Institutional Equities

Banking & Financials Sector

21 February 2021

3QFY21 numbers indicate a better-than-expected asset quality outcome Raghav Garg, CFA
3QFY21 results for banks reassured investors that the asset quality impact of the pandemic has been much lower than Research Analyst
what was initially expected. Most banks under our coverage reported restructuring of less than 2% compared to raghav.garg@nirmalbang.com
expectation of 5-10% initially. Provisioning in 3QFY21 was 9.3% higher QoQ but given the coverage ratios on the +91-22-6273 8192
existing stock of NPAs, we believe the overall banking sector is at the tail-end of a high credit cost phase. Banks’
credit growth picked up, with loans growing 6.8% YoY in 3QFY21 vs 5.8% YoY in 2QFY21. Sequentially, we saw our Sonal Gandhi
coverage banks report loan book growth of 3.3% QoQ (1.3% QoQ in 2QFY21, -2.3% QoQ in 1QFY21), thus pointing to
Research Analyst
continued recovery momentum. Deposits growth, for the entire coverage banks, was healthy at 11.7% YoY and 2.4%
QoQ but tapered off sequentially (QoQ). NIMs were stable, improving marginally QoQ (+1bp). Private banks reported sonal.gandhi@nirmalbang.com
NIM expansion of 5bps QoQ to 4%. PPOP growth across banks was up 13.8% YoY and 5.9% QoQ on the back of 13.6% + 91-9552595929
YoY growth in NII, coupled with strong recovery in non-interest revenue (up 3.1% YoY and 12.6% QoQ). Pick-up in
opex was slower. Cash/investment levels remained elevated in 3QFY21 as deposits accretion remained ahead of credit Arjun Bagga
deployment. Substantiating the positive asset quality outcome further, the banks have reported an improvement in Research Associate
collection numbers (barring MFIs). Top picks among banks: ICICI Bank, HDFC Bank, SBI and CUB.
arjun.bagga@nirmalbang.com
Housing Finance Companies (HFC) reported improvement in disbursements on the back of strong demand. For our
+91-22-6273 8111
coverage universe, disbursements were up 17-18% YoY, mainly led by retail housing loans. Corporate portfolio
(across coverage) reported a decline of 1.3% QoQ as the HFCs have de-focussed on this segment, owing to asset
quality concerns and high NPAs. Pro-forma GNPAs increased by 9-143bps QoQ across our HFC coverage.
Restructuring for HFCs has been in the range of 0.3-1.25%. Our overall HFC coverage reported PBT growth of 24.9%
3QFY21 Result Review

YoY and 6% QoQ (after adjusting for HDFC Ltd’s one-off gain in 3QFY20). Despite a healthy QoQ growth in NII
(+11.5%), the PBT was up by only 6% QoQ due to higher provisioning. Top picks among HFCs: Can Fin Homes and
HDFC Ltd.
Gold loan companies continued to display strong growth in their core business (gold loans). On aggregate,
Manappuram and Muthoot reported gold AUM growth of 29.4% YoY and 5.9% QoQ. Tonnage growth continued to
disappoint, more so for Manappuram, indicating higher risks to growth compared to Muthoot. PAT growth continued
to remain robust, up 19.9% YoY and 13.4% QoQ, led by strong AUM growth, better margins and lower costs.
Managements of both the companies have guided for 15% growth in gold loans in the near term on the back of healthy
demand. Growth stance for the non-gold portfolio is relatively cautious. We prefer Muthoot Finance over Manappuram.
Auto NBFCs reported QoQ growth in disbursements (up 58%) and collections. Lower cost of funds aided NIM
improvement. PAT was down 39% QoQ due to 57% increase in provisions (largely in MMFS). Improvement in
disbursements was largely driven by tractors and used vehicles while the CV space showed some signs of recovery.
Restructuring was lower than initial guidance but overall stress on the books was high on QoQ basis (up 7.3% for
CIFC and 9.2% for MMFS). After the recent run-up in stock prices, we have downgraded CIFC and MMFS to
Accumulate while maintaining a BUY on SHTF due to inexpensive valuations and visibility on growth.
For life insurance companies, aggregate APE growth moderated to 18% YoY in 3QFY21 from 21% YoY in 2QFY21. Non-
par savings growth across our life insurance coverage (barring HDFC Life) was 78-118% YoY on the back of strong
demand. ULIP APE for our coverage companies grew by 37% QoQ, indicating demand recovery for such products on
the back of good equity market performance. Protection sales growth moderated to 10.6% YoY in 3QFY21 compared to
24.1% YoY growth in 2QFY21. For 3QFY21, our coverage companies reported VNB margin expansion of 149-754bps
YoY, driven by a favorable product mix. Amid the persistent pandemic uncertainties, high-margin non-par segment
(incl. protection) has done relatively better than linked products, leading to margin expansion. We like HDFC Life, SBI
Life and Max Life.
AMCs reported a sequentially strong quarter. Aggregate net revenues stood at Rs7.5bn in 3QFY21, growing by 5%
QoQ but were still down 9.4% YoY. Overall QAAUM growth (for our coverage AMCs) was 2.1% YoY and 4.6% QoQ.
During 3QFY21, the net equity (out)flows were Rs323bn for the overall industry. Overall coverage companies reported
equity QAAUM growth of 5.3% QoQ (down 9.5% YoY). Aggregate PAT grew by 15.7% YoY and 20.2% QoQ. Both the
companies (HDFC AMC and NAM) witnessed exceptional non-core gains from their investment books, resulting in
better profitability for the quarter. We prefer NAM in the AMC space.
Upgrading multiples due to reduced asset quality uncertainty and better growth prospects: In our last review note, we
had highlighted our concerns about the then prevailing valuations for our lending coverage, which held us back from taking
aggressive BUY calls on our coverage. At that time, our primary concern was with respect to uncertain asset quality outcome in
light of the covid-impact, SC standstill ruling and potential restructuring. Since then, we think the fundamentals have turned a lot
more positive and conducive to drive re-rating in the financials space. As per the data disclosed, restructuring across most
banks has been less than 2% compared to initial estimates of 5-10%. The increase in NPAs (pro-forma) seems within
manageable levels, especially given that most banks have provided well for these unrecognised slippages. In short, the
uncertainty over asset quality outcome has abated for good and the ultimate NPAs are unlikely to be as high as initially
estimated. In this backdrop, the credit costs are also expected to fall, resulting in better profitability. Growth is expected to pick
up. We have seen non-wholesale loans (for banks) growing by 8.7% YoY in 3QFY21. The latest budget puts capex at 2.5% of
GDP (15-year high), which should augur well for corporate credit growth. The private banks are sitting on strong coverage
ratios and adequate growth capital, thereby making their balance sheets stronger. We believe that the run-up in financial stocks
partially captures these positives and there is still room for further upside from current levels. We have undertaken an upward
revision in our valuation multiples to capture the cyclical upturn. We also remain selectively positive on the life insurance space
as well as the housing finance sector. In the AMC space, we think NAM offers a relatively better investment opportunity.

