 572 582 592 603 613
Source: Team Estimates
HDFC Bank
ICICI Bank Axis Bank
Yes Bank
Kotak Bank
SBI
0
1
2
3
4
5
6
7
0.80 1.30 1.80 2.30
P/B
V
ROA
P/B vs ROA
Source: Annual Report
8
-
Corporate Governance & CSR (see Appendix 5)
We believe that Corporate Governance (CG) and Corporate Social
Responsibility (CSR) could enhance the potential of the bank, and
consequently its long term value. We performed an assessment of HDFC
Bank in these areas of interest.
Corporate Governance:
The bank was among the first four companies, which subjected itself to a
Corporate Governance and Value Creation (GVC) rating by CRISIL. The rating
provides an independent assessment of an entity's current performance
and an expectation on its "balanced value creation and corporate
governance practices" in future. The bank has been assigned a 'CRISIL GVC
Level 1' rating, which indicates that the bank's capability with respect to
wealth creation for all its stakeholders while adopting sound corporate
governance practices is the highest.
HDFC Bank follows Corporate Governance code pursuant to Clause 49 of
the Listing Agreement entered into with the Stock Exchanges and also forms
a part of the report of the Board of Directors. Analyzing HDFC Bank, we have
identified areas in which the company complies with best practices and also
compared it with ICICI Bank and Axis Bank. - HDFC bank has been actively
involved in CSR activities and it was able to achieve mileage to its brand
name on account of its CSR activities. The CSR at HDFC bank is driven by
Changing Lives by empowering individuals through Finance, Education and
Training. CSR at HDFC bank has been analyzed on account of Governance,
Community development, Employee welfare and Environment development.
We also performed a comparative study on account of CSR and HDFC bank
came out to be 2nd best in the sample. Details in Appendix.
HDFC ICICI Axis
Independence
of the Board of
Directors
55% 67% 55%
Independent
Committees Complied Complied Complied
Transparency
and
Accountability
Complied Complied Complied
Whistle Blower
Policy Complied Complied Complied
Compensation
Structure Complied Complied Complied
Means of
communicatio
n: Half yearly
Available Available Available
Quarterly
reports Available Available Available
Annual report Available Available Available
Source: Team Estimates
Basel III Compliance (see Appendix 6)
HDFC bank should not have much issues to comply with the BASEL 3 guidelines issued by RBI. With a CRAR of 16.52% of which tier
1 accounts for 11.60% HDFC bank is almost sufficiently capitalized. Based on our estimates of growth in risk weighted assets at a
CAGR of 21% (FY13E -FY17E) and a growth in tier 1 capital at CAGR of 18% the bank would just be able to comply with the CRAR
requirement of 11.5% in FY17. The tier 1 capital estimated in FY17 which includes the capital conservation buffer ( CCB ) of 2.5% is
9.98% which is also above the 9.5% requirement stipulated by RBI.
Source: Team Estimates
Risk Analysis (see Appendix 7)
To understand the risk from a holistic perspective, we have analysed both the company risk and investment risk.
Company Risk: CAMELS Analysis
HDFC bank has been analyzed for its financial, operational and compliance stability using the CAMELS analysis. Based on our analysis
HDFC bank has received a B1 rating, the upper most rating in B category. The rating B indicates that the institution is fundamentally sound
and its operation are satisfactory. This reiterates the fact that HDFC bank does have a quality business. We believe HDFC Banks ability to
withstand stress is higher than other private sector counterparts because of its robust margins, strong funding structure and loan book
diversity.
Source: Team Estimates
9
-
Investment Risk Analysis (see Appendix 8 )
In this section we analyze the main upside risks that could affect our target price
Strategic Risk
Strong growth in retail loan book - A strong growth in the retail loan
book of the bank, which has been its focus area, in spite of increasing
competition would help the bank maintain the 30% plus growth in PAT
with robust loan growth. This would also help the bank to negate the
impact of wholesale loan growth which can affect the NIM negatively.
Both the above factors would impact the price positively.
Improvement in the NPA from historic low levels - An improvement in
the NPL of the bank from historic low level of 0.9% GNPA in Q2FY13
would ensure that the provisioning required can be further reduced
resulting in a strong increase in PAT, positively impacting price. The
provisions for the quarter ended September 2012 were at historic low
levels of Rs 292.9 cr with a decrease of about 20% yoy.
Continued and sustainable growth in non-interest income - Healthy fee
income growth of 20% plus, strong forex income and higher trading
gains would support the strong growth in non-interest income which
would positively impact the price.
Macro risks
Quick revival in the economy - The incremental credit growth of the
bank has a direct relation to the GDP. The credit growth of HDFC has
been at 3-4% above the 2.5X multiple of GDP growth on an average.
The current forecast on FY13 GDP numbers are between 4.9% to 5.3%.
Revival of the economy with a GDP growth rate exceeding expectations
would result in robust credit growth.
Moderating inflation outlook - The inflationary tendencies are expected
to persist with increase in diesel prices and retail inflation still hovering
around the double digit mark at 9.73% in September 2012. RBI with
the primary focus on containment of inflation and anchoring of inflation
expectations is not expected to cut policy rates any time soon. But a
moderation in inflation numbers to 5% levels would tempt the central
bank to decrease the policy rates to revive the economy which in turn
would improve the NIM in banking sector.
Financial risks:
Fluctuations of exchange rates - Since HDFC banks operations are
confined to India, fluctuations in exchange rate wouldn't have a great
impact on the banks balance sheet in terms of transaction or
translation adjustments. On the revenue front in terms of non-interest
income it would have a positive impact on the forex income of the bank
as clients would use more forex and derivative products for hedging
the foreign exchange risk.
Model Risk
Valuation risk - DCF valuation using Excess earning is used for the
valuation of HDFC bank. The assumption regarding the estimated P/BV
does have a major impact on the target price. For arriving at the
estimated P/BV we have taken the historical and the one
year average P/BV and calculated the weighted average of it. To
mitigate the risk, a Monte Carlo simulation was done with estimated
P/ABV and the weights assigned as the variable parameter assuming
log normal distribution and it was found that there is no major variation
in the calculated target price. The mean and median values being Rs
590 and Rs 583 respectively.
In order to understand the impact of various risks getting triggered, on the valuation and hence the target price, we performed a
Monte Carlo simulation by assigning probability distributions to each risk affected parameter. Examination of analysis shows that the
standard deviation of target price is only Rs 20 with mean value of Rs 583 and median value of Rs 585. Details in Appendix 8B
0%
10%
20%
30%
40%
50%
60%
0
2
4
6
8
10
12
2007 2008 2009 2010 2011 2012
GD
P G
row
th
Source: RBI
GDP vs Adv Growth
GDP AdvGrowth %
0%
2%
4%
6%
8%
10%
12%
Jan-
11
Mar
-11
May
-11
Jul-1
1
Sep
-11
Nov
-11
Jan-
12
Mar
-12
May
-12
Jul-1
2
Sep
-12
Source: CSO
Inflation (CPI)
10
Source: RBI
Source: Team Estimates
-
Appendices
Appendix 1 A: Demographic Profile of India
A look into the demographical structure of the client base of the Indian banking industry shows very prominent trends
which can be used a fair estimate of the forthcoming scenario.
Firstly, an overview of the age-distribution of population predicts a younger population. Along with that it also shows an
expanding labour force, i.e. a growth in the working age group. Referring to the theory of demographic transition, we
see that India is poised at the growth phase. If we look at the graph given in the main text, we see a marked shift in
population towards working age. As of 2016 projections, India peaks in working age population. The high 0-4 age
group percentage implies a further expected increase in working age population in the next 15 years or so.
Largely for demographic reasons, urbanization in India is on a firmly upward path. And urban population growth is
occurring at the relatively fast pace that it is because the country is still at an intermediate stage in the demographic
transition.
New geographical markets are emerging. While the tier-I cities represent 6% of the population and account for 14% of
Indias GDP, tier-II represents about 7% of the nations population and contribute about 13% to GDP. Expansion into
these cities can be expected in the immediate future.
The fastest growing segment is the households earning more than Rs. 500,000 per annum. And the by scale the
largest sector in the coming decade will most likely be the households earning between 90000-200000 INR per
annum. This will contribute to income inequality in a particular band of incomes.
This shows the emergence of two very distinct (in terms of preference patterns) and important customer segments.
The former will increase the demand for wealth management and other related services. We can also expect the
number of HNIs to rise commensurately. The latter will want banks to provide easily accessible, mass-produced and
affordable products and services. The latter will also facilitate the need for expansion into tier II and III cities where the
growth in such populations can be expected.
Appendix 1 B
Macroeconomic Snapshot:
concerns over global growth prospects and financial stability
inflation, rising interest rates and policy impediments pulled down credit growth from 23% in 2011 to 16% in
2012
Poor infrastructure project execution and subdued capex in areas such as power took infrastructure loan
growth lower to 18.8% in February, 2012 from 40.0% a year ago.
Slow growth in monetary base increased structural drag on Inflation
cyclical deterioration in asset quality remains a concern
agriculture is likely to do well owing to low base and sufficient rainfall.
The Indian Economy is at a pivotal position in light of the political and economic issues it faces or is likely to face. The
trickle-down from the global economic crisis has affected the financial sector directly and the other sector indirectly
through the linkages.
The lack of confidence of the economic agents in the economy is compounded by expectation failure working through
the adaptive expectations framework. Constantly frustrated expectations are reflected in the popularity of the catch-
phrase policy paralysis. This has built in uncertainty and fickle sentiments in the system. This behavioural impact on
the economy could cost us dearly.
-
However, efforts to remedy this are in place by bona fide reforms and reshuffling of pre-existing signalling agents. This
is supposed to provide positive signals to global investors; however, many are sceptical about its immediate efficacy in
re-establishing the signalling framework. The government credibility will take time to get restored enough to improve
confidence, reinforce expectations and improve economic conditions.
The private banking sector in India has less or hedged exposures to external disturbances. The confidence in the
robustness of the banking sector has not led to any bank runs. Also, the faltering stock markets make the safe
instruments offered by banks more attractive.
In the long term, however, banks have other prospects and issues to tackle with.
Appendix 1 C
Mortgage Market
1. There could be a bourgening market for real estate and hence for mortgages. The India Infrastructure Report
2006 predicts a growth in Urban population which could be a contributing factor to increase in mortgage
business. FICCI-BCG predicts that mortgages will cross 40 trillion by 2020. The reasons why this forecast may
be creditable is:
a. Total mortgages have grown from 1.5% to 10% of total bank advances from 2000-20101
b. Mortgages are 7.7% of GDP currently, with the demographic trend towards urbanisation and rise in
the working-age population; we can expect a significant rise in this percentage. If this crosses 20%
by 2020, mortgages could grow to 40 trillion while currently the entire loan book of the banking
sector is 30 trillion.
c. Demographic reasons as discussed above.
Appendix 1 D
Sectoral Review
Power Sector
The CCEA has approved a restructuring plan that will remain open, in the first instance, till December 2012. Under this,
participating states will take over half the distribution companies outstanding debt; the rest will be restructured by
lenders. The immediate effect of the restructuring is the stress on banks. According to Standard & Poors, bank credit
to the power sector rose to Rs 3.3 lakh cr in March 2012 7.2 per cent of all bank lending. Meanwhile, SEB
distribution companies have run significant losses, casting doubt over their ability to repay and thus over financial
sector stability. In the same month, March 2012, the accumulated losses of discoms stood at Rs 2.46 lakh cr; and the
short-term debt of the seven states that accounted for 75 per cent of total debt liability (Rajasthan, Uttar Pradesh,
Madhya Pradesh, Andhra Pradesh, Punjab, Haryana and Tamil Nadu) was Rs 1.2 lakh cr.
These restructurings necessitate tariffs to be linked to the costs. However, how likely the SEB discoms are to honour
their debt is uncertain owing to the political nature of tariff revisions and the risk of moral hazard.
Auto Sector
Due to many and varied factors such as high inflation, economic uncertainty and high fuel prices the September 2012
auto sales in the country have shown the steepest monthly fall in four years. This implies that the Auto Industry can
miss the governments Automotive Mission plan Target for FY16. SIAM has revised the growth forecasts from 11-13%
to 5-7%.
This does not spell well for the bank lending to auto sector and especially HDFC Bank which has around 40% exposure
of loan portfolio to this sector.
1 Indian Banking 2020:Making the Decades Promise Come True
-
Appendix 2: Competitor Ratios
Comparison of Ratios HDFC Bank ICICI Bank AXIS Bank YES Bank Kotak Bank SBI
Burden efficiency ratio 0.76% 0.15% 0.16% 0.09% 1.31% 0.66%
Cash cover-age ratio 5.54% 4.68% 4.21% 3.68% 3.09% 5.04%
GNPA 2003.17
10,607.00
1,806.30 83.86
699.74
49,648.70 GNPA to Gross advance 1.02% 3.58% 1.04% 0.22% 1.29% 4.18%
NNPA 354.19
2,692.00
472.64 17.46
273.43
21,095.09
NNPA to Net advance 0.18% 0.92% 0.28% 0.05% 0.51% 1.81% Total business growth ratio
1.20 1.11 1.18 1.09 1.31
1.14
Priority sector ratio 32.68% 20.29% 28.56% 25.92% 23.19% 29.71% Aggregate deposits (Rs. Cr.)