Please refer to the disclaimer towards the end of the document.

 Institutional Equities
Exhibit 1: Summary of changes in our target prices and ratings
Previous
New target
Valuation target Old target New target Upside /
Company multiple Old rating New rating
basis multiple price (Rs) price (Rs) (downside) (%)
(FY23E)
(FY23E)
Banks
Axis Bank ABVPS 1.8 2.3 706 917 Accumulate Buy 22.3%
HDFC Bank ABVPS 3.5 3.6 1,740 1,832 Buy Buy 18.6%
ICICI Bank ABV + SOTP 1.9 2.4 626 748 Buy Buy 19.9%
IndusInd Bank ABVPS 1.5 1.9 997 1,236 Buy Buy 15.8%
Bandhan Bank ABVPS 3.2 3.2 468 468 Buy Buy 38.7%
Kotak Mahindra Bank ABV + SOTP 3.6 3.7 1,910 1,950 Accumulate Accumulate 0.4%
RBL Bank ABVPS 1.0 1.1 237 261 Accumulate Accumulate 5.9%
Federal Bank ABVPS 1.0 1.2 91 111 Buy Buy 33.4%
City Union Bank ABVPS 2.2 2.4 214 224 Buy Buy 36.1%
DCB Bank ABVPS 0.9 1.0 118 131 Accumulate Accumulate 13.7%
State Bank Of India ABV + SOTP 0.9 1.2 423 495 Buy Buy 24.1%
Bank Of Baroda ABVPS 0.4 0.6 71 99 Accumulate Accumulate 8.2%
Punjab National Bank ABVPS 0.4 0.5 39 46 Accumulate Accumulate 8.4%
Yes Bank ABVPS 1.0 1.0 13 13 Sell Sell -21.0%
NBFCs
HDFC Ltd ABV + SOTP 2.2 2.3 3,128 3,195 Buy Buy 16.4%
Bajaj Finance ABVPS 5.0 5.2 4,391 4,566 Sell Sell -17.0%
LIC Housing Finance ABVPS 1.0 1.1 424 490 Accumulate Accumulate 9.2%
PNB Housing Finance ABVPS 0.7 0.9 352 453 Accumulate Accumulate 1.2%
Can Fin Homes ABVPS 2.2 2.4 572 611 Buy Buy 18.3%
Repco Home Finance ABVPS 0.8 0.8 314 330 Accumulate Sell -5.7%
Muthoot Finance ABVPS 2.8 2.8 1,592 1,592 Buy Buy 23.4%
Manappuram Finance ABVPS 1.8 1.8 235 235 Buy Buy 36.0%
ABVPS of
Ujjivan Financial Services 1.2 1.2 270 270 Accumulate Accumulate 11.4%
USFB
Cholamandalam ABVPS 3.5 3.8 494 545 Buy Accumulate 2.7%
Mahindra Finance ABVPS 2.0 2.1 178 224 Buy Accumulate 7.6%
Shriram Transport Finance ABVPS 1.8 2.1 1,490 1,714 Buy Buy 22.1%
Life insurance
HDFC Life Insurance EV 4.5 4.5 817 817 Accumulate Buy 15.1%
SBI Life Insurance EV 3.0 3.0 1,183 1,183 Buy Buy 34.0%
ICICI Pru Life Insurance EV 2.5 2.5 565 565 Accumulate Buy 16.6%
Max Financial EV 2.2 2.5 883 983 Buy Buy 17.0%
Asset management
HDFC AMC EPS 39.0 39.0 3,278 3,278 Accumulate Accumulate 11.6%
Nippon AMC EPS 28.0 30.5 369 399 Buy Buy 19.4%
Source: Nirmal Bang Institutional Equities Research

2 Banking & Financials Sector

 Institutional Equities
Upgrading multiples due to reduced asset quality uncertainty and better growth prospects: In our last
review note, we had highlighted our concerns about the then prevailing valuations for our lending coverage,
which held us back from taking aggressive BUY calls on our coverage. At that time, our primary concern was
with respect to uncertain asset quality outcome in light of the covid-impact, SC standstill ruling and potential
restructuring. Since then, we think the fundamentals have turned a lot more positive and conducive to drive
a re-rating in the financial space. As per the data disclosed, restructuring across most banks has been less
than 2% compared to initial estimates of 5-10%. The increase in NPAs (pro-forma) seems within
manageable levels, especially given that most banks have provided well for these unrecognised slippages.
In short, the uncertainty over asset quality outcome has abated for good and the ultimate NPAs are unlikely
to be as high as initially estimated. In this backdrop, the credit costs are also expected to fall, resulting in
better profitability. Growth is expected to pick up going forward. We have seen non-wholesale loans (for
banks) grow by 8.7% YoY in 3QFY21. The latest budget puts capex at 2.5% of GDP (15-year high), which
should augur well for corporate credit growth. Private banks are sitting on strong coverage ratios and
adequate growth capital, thereby making their balance sheets stronger. We believe that the run-up in
financial stocks partially captures these positives but there is still room for further upside from current levels.
We have undertaken an upward revision in our valuation multiples to capture the cyclical upturn. We also
remain selectively positive on the life insurance space as well as the housing finance sector. In the AMC
space, we think NAM offers a relatively better investment opportunity.

Large cap private banks, except Axis Bank, are trading at 5-9% premium to their pre-pandemic 3-5 year
average multiples (P/ABV). ICICI Bank has seen a sharp re-rating, owing to run down in NPAs, better
coverage ratios and an overall stronger balance sheet. We think there is room for further re-rating in Axis
Bank and hence we have upgraded our rating on the stock to BUY.

Regional/mid-cap private banks and PSBs are still trading at significant discounts to their pre-pandemic 3-5
year average multiples.

Among the NBFCs, Bajaj Finance trades at 37-59% (something seems to be missing here) to its 3-5 year
average multiple. In HFCs, HDFC Ltd trades at a premium while rest of the HFCs are still trading at a
discount. In some HFCs, we believe the discount to historical averages is justified given the inferior business
models. For PNB HF, capital raising uncertainty still exists.

Exhibit 2: Current valuation (discount)/premium to pre-pandemic average (based on P/ABV)

80%
59%

44%

60%
37%
37%

40%
17%

9%

8%
6%

6%

20%
5%

3%

1%
-4%

-10%
-10%
-11%

-8%

-15%
-17%

0%
-27%

-28%

-32%
-32%

-37%

-37%

-38%

-41%

-20%
-43%
-44%

-46%
-48%

-50%

-51%

-56%
-59%
-60%
-60%

-40%
-66%

-60%
-80%
LIC Housing Finance
Can Fin Homes
Muthoot Finance

Axis Bank
ICICI Bank

Manappuram Finance

Punjab National Bank

Bank Of Baroda
City Union Bank

DCB Bank
Bajaj Finance

PNB Housing Finance

Kotak Mahindra Bank

HDFC Ltd

Federal Bank

IndusInd Bank

RBL Bank

Repco Home Finance

HDFC Bank

to pre-pandemic 3-yr avg to pre-pandemic 5-yr avg

Source: Nirmal Bang Institutional Equities Research

3 Banking & Financials Sector

 Institutional Equities
Exhibit 3: Actuals compared to our estimates
Actual vs NBIE est.
Banks, NBFCs NII PPOP PAT
Axis Bank -2.6 -7.9 -55.9
HDFC Bank 2.7 9.7 11.1
ICICI Bank 3.1 3.0 0.6
IndusInd Bank 2.7 6.7 63.7
Bandhan Bank 3.9 15.4 -25.6
Kotak Mahindra Bank -0.4 -5.7 -13.6
State Bank of India 1.4 -5.5 -16.9
Bank of Baroda 1.0 -2.3 -53.2
City Union Bank 5.5 26.1 20.2
Punjab National Bank 2.2 16.5 -50.5
DCB Bank 2.4 29.3 24.5
Federal Bank 2.5 -3.9 -5.9
RBL Bank -2.1 17.0 -17.5
Yes Bank 24.8 63.1 -59.9
Total-Banks 2.1 3.2 -12.5
Bajaj Finance -1.0 -5.0 -7.5
HDFC Ltd 12.4 12.8 16.6
LIC Housing Finance 0.1 0.5 8.5
Can Fin Homes 3.5 0.1 11.7
PNB Housing Finance -10.9 -1.8 -0.2
Repco Home Finance 13.6 15.7 10.9
Muthoot Finance 3.8 7.4 3.6
Manappuram Finance 0.2 5.1 14.6
Ujjivan Financial Services -8.9 -11.3 -387.4
Total-NBFCs 3.2 4.1 1.9
Actual vs NBIE est.
AMCs Net Revenue EBITDA PAT
HDFC AMC 3.6 16.9 81.9
Nippon India AMC 1.8 3.0 13.0
Total-AMCs 2.4 6.5 31.1

4 Banking & Financials Sector

 Institutional Equities
Banks – restructuring numbers a reassurance that asset quality is under
control
Restructuring lower than expected: Barring a few negative surprises, the disclosures on restructuring
reassured that the overall impact on asset quality has been lower than what was anticipated initially. For our
coverage universe, restructuring has ranged from 0.3% (Kotak) to ~5% (CUB and DCB Bank). Restructuring
for the SME-focused banks has been on the higher side. Large cap private sector banks (HDFC, ICICI, Axis
and Kotak) have seen restructuring of 0.3-0.5%, lowest among our coverage banks. PSBs (SBI and BoB)
have seen restructuring of 0.8%. Given that the restructuring invocation deadline was 31 st Dec, 2020, fresh
restructuring (over and above what has been disclosed) is unlikely to be anything significant. In case of
PSBs, majority (at least 65%) of the restructuring has come from the corporate sector. In case of large/mid-
size private sector banks, the proportion of retail assets in total restructuring (invoked + implemented) is
relatively higher.

Collections further proxy to improving credit quality: In 3QFY21, we have also seen overall collections
improve across segments, be it retail or wholesale. But, MFI collections continue to remain affected. The
generally improving collections trend suggests that the repayment behaviour is normalizing (or has
normalized in some cases), which augurs well from future asset quality perspective. As per data, retail
demand resolutions rates have been improving and are at or nearing pre-covid levels of 97-98%. In case of
corporate collections, banks have reported an improving trend. HDFC Bank reported 20% YoY growth in
corporate collections in Dec’20 (+11% for 3QFY21). On relative basis, MFI collection remains the lowest at
92-95%. This segment also represents the most risk currently, partially due to problems in Assam. Our
estimates suggest that in most cases (banks with significant MFI exposure), the collection efficiency on the
old book (pre-covid) is ~89-90% (10-11% haven’t paid in the last 6-9 months).