2,46,706.45
2,81,950.47
2,19,987.68
49,151.71
36,460.73
14,14,689.40
Average working funds (awf)
3,07,631.05
5,68,979.64 263991.58 66334.54 83015.26 1738927.21
Working funds
3,37,909.50
6,04,191.41
2,85,416.51
73,662.11
92,349.39
18,29,956.17
Net profits
5,167.02
7,937.63
4,218.51 977.00
1,850.53
15,973.31
Operating profits
8,950.35
12,092.99
7,413.02 1,540.22
2,755.24
40,857.24
Total debt
2,70,552.95
4,43,247.10
2,54,059.35
63,308.19
65,655.42
15,72,680.76
Net worth
29,924.37
61,276.50
22,681.71 4,676.64
12,935.87
1,06,230.01
Total debt to net worth
9.04
7.23 11.20 13.54 5.08
14.80
Gross advances 1,95,420.03
2,92,125.42
1,69,759.54
37,988.64
53,143.61
11,63,670.21
Invest-ments 97,482.91
2,39,864.09
92,921.44
27,757.35
31,658.43
4,60,949.14
Interest income
27,286.30
37,994.86
21,994.90 6,307.36
8,470.42
1,47,197.39
Interest income to average working funds 8.87% 6.68% 8.33% 9.51% 10.20% 8.46%
Non-interest income 5,243.69
28,663.42
5,487.19 857.12
4,543.40
29,835.44
Non-interest income to average working funds 1.80% 5.04% 2.08% 1.29% 5.47% 1.72%
Operating expenses 8,590.06
29,552.05
6,099.89 932.53
5,716.62
46,856.03
Interest spread 8.42% 7.46% 7.46% 9.19% 10.22% 6.88%
Net spread
8,950.35 12092.9851
7,413.02 1,540.22
2,755.24
40,857.24
Risk weighted assets
2,41,896.32
4,41,488.00
2,31,711.39
51,982.63
74,279.29
11,12,982.46
Net profit to awf 1.68% 1.40% 1.60% 1.47% 2.23% 0.92%
Net profit to net worth 17.27% 12.95% 18.60% 20.89% 14.31% 15.04% Operating profits to net worth 29.91% 19.74% 32.68% 32.93% 21.30% 38.46%
Capital adequacy ratio 16.52% 19.60% 13.66% 17.90% 17.92% 13.68%
Tier I 11.60% 12.80% 9.45% 9.90% 16.54% 9.65%
Tier II 4.92% 6.80% 4.21% 8.00% 1.38% 4.03%
Business
4,42,126.48 574075.89 389747.21
87,140.35
89,604.34
25,78,359.61
-
Equity multiplier 1129.21%
9.86 12.58 15.75 7.14
17.23
NIM 3.92 2.26% 2.90% 2.33% 4.45% 3.30%
Net Interest Income
12,296.72
12,981.61
8,025.72 1,615.64
3,928.46
57,877.83
CASA Ratio 48.40% 42.13% 41.55% 14.96% 31.36% 40.69%
Slippage Ratio 0.98% 1.22% 1.09% 0.17% 0.67% 2.90% Profits per employee (Rs. Cr.) 0.08 0.09 0.14 0.2 0.09 0.05
ROA 1.68 1.47 1.61 1.42 1.86 0.91
ROE 18.69 11.2 20.29 19 11.37 15.72
Source: Team estimates, livemint.com, capitaline.com
-
Appendix 3 A
Income Statement (Rs. Cr.)
(Rs in Crs)
Year FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 (E) FY 14 (E) FY 15 (E)
INCOME :
Interest Earned 6,648 10,115 16,332 16,173 19,928 27,286 32,681 38,869 46,644
Interest on advances 4,334 6,967 12,137 12,098 15,085 20,537 24,010 27,914 33,198 AVERAGE YIELD ON ADVANCES 12.62% 14.96% 10.77% 10.56% 11.56% 11.18% 10.87% 10.86%
Income on investments 2,058 2,872 4,008 3,981 4,675 6,505 8,484 10,768 13,259 AVERAGE YIELD ON INVESTMENTS 7.18% 7.41% 6.78% 7.22% 7.72% 7.51% 7.38% 7.28% Interest on investment with RBI and Banks 253 272 184 81 148 137 137 137 137
Other Income 1,516 2,283 3,291 3,983 4,335 5,244 6,469 7,540 8,509
II. Expenditure
Interest expended 3,179 4,887 8,911 7,786 9,385 14,990 17,800 20,149 23,670
COST OF FUNDS 4.64% 5.86% 4.32% 4.21% 5.54% 5.44% 5.19% 5.10%
Interest on Deposits 2,695 4,383 8,015 6,998 8,028 12,690 15,309 17,450 20,743
Interest on RBI / Inter-bank borrowings (including subordinated debt) 274 242 885 746 1,336 2,253 2,433 2,628 2,838
Other interest 210 262 11 43 20 47 58 71 89
Net Interest Income 3,468 5,228 7,421 8,387 10,543 12,297 14,881 18,719 22,974
NIM 4.10% 4.24% 3.91% 4.05% 4.20% 4.06% 4.20% 4.29%
Net Income 4,985 7,511 10,712 12,370 14,878 17,540 21,350 26,260 31,483
Operating expenses 2,421 3,746 5,533 5,940 7,153 8,590 10,664 12,934 15,689 Operating Profit - pre provisioning 2,564 3,765 5,179 6,430 7,725 8,950 10,686 13,326 15,793
% growth 46.86% 37.54% 24.15% 20.15% 15.86% 19.39% 24.70% 18.51%
Provisions & Contingencies 925 1,485 1,880 2,141 1,907 1,437 1,629 2,367 2,684
% growth 60.5% 26.6% 13.9% -10.9% -24.6% 13.4% 45.3% 13.4%
Pre Tax Profit 1,639 2,281 3,299 4,289 5,819 7,513 9,057 10,959 13,109
Provision for Tax 497 690 1,054 1,340 1,892 2,346 2,828 3,423 4,094
PAT 1,141 1,590 2,245 2,949 3,926 5,167 6,228 7,537 9,015
% growth 39.31% 41.17% 31.36% 33.15% 31.60% 20.54% 21.00% 19.62%
Net profit margin 12.83% 11.44% 14.63% 16.18% 15.88% 15.91% 16.24% 16.35%
Dividend per share 1.40 1.70 2.00 2.40 3.30 4.30 5.28 6.34 7.52
Source : Annual Report, Team Estimates
-
Appendix 3B: Balance Sheet
Year FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 TOTAL LIABILITIES & SHAREHOLDERS EQUITY
Capital 319 354 425 458 465 469 469 469 469
Equity share warrant 400.92
Reserves and surplus 6114 11143 14221 21062 24911 29455 34438 40467 47679
Employees Stock Options (Grants) Outstanding 5 3 3 0 0.30 0.30 0.30