Loan growth picked up, led by retail housing: For 3QFY21, our coverage banks reported loan book
growth of 6.8% YoY and 3.3% QoQ. The credit growth trends have been improving compared to 1QFY21
when our coverage banks had reported a decline of 2.3% QoQ in total loans. Growth in non-wholesale was
higher at 8.7% YoY and 3.9% QoQ, compared to wholesale growth of 4.7% YoY and 2.5% QoQ. Within the
non-wholesale piece, retail segment grew by 10.6% YoY, 480-700bps higher YoY compared to SME and
Agri advances. Within the retail segment, housing loans (~43% of coverage bank’s retail loan book), grew by
11.6% YoY and 3.8% QoQ. Auto loans grew by 4.4% YoY and 5.1% QoQ and personal loans grew by
18.6% YoY and 6.1% QoQ. Credit cards have seen growth taper off from 13.4% YoY in 1QFY21 to 10.5% in
3QFY21. Advances growth (YoY) for private banks was 8%, ~230bps higher than PSBs. Large corporate
banks (Axis and ICICI) reported credit growth of 4.1% YoY. Segment wise, private sector banks reported
non-wholesale credit growth of 8.7% YoY in 3QFY21, better than 7.5-7.6% reported in 1QFY21/2QFY21.
PSBs reported non-wholesale credit growth of 8.7% YoY, down from 9.4% YoY in 2QFY21, but still at par
with their private sector counterparts. However, PSBs have been lacking growth momentum in the wholesale
portfolio, which grew by 1.5% YoY (average per quarter 1.1% YoY during 9MFY21) compared to 8.6% YoY
growth reported by private sector banks.

Deposits growth remains healthy: Deposits accretion for our coverage banks moderated to 2.4% QoQ
compared to 4.9% in 2QFY21. On YoY basis, deposits for our coverage banks grew by 11.7%. CASA
deposits grew by 3.5% QoQ (up 16.1% YoY), down from 4% QoQ growth in 2QFY21. CASA ratio continued
to improve and stood at 42.6%, up 46bps QoQ and 163bps YoY. The C/D ratio improved to 74.5% in
3QFY21, after touching a 7-quarter low of 73.8% in 2QFY21. Private banks reported higher deposits growth
of 14.8% YoY and 3.9% QoQ compared to 9.7% YoY and 1.4% QoQ reported by PSBs. CASA growth for
private banks was 20.7% YoY and 6.1% QoQ, higher by 762bps YoY and 428bps QoQ, respectively, when
compared to PSBs. From a deposit accretion standpoint, the overall flavor across the board is to focus on
granular retail deposits. Banks with a relatively weaker franchise and cross-sell continued to offer higher
rates.

5 Banking & Financials Sector

 Institutional Equities
NII growth higher for private sector banks: NII for our coverage banks grew by 13.6% YoY and 3.2%
QoQ. Private banks reported NII growth of 18.8% YoY and 4.6% QoQ while PSBs reported lower NII growth
of 8.4% YoY and 1.7% QoQ. The strong NII growth for private banks was led by NIM expansion of 14bps
YoY and 5bps QoQ to 4% while PSBs reported NIM expansion of 4bps YoY and 1bp QoQ. NIM expansion
for private banks was led by a sharper decline in the cost of funds (down 117bps YoY and 30bps QoQ). NIM
for the overall coverage banks witnessed an expansion of 4bps YoY and 1bp QoQ to 3.4%.

Cash/investment levels still 430bps higher than pre-covid: Coverage banks reported cash/investments-
to-total assets of 40.7% compared to 36.5% average pre-covid. Higher balance sheet liquidity has been a
function of deposits growth being higher than credit growth. Cash/investment ratio was lower for private
banks at 39% compared to 42% for PSBs. Among the private banks, Kotak Mahindra Bank reported the
highest cash/investment ratio at 51.6%. As credit growth picks up, the liquidity levels are expected to fall,
resulting in more efficient utilization of total capital available with banks.

Credit costs up QoQ: Credit cost for most large cap private banks was down QoQ. However, on an overall
coverage basis, credit cost inched up by 20bps QoQ to 2.2% on account of a select few banks. Bandhan
Bank and Yes Bank saw the biggest jump (QoQ) in credit cost while PSBs such as BOB and Punjab
National Bank also reported an increase (QoQ). Our mid-cap coverage, barring Federal Bank, reported an
increase in credit cost owing to SME and MFI stress. Overall quantum of provisions was up 9.3% QoQ.

Exhibit 4: Key metrics for banks coverage - I

6 Banking & Financials Sector

 Institutional Equities
Exhibit 5: Key metrics for banks coverage - II

Exhibit 6: Retail collection trends (%) Exhibit 7: Corporate collection trends (%)
100% 1.2
98.0% 98.0%
98% 97.0% 97.0% 96.9% 97.0% 97.1% 95.0%
96.0% 1
96% 95.0% 95.0%
94.0% 94.3%
0.8
94%

92% 0.6

90% 89.0%
0.4
88% 20.0%
0.2
86%

84% 0
Axis Bank - retail HDFC Bank - retail IndusInd Bank - Yes Bank* - Retail HDFC Bank - Large IndusInd Bank - Corporate Bank Of Baroda -
demand resolution demand resolution VF CE (%) CE (%) corporate collections CE (%) Corporate CE (%)
rates (%) rates (%) growth (yoy, %)

Pre-covid Sep-20 Dec-20 Sep-20 Dec-20 Q3FY21

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

7 Banking & Financials Sector

 Institutional Equities
Exhibit 8: MFI collection trends (%) Exhibit 9: Overall collections trend (%)
96% 95.5% 0.98
0.97 96.5%
95%
94.4% 0.96
95.0% 95.0%
0.95
94%
0.94
93% 0.93
97.0% 92.0%
92.0% 92.0% 0.92
92% 95.0%
0.91
0.9
91% 91.0%
0.89
90% 0.88
IndusInd Bank* - MFI RBL Bank* - MFI CE Bandhan Bank - MFI CE SBI - overall CE (%) Bank Of Baroda - Federal Bank - overall
CE (%) (%) (%) overall CE (%) CE (%)

Q2FY21 Dec-20 Pre-covid Q2FY21 Q3FY21

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research
Note: *for the respective month-ending quarter

Exhibit 10: Pro-forma GNPAs (%) Exhibit 11: Restructuring (%)