Equity 6433 11497 15053 21522 25379 29925 34907 40937 48149
Deposits 68298 100769 142812 167404 208586 246706 296769 351447 417370
Borrowings 2815 4479 9164 12916 14394 23847 30160 36954 46300
Other Liabilities & Provisions 13689 16432 16243 20616 28993 37432 43443 52330 60417
TOTAL LIABILITIES 91236 133177 183271 222459 277353 337909 405280 481668 572236
ASSETS:
Cash & Balances with RBI 5075 12553 13527 15483 25101 14991 14255 11366 11819 Balances with Banks & money at Call 3971 2225 3979 14459 4568 5947 3876 3365 2574
Investments 30565 49394 58818 58608 70929 97483 128541 163147 200888
61.6% 19.08% -0.36% 21.02% 37.44% 31.86% 26.92% 23.13%
Advances 46945 63427 98883 125831 159983 195420 234243 279141 331982
35.11% 55.90% 27.25% 27.14% 22.15% 19.87% 19.17% 18.93%
Fixed Assets 967 1175 1707 2123 2171 2347 2644 2927 3251
Other Assets 3713 4403 6357 5955 14601 21722 21722 21722 21722
TOTAL ASSETS 91236 133177 183271 222459 277353 337909 405280 481668 572236
Source: Annual Report, Team Estimates
-
Appendix 3 C: Financial Ratios
2012 2013(E) 2014(E) 2015(E)
NIM 4.20% 4.06% 4.20% 4.29%
YOY Growth
Deposits 18.28% 20.29% 18.42% 18.76%
Loans 22.15% 19.87% 19.17% 18.93%
Net interest Income 16.63% 21.01% 25.80% 22.73%
Fee Based income 18.87% 15.00% 15.00% 10.00%
Non interest income 31.04% 60.43% 21.50% 21.39%
Operating Revenue 17.89% 21.72% 23.00% 19.89%
Operating Expense 20.09% 24.14% 21.29% 21.31%
Pre provisioning operating Profit 15.86% 19.39% 24.70% 18.51%
Pre Tax Profit 31.60% 20.54% 21.00% 19.62%
PAT 31.60% 20.54% 21.00% 19.62%
EPS 22.11 26.42 31.70 37.61
DPS 4.30 5.28 6.34 7.52
ROA 1.68% 1.54% 1.56% 1.58%
Tier I leverage ratio 11.29 11.61 11.77 11.88
ROE 18.69% 17.84% 18.41% 18.72%
Asset Quality
GNPA (%) 1.02% 1.05% 1.14% 1.19%
NNPA (%) 0.18% 0.21% 0.24% 0.25%
Slippage Ratio (%) 0.81% 0.91% 1.00% 1.00%
NPA reduction rate (%) 38.84% 39.67% 39.28% 39.09%
Write off rate (%) 28.79% 30.00% 30.00% 30.00%
Upgradations (%) 0.10% 0.10% 0.10% 0.10%
Capital Adequacy Ratio
CAR (%) 16.52% 15.48% 15.33% 15.22%
Tier 1 (%) 11.60% 11.48% 11.33% 11.22%
Tier 2 (%) 4.92% 4.00% 4.00% 4.00%
Leverage (x) 11.3 11.6 11.8 11.9 Risk weighted assets / Total Assets (%) 76.34% 75.00% 75.00% 75.00%
Solvency Ratios
Net NPA 0.18% 0.21% 0.24% 0.25%
Provision Coverage Ratio 82.38% 80.48% 79.51% 78.76%
Liquidity Ratios
CASA Ratio 48.40% 46.47% 45.82% 45.31%
Funding volatility Ratio 0.85 0.86 0.86 0.86
liquid Asset to Total Asset 41.28% 38.24% 38.43% 38.00%
Profitability Ratios
NII/Working Funds 3.64% 3.67% 3.89% 4.01% Non Interest Income / Working Funds 1.55% 1.60% 1.57% 1.49%
Productivity
Business per employee (in lakhs) 669 719 772 850
Profit per employee (in lakhs) 7.82
8.43 9.23 10.22 Source: Annual Report, Team Estimates
-
Appendix 4A: Residual Income Model
Cost Of Equity Calculation:
Risk free rate 8.20%
Market Risk Premium 9.00%
Beta 0.95
Cost of Equity 16.75%
Year of Valuation 2012
Terminal growth rate 3%
Source: Team Estimates
Residual Income Calculation :
FY FY FY FY
2012 2013(E) 2014(E) 2015(E)
Cost of Equity 16.75%
Net Income 5,167.02 6,228.49 7,536.57 9,015.28
- Equity Cost (see below) 5012.4 5847.0 6856.9 8064.9
Excess Equity Return 154.64 381.49 679.66 950.33
Beginning BV of Equity 29,924.7 34,907.5 40,936.7 48,148.9
Cost of Equity [%] 16.75% 16.75% 16.75% 16.75%
Equity Cost on Book Value 5012.4 5847.0 6856.9 8064.9
Intrinsic value of HDFC Bank on March 2012 39,645.9
Value per share as on March 2013 588.7
Intrinsic value of HDFC securities 2.2
Intrinsic value of HDB per share 2.1
Expected value per share 593
Source: Annual Report,
Team Estimates
Source:Team Estimates
-
Appendix 4B: Gordon Growth Model: Derivation
Since D0 = Payout *EPS,
We see that
is akin to the
of a Finite Geometric Progression, which follows the
formula:
Where a=1 and r=
;
Substituting we get,
-
Appendix 4C: Valuation of Subsidiaries:
We have used discounted cash flow method to value HDFC securities LTD it being a stable generator of cash and
Gordon growth Model for HDB financial services Ltd. The value we arrived at Rs. 2.17 and Rs. 2.13 for HDFC securities
and HDB financial services ltd respectively.
Assumptions:
HDFC Securities Ltd:
Revenue Growth: Growing at 10% for first four years and then declining linearly to 3%.
Terminal Growth: 3% p.a.
For calculating WACC, we have used CAPM model in which beta has been taken of comparable brokerage houses
(edelweiss) i.e. 1.1
HDB Financial Services Ltd:
Loan Book Growth: Over the past couple of years it has grown substantially at over 100%, but because of higher base
effect we have factored a growth of 50%, 40% and 30% for the next three years.