~5.0%

<5.0%

1.8% (0.6% implemented +

25% ~6.0%
19.5%

4.7%
16.8%

1.2% invoked)
20% ~5.0%
14.7%
13.8%

~4.0%
15%
9.6%
9.4%

~3.0%
7.1%
6.2%

1.6%
10%
5.5%
5.4%

5.4%

4.9%
4.6%

4.6%

1.3%

~1.0%
3.7%
3.6%

3.4%

3.3%

~2.0%
2.9%
2.8%

2.5%
2.3%

0.8%

0.8%
1.9%
1.5%

1.4%
1.3%

0.5%
5%

0.4%

0.4%

0.3%
~1.0%
0%
~0.0%
IndusInd Bank
ICICI Bank

RBL Bank
Bank of Baroda

Bandhan Bank

Axis Bank

DCB Bank

Federal Bank

Kotak Mahindra Bank

Yes Bank

HDFC Bank
State Bank of India
Punjab National Bank

DCB Bank

ICICI Bank
RBL Bank

Bank of Baroda

Axis Bank

Kotak Mahindra Bank

Yes Bank

Federal Bank
IndusInd Bank

HDFC Bank
State Bank of India
City Union Bank

Punjab National Bank

Q4FY20 Q3FY21

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 12: Provisioning buffer as % of loans Exhibit 13: Growth in non-wholesale loans (YoY %)
13.7%
13.0%

4.5% 16%
12.3%
11.5%
11.1%

4.0% 14%
9.6%

9.4%

12%
8.7%

8.7%

8.7%

3.5%
8.5%
7.6%
7.5%
7.3%

10%
6.6%

3.0%
5.6%

5.6%

8%
5.1%

2.5%
6%
2.0%
4%
1.5%
2%
1.0% 0%
0.5%
Large retail banks

Large pvt corp banks

PSU banks
Regional/mid-sized banks

Coverage banks
Private banks (overall)

0.0%
City Union Bank
Yes Bank
DCB Bank

Federal Bank
HDFC Bank
ICICI Bank

IndusInd Bank

Punjab National Bank

Bandhan Bank

Axis Bank

Bank of Baroda

Kotak Mahindra Bank

State Bank of India

Q1FY21 Q2FY21 Q3FY21

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

8 Banking & Financials Sector

 Institutional Equities
Exhibit 14: Non-wholesale loan segments
25%
18.6%
20%
16.0%
15% 11.4% 11.6%
10% 6.9% 6.5% 5.8%
3.7% 4.4% 3.6%
5%

0%

Agri loans (as % of total

Personal loans (as % of

Auto loans (yoy growth, %)

SME loans (yoy growth, %)

Housing loans (yoy growth,

Agri loans (yoy growth, %)

Auto loans (as % of total
Housing loans (as % of total

SME loans (as % of total

Personal loans (yoy growth,

-5% total loans)

loans)
loans)

loans)
loans)

%)
%)
Q1FY21 Q2FY21 Q3FY21

Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 15: NIM (%)

5% 4.4%
4.0%
4% 3.5% 3.6% 3.4%
2.9%
3%
2%

1%

0%

Coverage banks
Large retail banks

Large pvt corp banks

Regional/mid-sized banks

PSU banks
Private banks (overall)

Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21

Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 16: Cost/income ratio (%)

70%
60% 51.1%
50% 45.8% 44.9%
42.1% 39.6%
37.1%
40%
30%
20%
10%
0%
Private banks (overall)

PSU banks
Regional/mid-sized banks

Coverage banks
Large retail banks

Large pvt corp banks

Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21

Source: Company, Nirmal Bang Institutional Equities Research

9 Banking & Financials Sector

 Institutional Equities
Exhibit 17: Cash + investments as % of NDTL
43%

41%

39%

37%

35%

33%

31%

29%
Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21
Regional/mid-sized banks Large retail banks
Large pvt corp banks Private banks (overall)
PSU banks Coverage banks

Source: Company, Nirmal Bang Institutional Equities Research

10 Banking & Financials Sector

 Institutional Equities
Life insurance – ULIPs making a comeback, growth trends on non-par savings
very strong
Non-par savings leading the growth: In 3QFY21, non-par savings growth across our life insurance
coverage (barring HDFC Life) was 78-118% YoY. Demand for non-par savings has remained strong amid
the current uncertain times. On the supply side, we saw some of the earlier constraints ease due to better
hedging capabilities on the back of better availability of such instruments. On the contrary, HDFC Life
reported muted growth in non-par savings (2.6% YoY) as it focused more on par products, which grew by
122% YoY. Given the product launches under par, HDFC Life has seen this segment grow by 186% YoY
YTD.

ULIPs coming back: On aggregate, ULIP APE for our coverage companies grew by 37% QoQ. Barring
HDFC Life, the rest of the coverage reported lower YoY declines in ULIP compared to 2QFY21, indicating
demand recovery for such products on the back of good equity market performance. ICICI Pru Life and SBI
Life have also stated that demand for ULIPs has been coming back, which is well reflected in the sequential
(QoQ) growth rates.

Protection moderates: On aggregate, protection sales growth moderated to 10.6% YoY in 3QFY21
compared to 24.1% YoY growth in 2QFY21. However, the company-specific trends were mixed. SBI Life
reported protection APE growth of 43.5% YoY while Max Life reported 19.3% YoY growth. ICICI Pru Life
continued to see pressure in retail protection. HDFC Life also reported weak growth in retail protection with
the share of overall protection declining despite recovery in credit life.

VNB margin expansion led by favorable product mix: For the quarter, coverage companies have
reported VNB margin expansion of 149-754bps YoY, driven by a favorable product mix. Amid the pandemic
uncertainties, high-margin non-par segment (incl. protection) has done relatively better than linked products,
leading to margin expansion. On QoQ basis, all companies (except ICICI Pru Life) have seen margins
improve by 39-94bps. Given the growth focus of the companies, margins are likely to remain strong but
incrementally higher sales growth in ULIPs can pose a downside risk. Max Life has reported the highest
VNB margin expansion of 754bps YoY for the quarter.