Valuation Based on Current Market Price of 62 8
CMP 628 Valuation Based on current Market Price 2012 2013(E) 2014(E) 2015(E)
P/E 28.40 23.77 19.81 16.70
P/BV 4.90 4.24 3.65 3.13
BVPS 128.06 148.08 172.20 200.85
DPS 4.30 5.28 6.34 7.52
Source: Annual Report, Team Estimates
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Appendix 4D: Estimates
1. Number of Branches and ATMs
FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13(E) FY 14(E) FY 15(E) Number of Employees 21,477
37,836 52,687
51,888
55,752
66,076
73,876 81,676 88,176
Addition
16,359 14,851 -799 3,864
10,324 7,800 7,800 6,500
Branch Wise
49.7 37.3 30.1 28.1 26.0 26.00 26.00 26.00
Branches 684 761 1,412 1,725 1,986 2,544 2,844 3,144 3,394
Branch Addition 77 651 313 261 558 300.00 300.00 250.00
11.26% 85.55% 22.17% 15.13% 28.10% 11.79% 10.55% 7.95%
ATM 1,605 1,977 3,295 4,232 5,471 8,913
12,413 16,413 20,413
ATM Addition 372 1,318 937 1,239 3,442 3500.00 4000.00 4000.00
2,289 2,738 4,707 5,957 7,457
11,457
15,257 19,557 23,807
Growth 19.6% 71.9% 26.6% 25.2% 53.6% 33.2% 28.2% 21.7%
2. Deposits (Rs in cr)
Demand deposit 19,811.8 28,759.7 28,444.9
37,227.1
46,460.5
45,407.8
52,082.2
59,757.7 68,584.5
From Banks 695.4 844.7 759.2
1,055.5
1,018.5 912.2 912.2 912.2 912.2
From Others 19,116.5 27,915.0 27,685.7
36,171.6
45,442.0
44,495.6
51,170.0
58,845.5 67,672.3
Growth % 45.2% -1.1% 30.9% 24.8% -2.3% 15.0% 15.0% 15.0%
Savings Depo 19,584.8 26,153.9 34,914.7
49,876.8
63,447.8
73,998.0
85,837.7
1,01,288.5 1,20,533.3
Growth % 33.5% 33.5% 42.9% 27.2% 16.6% 16% 18.0% 19.0%
CASA Depo 39,396.7 54,913.6 63,359.7
87,103.9
1,09,908.3
1,19,405.9
1,37,920
1,61,046.2 1,89,117.8
Growth % 39.4% 15.4% 37.5% 26.2% 8.6% 15.5% 16.8% 17.4%
Proportion% 57.7% 54.5% 44.4% 52.0% 52.7% 48.4% 46.5% 45.8% 45.3%
Term Depo 28,901.3
45,855.0
79,451.9
80,300.6
98,678.1
1,27,300.6
1,58,849
1,90,400.7 2,28,252.0
Growth % 58.7% 73.3% 1.1% 22.9% 29.0% 24.8% 19.9% 19.9%
From Banks 1,505.3
1,519.6
1,630.5
1,382.4
1,426.8
1,384.0
1,453.2 1,525.8 1,602.1
Growth % 0.9% 7.3% -15.2% 3.2% -3.0% 5.0% 5.0% 5.0%
From Others 27,396.0
44,335.4
77,821.4
78,918.1
97,251.4
1,25,916.6
1,57,396
1,88,874.9 2,26,649.8
Growth % 61.8% 75.5% 1.4% 23.2% 29.5% 25.0% 20.0% 20.0%
Proportion% 42.3% 45.5% 55.6% 48.0% 47.3% 51.6% 53.5% 54.2% 54.7%
TOTAL DEPOSIT 68,298
1,00,769
1,42,812
1,67,404
2,08,586
2,46,706
2,96,769
3,51,447 4,17,370
Growth 47.5% 41.7% 17.2% 24.6% 18.3% 20.3% 18.4% 18.8%
-
3. Borrowings
(Rs in cr)
In India 2,815.4 4,478.9 9,163.6
12,915.7
14,394.1
23,846.5
30,160.3
36,953.6 46,299.6
RBI - - - - 120.0 40.0 44.0 48.4 53.2
-66.67% 10.0% 10.0% 10.0%
Other Banks 925.6 886.8 1,043.9
1,908.0 705.1 869.3
1,043.2 1,251.8 1,502.2
-4.20% 17.72% 82.78% -63.05% 23.30% 20.0% 20.0% 20.0%
Other Insti 155.7 0.2 5,645.1
7,526.3 927.0
2,818.2
3,241.0 3,727.1 4,286.2
Growth % -99.9% 2565844.7% 33.3% -87.7% 204.0% 15.0% 15.0% 15.0%
Sub-ordinated debts - - 0 0 6,947.1
10,596.9
10,596.9
10,596.9 10,596.9
52.54%
Outside India 1,734.1 3,591.9 2,474.6
3,481.4
5,694.9
9,522.0
15,235.3
21,329.4 29,861.1
107.1% -31.1% 40.7% 63.6% 67.2% 60.0% 40.0% 40.0%
Total Borrowing 2,815.4 4,478.9 9,163.6
12,915.7
14,394.1
23,846.5
30,160.3
36,953.6 46,299.6
4. Other Liabilities and Provision (Rs in cr)
Bills Payable 3,678.1 3,157.2 2,922.4
5,925.7
5,636.1
5,465.7
5,739.0 6,026.0 6,327.3
Growth % -14.2% -7.4% 102.8% -4.9% -3.0% 5.0% 5.0% 5.0%
Interest Accrued 1,703.8 1,674.8 3,323.9
1,996.8
2,793.7
5,207.1
5,281.5 5,362.5 5,449.9
% of Term Deposit and Borrowing 2.4% 1.6% 2.2% 1.1% 1.3% 1.9% 1.4% 1.5% 1.6%
Others (including provisions) 8,307.2
11,600.0 9,996.5
12,693.4
20,563.0
26,759.1
32,422.4
40,941.8 48,640.1
% of total assets 8.7% 5.5% 5.7% 7.4% 7.9% 8.0% 8.5% 8.5%
13,689.1 16,431.9 16,242.8
20,615.9
28,992.9
37,431.9
43,442.9
52,330.3 60,417.3
Growth % -1.2% 26.9% 40.6% 29.1% 16.1% 20.5% 15.5%
5. Fixed Assets (Rs in cr) A. Premises ( including land)
Gross Block
Opening 314.5 367.7 524.4 716.1 979.7
1,027.3
1,052.0 1,073.0 1,094.5
Additions/Deductions 53.2
156.7 191.6 263.7 47.6 24.7 21.0 21.5 21.9
% of opening 16.92% 42.62% 36.54% 36.83% 4.86% 2.40% 2.0% 2.0% 2.0%
Total 367.7 524.4 716.0 979.8
1,027.3
1,052.0
1,073.0 1,094.5 1,116.4
Depreciation 65.3 81.5 141.7 177.8 210.7 248.9 253.9 259.0 264.1
% of gross block 17.76% 15.54% 19.80% 18.15% 20.51% 23.66% 23.7% 23.7% 23.7%
Net Block 302.4 442.9 574.2 802.0 816.7 803.1 819.2 835.5 852.2
-
B. Other Fixed Asset (including furniture and fixture)
Gross Block
Opening 1,231.1 1,506.0 1,818.8 2,779
3,273.6
3,762.2
4,423.6 5,087.2 5,850.2
Additions/Deletions 274.9 312.7 960.4 494.4 488.7 661.4 663.5 763.1 877.5
22.33% 20.76% 52.81% 17.79% 14.93% 17.58% 15.0% 15.0% 15.0%
Total 1,506.0 1,818.7 2,779.2
3,273.6
3,762.3
4,423.6
5,087.2 5,850.2 6,727.8
Depreciation 842 1,087 1,648 1,961 2,408 2,879
3,306.7 3,802.7 4,373.1
% of gross block 55.89% 59.74% 59.30% 59.89% 64.01% 65.09% 65.0% 65.0% 65.0%
Net Block 664.3 732.2 1,131.1
1,313.1
1,354.1
1,544.2
1,780.5 2,047.6 2,354.7
C. Assets on Lease(Plant and machinery)
Gross Block
Opening 43.8 43.8 43.8 461.4 454.7 454.7
Additions 417.5 -7 - -
Total 43.8 43.8 461.4 454.7 454.7 454.7 454.7 454.7 454.7
Depreciation
Opening 11.8 11.8 11.7 409.3 402.6 410.4
charge for the year 397.6 -6.7 7.8 -
Total 11.8 11.8 409.3 402.6 410.4 410.4 - - -
Lease adjustment account 32.08 32.08 52.07 52.07 44.25 44.25 44.25 44.25 44.25
Gross Block 1917.58 2386.96 3956.51 4708.06 5244.27 5930.31 6614.90 7399.43 8298.86
Net Block 998.77 1207.18 1757.38 2167.14 2214.96 2391.51 2643.91 2927.37 3251.22
6. Investments (Rs in cr)
Government Sec 22,544 31,666 52,157
51,050
53,651
76,218
1,02,894
1,33,762 1,67,203
40.5% 64.7% -2.1% 5.1% 42.1% 35.0% 30.0% 25.0%
Approved Sec 0.7 0.6 1.3 0.5 0.5 0.5 0.5 0.5 0.5
Shares 58.3 34.5 39.7 103.5 93.5 83.6 92.0 110.4 132.4
-40.90% 15.30% 160.56% -9.69% -10.57% 10.0% 20.0% 20.0%
Debentures/Bonds 7,389.9 6,251.7 1,942.8
1,139.3 534.8 962.8
1,444.3 1,660.9 1,910.0
-15.4% -68.9% -41.4% -53.1% 80.0% 50.0% 15.0% 15.0%
Subsidiaries/JV 21.6 123.8 155.1 155.1 745.1 754.8 754.8 754.8 754.8
Others 550.0 11,317.2 4,521.8
6,112.1
15,815.8
19,462.7
23,355.2
26,858.5 30,887.3
1957.8% -60.0% 35.2% 158.8% 23.1% 20.0% 15.0% 15.0%
-
Net value of investments 30,565
49,393 58,817
58,560
70,841
97,482
1,28,541
1,63,147 2,00,888
Growth % 61.6% 19.1% -0.4% 21.0% 37.6% 31.9% 26.9% 23.1%
Held to Maturity 19493.79 26010.11 39919.68 41754.32 41936.49 60424.25 77125 97888 120533
64% 53% 68% 71% 59% 62% 60% 60% 60%
Available for sale 10642.80 12407.46 12888.25 12125.58 26504.97 27775.37 38562.26 48944.23 60266.40
35% 25% 22% 21% 37% 28% 30% 30% 30%
Held for trading 428.21 10975.97 6009.62 4727.72 2487.91 9283.29 12854.09 16314.74 20088.80
1% 22% 10% 8% 4% 10% 10% 10% 10%
OUTSIDE INDIA
Shares - - - - 0.6 0.6 0.6 0.6 0.6
Debentures/Bonds 0.2 0.2 0.2 47.2 87.8 - - - -
Net value of investments 0.2
0.2 0.2 47.2 88.4 0.6 0.6 0.6 0.6
Total value of investments 30,564.8
49,393.5 58,817.5
58,607.6
70,929.4
97,482.9
1,28,541.5
1,63,148.0 2,00,888.6
7. Advances (Rs in cr)
TYPE
Bills Purchased 804.8 1,637.4 4,855.3
6,361.5
9,711.2
12,212.4
14,523.1
17,306.7 20,582.9
Growth % 103.5% 196.5% 31.0% 52.7% 25.8% 18.9% 19.2% 18.9%
Share % 2.6% 4.9% 5.1% 6.1% 6.2% 6.2% 6.2% 6.2%
Cash Credits 10,344.5 15,437.7 21,597.2
23,985.3
53,541.9
68,627.2
82,453.6
98,257.5 1,16,857.7
Growth % 49.2% 39.9% 11.1% 123.2% 28.2% 20.1% 19.2% 18.9%
Share % 24.3% 21.8% 19.1% 33.5% 35.1% 35.2% 35.2% 35.2%
Term Loans 35,795.5 46,351.8 72,430.5
95,483.9
96,729.6
1,14,580.4
1,37,266.6
1,63,576.4 1,94,541.5
Growth % 29.5% 56.3% 31.8% 1.3% 18.5% 19.8% 19.2% 18.9%
Share % 73.1% 73.2% 75.9% 60.5% 58.6% 58.6% 58.6% 58.6%
Secured by Tangible Assets 32,845.4
42,662.9 73,467.8
89,232.8
1,17,492.9
1,42,059.8
1,70,294.9
2,02,935.3 2,41,350.9
Growth % 29.9% 72.2% 21.5% 31.7% 20.9% 19.9% 19.2% 18.9%
Share % 67.3% 74.3% 70.9% 73.4% 72.7% 72.7% 72.7% 72.7% Covered by Bank/ govt guarantee 522.4
1,752.5 2,495.6
2,946.2
3,313.7
5,555.3
6,558.8 7,815.9 9,295.5
Growth % 235.5% 42.4% 18.1% 12.5% 67.6% 18.1% 19.2% 18.9%
Share % 2.8% 2.5% 2.3% 2.1% 2.8% 2.8% 2.8% 2.8%
Unsecured 13,577.0 19,011.5 22,919.6
33,651.6
39,176.0
47,805.0
57,389.6
68,389.5 81,335.6
Growth % 40.0% 20.6% 46.8% 16.4% 22.0% 20.0% 19.2% 18.9%
Share % 30.0% 23.2% 26.7% 24.5% 24.5% 24.5% 24.5% 24.5% SECTOR ( Advances in India)