Exhibit 18: Total APE growth YoY (%) Exhibit 19: ULIP APE growth YoY ( %)
80% 80%
60%
60%
40%
40%
20%
20% 0%

0% -20%
-40%
-20%
-60%
-40% -80%
Q1FY19

Q2FY19

Q3FY19

Q4FY19

Q1FY20

Q2FY20

Q3FY20

Q4FY20

Q1FY21

Q2FY21

Q3FY21

-60%
Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21

HDFC Life SBI Life ICICI Pru Life HDFC Life SBI Life ICICI Pru Life
Max Life Total Max Life Total coverage

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

11 Banking & Financials Sector

 Institutional Equities
Exhibit 20: ULIP as % of total APE Exhibit 21: Protection as % of total APE
80% 30%
69%
70%
25%
60%
51%
20%
50%

40% 36% 15%

30%
23% 10%
20%
5%
10%

0% 0%
HDFC Life SBI Life ICICI Pru Life Max Life HDFC Life SBI Life ICICI Pru Life Max Life
Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 22: VNB growth YoY (%) Exhibit 23: VNB (Rsbn)
120% 16 14.5
14.1
100% 14
80% 12
10.3
60% 10
7.9
40% 8
20% 6
0% 4
HDFC Life SBI Life ICICI Pru Life Max Life
-20% 2
-40% 0
-60% HDFC Life SBI Life ICICI Pru Life Max Life

Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q3FY20 Q3FY21

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 24: VNB margin (%) Exhibit 25: EV (Rsbn)

35% 350

30% 28.5% 300

26.4% 25.7%
25% 250

19.9% 200
20%
150
15%
100
10%
50
5%
0
0% SBI Life ICICI Pru Life HDFC Life Max Life
HDFC Life SBI Life ICICI Pru Life Max Life
Q4FY19 Q1FY20 Q2FY20 Q3FY20
Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY20 Q1FY21 Q2FY21 Q3FY21

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

12 Banking & Financials Sector

 Institutional Equities
Housing finance companies – Stronger by the quarter
Continued pick-up in disbursements: Disbursements for our HFC coverage were up 17.4% YoY, mainly
led by retail disbursements. Wholesale/corporate disbursements were muted as lenders have been averse
to the stress developing in the developer segment. The disbursements trends seen during the quarter were
identical to 2QFY21. Large HFCs continued to report double-digit disbursement growth (25-26% YoY for LIC
HF and HDFC Ltd) while for small HFCs it was 16-25% YoY. On QoQ basis, HFC coverage’s disbursements
were up 34.2%. Overall loan book growth for our HFC coverage was 6.1% YoY and 1.9% QoQ, led by
HDFC Ltd (+9.6% YoY, +1.9% QoQ). The growth outlook for the housing finance sector remains positive.

Exhibit 26: Disbursements growth (%) Exhibit 27: Loan book growth (%)
40.0% 35.5% 34.2% 15.0%
34.1%
31.1%
30.0% 10.0%
18.1%
20.0%
5.0%
10.0%
0.0%
0.0% HDFC Ltd LIC HF PNB HF Can Fin Repco HF Total
LIC HF PNB HF Can Fin Repco HF Total
-5.0%
-10.0%

-20.0% -10.0%

-30.0% -15.0%

YoY (%) QoQ (%) YoY (%) QoQ (%)

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

13 Banking & Financials Sector

 Institutional Equities
Home loans seeing better traction; corporate down: The current environment of low rates, asset price
correction and regulatory incentives in certain states has led to strong demand for individual home loans. In
line with this trend, the home loan portfolio for our coverage universe grew by 6.8% YoY and 3% QoQ.
HDFC Ltd reported the highest growth of 10.5% YoY and 3.8% QoQ among our coverage HFCs. At the
same time, the corporate portfolio (across coverage) reported a decline of 1.3% QoQ as the HFCs have de-
focused on this segment owing to asset quality concerns and existing high NPAs.

Exhibit 28: Home loans growth (%) Exhibit 29: Corporate portfolio growth (%)
15% 20%

15%
10%
10%
5%
5%

0% 0%
HDFC Ltd LIC HF PNB HF Can Fin Repco HF Total HDFC Ltd LIC HF PNB HF Total
-5%
-5%
-10%
-10%
-15%

-15% -20%

YoY (%) QoQ (%) YoY (%) QoQ (%)

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

Asset quality manageable: Pro-forma GNPAs increased by 9-143bps QoQ across our HFC
coverage. PNB HF saw the largest increase in stress with pro-forma GNPAs increasing by 143bps
QoQ (+272bps YoY). HDFC Ltd’s GNPA increased by 9bps QoQ while Can Fin Homes saw an
increase of under 28bps QoQ (assuming maximum 1% pro-forma GNPA). The overall restructuring
pipeline seems negligible for most HFCs (0.3-1.25%). Though, on relative basis, PNB HF has the
largest restructuring at 1.25%. However, we continue to remain wary of the asset quality risks
emanating from the developer segments. Developer-related asset quality risks remain high for PNB
HF and LIC HF while we believe that HDFC Ltd is better placed.

Exhibit 30: GNPA (%) Exhibit 31: NNPA (%)

5.0 3.5

4.5
3.0
4.0
2.5
3.5

3.0 2.0
2.5
1.5
2.0

1.5 1.0

1.0 0.5
0.5
0.0
0.0 HDFC Ltd LIC HF PNB HF Can Fin Repco HF
HDFC Ltd LIC HF PNB HF Can Fin Repco HF
2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21
2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

14 Banking & Financials Sector

 Institutional Equities
Exhibit 32: Restructuring (%)
1.25% of total
loans

maximum 1%
0.9%

0.4%
0.3%

PNB HF LIC HF HDFC Ltd Can Fin Repco HF

Source: Company, Nirmal Bang Institutional Equities Research

PBT growth subdued due to high provisioning despite healthy NII growth: HDFC Ltd reported PBT
growth of 27% YoY (after adjusting for one-offs) while LIC HF reported a growth of 30.1% YoY. Our overall
HFC coverage reported a PBT growth of 24.9% YoY and 6% QoQ (after adjusting for HDFC Ltd’s one-off
gain in 3QFY20). For 3QFY21, aggregate provisioning (for the HFC coverage) increased by 42.5% QoQ.
Despite a healthy QoQ growth in NII (+11.5%), the PBT was up by only 6% (QoQ) due to higher
provisioning. HFCs looked to provide for pro-forma slippages despite the SC ruling halting NPA recognition,
leading to higher reported coverage ratios.