Priority Sector 17,683.1 17,426.3 29,781.6
44,157.6
54,781.2
63,863.0
78,232.2
93,878.6 1,11,715.5
Growth % -1.5% 70.9% 48.3% 24.1% 16.6% 22.5% 20.0% 19.0%
Share % 37.1% 47.0% 44.7% 43.5% 39.9% 40.0% 40.1% 40.0%
Public Sector 205.2 477.2 3,083.1
5,263.5
5,400.1
7,053.9
7,759.2 8,535.2 9,388.7
Growth % 132.6% 546.1% 70.7% 2.6% 30.6% 10.0% 10.0% 10.0%
Share % 0.8% 3.1% 4.2% 3.4% 3.6% 3.3% 3.1% 2.8%
Banks 38.3 8.8 366.7 622.9 28.6 371.4 375.1 378.9 382.7
-
Growth % -77.2% 4090.5% 69.9% -95.4% 1198.5% 1.0% 1.0% 1.0%
Share % 0.0% 0.4% 0.5% 0.0% 0.2% 0.2% 0.1% 0.1%
Others 29,018.2 45,514.7 64,818.3
73,808.2
95,119.2
1,18,210.2
1,41,852.2
1,70,222.7 2,04,267.2
Growth % 56.8% 42.4% 13.9% 28.9% 24.3% 20.0% 20.0% 20.0%
Share % 71.8% 65.6% 58.7% 59.5% 60.5% 60.6% 61.0% 61.5% Total Advances from India 46,944.8
63,426.9 98,049.7
1,23,852.2
1,55,329.1
1,89,498.5
2,28,218.8
2,73,015.3 3,25,754.1
Advances outside India
Due from banks 0.00 0.00 0.00 0.00 1380.99 1841.86 1859.18 1876.65 1894.29
0.86% 0.94% 0.94% 0.94% 0.94%
Due from others 0.00 0.00 833.38 1978.43 3272.55 4079.70 4165.37 4248.68 4333.65
2.0% 2.1% 2.1% 2.0% 2.0%
Total advances 46,944.8 63,426.9 98,883.0
1,25,830.6
1,59,982.7
1,95,420.0
2,34,243.3
2,79,140.7 3,31,982.0
Growth % 35.1% 55.9% 27.3% 27.1% 22.2% 19.9% 19.2% 18.9%
Credit Deposit Ratio 68.7% 62.9% 69.2% 75.2% 76.7% 79.2% 78.9% 79.4% 79.5%
8. Cash and Balances with RBI Cash in hand (including foreign currency) 639.28 940.09 1,586.19 2,435.26 2,997.95 4,306.96
4,684.9 2,791.4 3,319.8
% of Advances 1.5% 1.6% 1.9% 1.9% 2.2% 2.00% 1.00% 1.00%
Growth % 47.1% 68.7% 53.5% 23.1% 43.7% 8.8% -40.4% 18.9%
Balances with RBI
In current account 4335.97 11513.09 11841.02 12948 22002.86 10484.13 9369.73 8374.22 8299.55
% of Advances 9.24% 18.15% 11.97% 10.29% 13.75% 5.36% 4.00% 3.00% 2.50%
In other account 100.00 100.00 100.00 100.00 100.00 200.00 200.00 200.00 200.00
Total 5075.25 12553.18 13527.21 15483.28 25100.82 14991.09 14254.60 11365.63 11819.37
10. Interest Received (Rs in cr) Interest On Advances 4,334.15 6,966.73 12,136.75 12,098.28 15,085.01 20,536.60
24,009.9
27,914.1 33,198.2
% of Advances 9.2% 11.0% 12.3% 9.6% 9.4% 10.5% 10.25% 10.00% 10.00%
Growth % 60.7% 74.2% -0.3% 24.7% 36.1% 16.9% 16.3% 18.9%
Income on investments 2,057.53 2,872.04 4,007.96 3,981.29 4,675.44 6,504.50
8,483.70
10,767.73 13,258.61
% of Net Investments 6.73% 5.81% 6.81% 6.80% 6.60% 6.67% 6.60% 6.60% 6.60%
Growth % 39.6% 39.6% -0.7% 17.4% 39.1% 30.4% 26.9% 23.1% Interest on investment with RBI and Banks 252.94 272.39 184.26 80.96 148.08 137.10 137.10 137.10 137.10
Growth % 7.69% -32.35% -56.06% 82.91% -7.41% Total Interest Received 6,644.6
10,111.2 16,329.0
16,160.5
19,908.5
27,178.2
32,630.7
38,818.9 46,593.9
-
11. Other Income (Rs in cr)
Commission Exchange 1,292.4
1,714.5 2,457.3
2,830.6
3,596.7
4,275.5
4,916.8 5,654.3 6,219.8
Growth % 32.7% 43.3% 15.2% 27.1% 18.9% 15.00% 15.00% 10.00%
P/L Investments -68.4 241.8 382.6 345.1
-52.6 -195.9 134.4 163.1 200.9
% of Investments 0.5% 0.7% 0.6% -0.1% -0.2% 0.10% 0.10% 0.10%
P/L Assets -1.1 0.7 4.2 4.0
-0.8 1.5 1.5 1.5 1.5
P/L Exchange transaction 190.4
283.1 598.6 610.2 920.8
1,265.4
1,518.5 1,822.1 2,186.6
Growth % 48.74% 111.43% 1.94% 50.91% 37.41% 20.00% 20.00% 20.00%
Dividend Income - 0.4 1.2 1.2 1.2 1.2
Misc Income 103.0 43.0 -152.0 17.7
-129.4 -104.0
-102.9
-101.9 -100.9
Growth % -58.2% -453.3% 111.7% -830.3% 19.7% 1.00% 1.00% 1.00%
Non interest Income 223.9 568.7 833.30 977.02 737.99 967.03 1551.41 1884.89 2288.08
Total 1,516.2 2,283.2 3,290.6
3,807.6
4,335.2
5,243.7
6,469.4 7,540.4 8,509.0
Growth % 50.6% 44.1% 15.7% 13.9% 21.0% 23.4% 16.6% 12.8%
12. Interest Paid
Interest on Deposits 2,695.3 4,382.7 8,015.5
6,997.7
8,028.3
12,689.7
15,309.0
17,450.4 20,742.8
% of Deposits 4.5% 5.7% 4.2% 3.9% 5.2% 5.20% 5.00% 5.00%
Growth % 62.6% 82.9% -12.7% 14.7% 58.1% 20.6% 14.0% 18.9%
Interest on RBI and other banks 274.05
242.43 884.76 745.5
1,336.4
2,252.9
2,433.1 2,627.7 2,838.0
% of Deposits 27.3% 37.0% 30.6% 54.7% 98.1% 102.9% 107.8% 112.9%
Growth % -11.5% 265.0% -15.7% 79.3% 68.6% 8.00% 8.00% 8.00%
Other Interest 210.08 261.96 10.89 43.1 20.3 47.0 58.1 71.3 89.5