Exhibit 33: NII Growth (%) Exhibit 34: NIM (%)

50% 6.0

40% 5.0

30%
4.0
20%
3.0
10%
2.0
0%
HDFC Ltd LIC HF PNB HF Can Fin Repco HF Total
1.0
-10%

-20% 0.0
2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21
-30%
HDFC Ltd (calc.) LIC HF PNB HF
YoY (%) QoQ (%) Can Fin Repco HF

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

15 Banking & Financials Sector

 Institutional Equities
Exhibit 35: CoF (%) Exhibit 36: PPOP growth (%)
9.0 30%

20%
8.5
10%
8.0 0%
7.9
7.7 HDFC Ltd LIC HF PNB HF Can Fin Repco HF Total
7.6 -10%
7.5
-20%
7.0 -30%

6.5 -40%
6.4
6.2 -50%
6.0
2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 -60%

-70%
HDFC Ltd (calc.) LIC HF PNB HF
Can Fin Repco HF YoY (%) QoQ (%)

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 37: PBT growth (%) Exhibit 38: PAT growth (%)
40% 30%
30% 20%
20% 10%
10%
0%
0% HDFC Ltd LIC HF PNB HF Can Fin Repco HF Total
-10%
-10% HDFC Ltd LIC HF PNB HF Can Fin Repco HF Total
-20%
-20%
-30%
-30%
-40%
-40%
-50% -50%

-60% -60%
-70% -70%

YoY (%) QoQ (%) YoY (%) QoQ (%)

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

Can Fin’s new strategy: For 3QFY21, Can Fin Homes (CFHL) reported disbursements growth of 34.1%
QoQ (down 25.1% YoY), partly due to registration issues in Telangana, which led to 17-18% loss of
incremental business. For 4QFY21, the management has guided for disbursements of Rs15.5bn. The
management has also articulated a new growth strategy in light of the low rates and high competition from
banks. It has decided to re-price its loan book given that it has reduced its rates substantially and is now at
par with banks. The lowest (starting) home loan rate is now 6.95% compared to 8.25% a year ago (vs. 7-
7.25% offered by banks a year ago). As part of the new strategy, the company will also focus on business
within large cities (metros). As a result, the average ticket size may increase slightly (from Rs1.8mn currently
to Rs1.9mn). The new strategy (to tap into highly competition markets/large cities) is only to target additional
business given the company’s highly competitive cost of funds. The earlier strategy to expand into tier-3/4
cities remains intact. As per the company, the book retention, prior to and after the rate change, has
improved markedly. This should also help the company to take over loans from larger competitors (SBI and
HDFC). As a result of the repricing strategy, the current margins/spreads are unlikely to hold up. Over the
next 4-5 quarters, the spread should fall to ~2.4%. The company will take stock of the new business strategy
after a few quarters. Management expects to reach growth levels of 17-18% YoY (in disbursements and loan
book) over the next 6-8 quarters. We think that the credit quality of new business on account of the new
growth strategy (aggressive pricing) will be a key monitorable over the coming quarters.

16 Banking & Financials Sector

 Institutional Equities
Gold finance companies – Demand-led growth, CoF favorable
Gold loans NII growth strong: Gold loans companies continued to display strong growth in their core
business (gold loans). On aggregate, Manappuram and Muthoot reported gold AUM growth of 29.4% YoY
and 5.9% QoQ. This, along with lower cost of funds (CoF), led to a healthy revenue growth. Gold loan
companies reported NII growth of 14% YoY and 9.7% QoQ. On QoQ basis, CoF declined by 15-58bps. For
Muthoot, the decline in CoF has been higher than Manappuram, resulting in better revenue growth.

Tonnage growth continued to disappoint, more so for Manappuram, indicating higher risks to growth
compared to Muthoot. Manappuram reported a decline of 7.2% YoY and ~1% QoQ in gold tonnage while
Muthoot reported a decline of 4% YoY (up 1.8% QoQ). Generally, there is an inverse relationship between
gold volume pledged and gold prices. Given the increase in gold prices, the volume pledged has come
down.

PAT growth continued to remain robust, up 19.9% YoY and 13.4% QoQ, led by strong AUM growth,
better margins and lower costs. Muthoot has reported better net earnings growth of 21.6% YoY compared to
16.6% for Manappuram on the back of lower CoF, better cost ratios and lower overall credit costs. On QoQ
basis, Mannapuram reported a net earnings growth of 19.2% on account of lower provisioning (down 25.8%
QoQ) coupled with stable costs (up 0.2% QoQ).

Demand outlook positive but competitive risks lurking: The managements of the two companies have
guided for 15% growth in gold loans in the near term on the back of healthy demand. The growth stance on
the non-gold portfolio is a relatively circumspect one. While Manappuram has started pursuing growth in the
non-gold segments, Muthoot is likely to maintain caution given the asset quality risks. We remain structurally
positive on the gold loan business. But, we also take notice of the emerging risks, especially on the
competition front. While we recognize that the overall market is expanding and that the customer segment
may not be alike for banks and NBFCs, we believe that digital-way-of-things has the potential to tilt the game
in favor of the banks over the long term.