% of Deposits 7.3% 0.1% 0.4% 0.1% 0.2% 0.20% 0.20% 0.20%
Growth % -95.8% 295.6% -52.8% 131.4% 23.6% 22.6% 25.5%
Total 3179.45 4887.12 8911.10 7786.30 9385.08 14989.58 17800.22 20149.49 23670.22
13. Operating Expense Payment to Employees 776.9
1,301.4 2,238.2
2,289.2
2,836.0
3,399.9
4,079.9 4,895.9 5,875.0
Growth % 67.5% 72.0% 2.3% 23.9% 19.9% 20.00% 20.00% 20.00%
Depreciation 219.6 271.7 359.9 394.4 497.4 542.5 595.3 665.9 746.9
% of Gross Block 11.4% 9.1% 8.4% 9.5% 9.1% 9.00% 9.00% 9.00%
Other Opex 1424.30 2172.52 2934.70 3080.88 3984.54 4864.71 5988.46 7371.79 9067.30
Growth % 52.5% 35.1% 5.0% 29.3% 23.1% 23.10% 23.10% 23.00%
2,420.8 3,745.6 5,532.8
5,764.4
7,318.0
8,807.1
10,663.7
12,933.6 15,689.2
Growth % 54.7% 47.7% 4.2% 27.0% 20.3% 21.1% 21.3% 21.3%
-
14.Provisions and Contingencies Provision for wealth tax 0.40 0.45 0.61 0.55 0.60 0.55 0.55 0.55 0.55
Provision for NPA 691.15 1026.37 1605.80 1938.93 763.02 651.58 936.97 1674.84 1991.89
% of Net Advances 1.62% 1.62% 1.54% 0.48% 0.33% 0.40% 0.60% 0.60% Provision for diminution in value of non performing investment 0.00 0.00 0 0.00 93.40 0.00 0.00 0.00 Provision for standard assets 169.86 189.66 120.48 0.00 0.00 150.50 150.50 150.50 150.50 other provisions and contingencies 63.75 268.30 152.82 201.11 1143.09 541.22 541.22 541.22 541.22
Total 925.16 1484.78 1879.71 2140.59 1906.71 1437.25 1629.24 2367.11 2684.16 Provision for Income tax 497.30 690.45 1054.31 1340.44 1892.26 2346.07 2828.50 3422.52 4094.04
% of Operating Profit 30.27% 31.96% 31.25% 32.52% 31.23% 31.23% 31.23% 31.23%
Total Provisioning 1422.46 2175.23 2934.02 3481.03 3798.97 3783.32 4457.74 5789.64 6778.20
15. Asset Quality - Non Performing Assets (NPAs) Gross NPA to Gross Advances (%) 1.41% 1.95% 1.41% 1.05% 1.02% 1.05% 1.14% 1.19% Net NPAs to Net Advances (%) 0.47% 0.63% 0.31% 0.19% 0.18% 0.21% 0.24% 0.25%
Opening balance 508.9 657.8 907.0
1,951.5
1,816.8
1,694.3
1,999.4 2,492.2 3,208.1
Additions during the year 778.6
1,202.8 3,413.3
2,610.9
1,451.0
1,574.9
2,131.6 2,791.4 3,319.8
% of Advances 1.66% 1.90% 3.45% 2.07% 0.91% 0.81% 0.91% 1.00% 1.00%
Sub Total 1,287.5 1,860.5 4,320.3
4,562.4
3,267.7
3,269.2
4,131.0 5,283.6 6,527.9
Less:
Upgradations 66.21 252.35 197.08 234.24 279.14 331.98
% of Advances 0.1% 0.2% 0.1% 0.10% 0.10% 0.10%
Recoveries 144.83 430.76 152.53 131.45 165.24 211.35 261.11
% of Gross NPA 3.4% 9.4% 4.7% 4.0% 4.00% 4.00% 4.00%
Write Offs 2187.37 2248.67 1168.52 941.32 1239.30 1585.09 1958.36
% of Gross NPA 50.6% 49.3% 35.8% 28.8% 30.0% 30.0% 30.0% Reductions during the year (including technical write off) (629.73) (953.55) (2332.20) (2745.64) (1573.40) (1269.85) (1638.78) (2075.57) (2551.46)
48.9% 51.3% 54.0% 60.2% 48.1% 38.8% 39.7% 39.3% 39.1%
Closing balance 657.8 907.0 1,988.1
1,816.8
1,694.3
1,999.4
2,492.2 3,208.1 3,976.4
37.89% 119.20% -8.62% -6.74% 18.00% 24.65% 28.72% 24.0%
Provision Coverage 67.09% 68.43% 78.42% 82.51% 82.38% 80.48% 79.51% 78.76% GNPAs to Total Advances (%) 1.38% 1.41% 1.95% 1.41% 1.05% 1.02% 1.05% 1.14% 1.19% Movement of NPAs (NET)
Opening balance 155.2 202.9 298.5 627.6 392.1 296.4 352.3 486.5 657.2
Net Additions during the year 54.7
98.1 400.4 - 35.1 176.5 255.8 335.0 398.4
% of Gross NPA Addition 7.02% 8.16% 11.73% 0.00% 2.42% 11.21% 12.00% 12.00% 12.00%
-
Reductions during the year (including technical write off) 6.97 2.47 71.32 235.57 130.76 120.55 121.62 164.29 211.11
% of Net NPA Addition 10.20% 37.53% 30.61% 25.49% 20.00% 20.00% 20.00%
Closing balance 202.9 298.5 627.6 392.1 296.4 352.3 486.5 657.2 844.4
NNPAs to Net Advances (%) 0.43% 0.47% 0.63% 0.31% 0.19% 0.18% 0.21% 0.24% 0.25%
Movement of provision for NPAs
Opening balance 353.7 454.9 608.5
1,323.9
1,424.7
1,397.9
1,647.1 2,253.2 2,859.3
Provision made during the year 723.9
1,104.7 3,012.9
2,651.3
1,415.9
1,398.4
2,108.2 2,512.3 2,987.8
% of advances 1.5% 1.7% 3.0% 2.1% 0.9% 0.7% 0.90% 0.90% 0.90% Write offs/ Write backs 622.76 951.08 2260.87 2550.45 1442.64 1149.30 1502.10 1906.17 2338.84
% of Total provision for NPA 57.8% 61.0% 62.4% 64.2% 50.8% 41.1% 40.00% 40.00% 40.00%
Closing balance 454.9 608.5 1,360.5
1,424.7
1,397.9
1,647.1
2,253.2 2,859.3 3,508.3
Appendix 4E: Valuation of