Exhibit 39: Gold loans (Rsbn) Exhibit 40: Gold holdings (tonnes)
600 200
173.0 176.0
180 171.0
496.2 165.0 163.0 166.0
500 462.3 160
407.7 404.9
377.2 140
400
349.4
120

300 100

80 72.0 73.5 72.4 69.0 68.8

197.4 202.1 68.2
200 169.7 177.4
151.7 162.4
60

40
100
20

0 0
2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21

Muthoot Manappuram Muthoot Manappuram

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

17 Banking & Financials Sector

 Institutional Equities
Exhibit 41: Manappuram's share of non-gold AUM (%) Exhibit 42: NII growth (%)
35.0 33.1 32.6 32.7 18%
16.2%
30.0 16%
30.0
26.6 26.9 14% 12.7%
11.9%
25.0 12%

10%
20.0
8%
6.0%
15.0 6%

4%
10.0
2%
5.0
0%
Muthoot Manappuram
0.0
2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 YoY (%) QoQ (%)

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 43: CoF (%) Exhibit 44: PAT growth (%)

9.6 25%
9.4
9.2 20%

9.0
15%
8.8
8.6
10%
8.4
8.2 5%
8.0
7.8 0%
2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 Muthoot Manappuram

Muthoot Manappuram YoY (%) QoQ (%)

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

18 Banking & Financials Sector

 Institutional Equities
Auto NBFC’s - Growth picks up, asset quality stress surfaces
Used vehicles aids AUM growth for auto NBFCs
We studied auto AUM data for a set of 15 banks and NBFCs, which indicated an AUM growth of 4%/3%,
YoY and QoQ in 3QFY21. Bank and NBFC AUM grew by 3.6% YoY and 4.2% YoY, respectively. NBFC
AUM growth was largely aided by the used vehicle segment, which was up 8% YoY. The outliers in the
NBFC space were Shriram Transport Finance (SHTF) and Cholamandalam Finance (CIFC), which
witnessed growth rates of 5.7% YoY and 12% YoY, respectively. SHTF’s growth was supported by used
vehicle segment, which was up 8.4% (92% of AUM) while new vehicles AUM declined 18.8% YoY. CIFC’s
AUM growth was largely contributed by 41% growth in tractors and 16% growth in used vehicles on a YoY
basis. Mahindra Finance (MMFS) reported flat AUM growth, led by 2% YoY decline in tractors and 12% YoY
decline in used vehicles while new vehicles AUM (74% of AUM) increased by 2.2% YoY.
Exhibit 45: Auto AUM Q3FY21 (Rs in crores) Exhibit 46: Auto AUM growth YoY for Q3FY21

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

Disbursements pick up on QoQ basis: Disbursements across our coverage auto NBFCs (SHTF, CIFC &
MMFS) increased by 58% QoQ, but declined by 7% YoY. On a granular level, auto disbursements were
strong in tractor and used vehicle segments. The increase in fleet utilization and freight rates supported
demand in used LCV and demand is likely to continue in the ensuing quarters. The recent data on monthly
wholesale sales indicates that the recovery in MHCVs (goods carrier) has started and disbursements may
continue to grow. Disbursements under ECLGS were at Rs24.3bn, ~9% of overall disbursements for
3QFY21. CIFC witnessed strong growth in disbursements in the LAP portfolio (21.6% of AUM), which was
up 39.3% YoY.
Exhibit 47: Disbursements back to pre-Covid levels ex- Exhibit 48: …registers YoY and sequential growth
MMFS…

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

19 Banking & Financials Sector

 Institutional Equities
High yields and low cost of funds aid NIM expansion: The improvement in the liquidity situation, coupled
with lower cost of funds led to improvement in the cost of borrowings. On QoQ basis, the cost of funds was
down 10bps at 60bps while the fall was steeper between 10bps and 90bps on YoY basis. CIFC saw the
highest decline in funding cost QoQ, which should augur well for its margins and growth. SHTF indicated
that the incremental cost of debt raised in 3QFY21 was ~8.5-9% vs avg. cost of 9.3% in 3QFY21. Higher
disbursements towards used vehicles aided improvement in interest yields on YoY basis.
Exhibit 49: High disbursals in used vehicle aided YoY yield Exhibit 50: Cost of funds continue to inch lower
expansion

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 51: High yields and low cost of funds aided margin expansion

Source: Company, Nirmal Bang Institutional Equities Research

20 Banking & Financials Sector

 Institutional Equities
Provisioning up sequentially impacting PAT
NBFCs in our coverage resorted to less restructuring than was guided earlier and allowed overdue accounts
to slip into stage 3. This led to 50-250bps YoY increase in credit costs, affecting profitability.

Exhibit 52: Higher provisions impacted profitability

SHTF CIFC MMFS
Rs in mn Q1FY21 Q2FY21 Q3FY21 Q1FY21 Q2FY21 Q3FY21 Q1FY21 Q2FY21 Q3FY21
Opex 3,636 5,125 5,432 3,458 3,551 3,688 3,457 3,968 3,985
YoY growth -18.6% 4.1% 0.5% -1.2% -11.6% -13.1% -38.3% -23.6% -23.2%
PPOP 14,952 15,759 16,637 6,372 9,000 9,963 10,447 10,311 10,180
YoY growth -3.1% -0.7% 2.0% 7.5% 45.5% 51.4% 44.2% 25.9% 14.6%
Provisions 10,646 6,555 6,747 562 3,176 4,446 8,427 6,194 13,867
YoY growth 89.7% -0.8% 51.8% -48.7% 233.7% 226.9% 36.0% 71.8% 246.6%
PAT 3,201 6,846 7,277 4,309 4,323 4,095 1,558 3,035 (2,741)
YoY growth -49.5% -10.5% -17.2% 37.1% 40.8% 5.4% 127.7% 20.6% -175.0%
Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 53: Stage 3 provisions increased sequentially Exhibit 54: Overall provisions down sequentially for CIFC

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research
Note: Stage 3 provisions and overall provisions is calculated on proforma GNPA for Q2 & Q3 FY21

Pro-forma GNPA higher, SHTF stands out with improvement in GNPA & low restructuring
Avg. pro-forma GNPA increased 70bps QoQ but SHTF reported a decline of 20bps/160bps on QoQ/YoY
basis to 7.1%. All three NBFCs reported an improvement in collection efficiency on MoM basis and were near
normalcy in Dec’20. Restructuring was lower than the initial anticipation. The overall stress on the books
seems high compared to historical numbers for MMFS and CIFC. MMFS was the worst impacted in terms of
slippages in Stage 2 and Stage 3, which increased by 640bps and 160bps QoQ to 14.1% and 10%,
respectively.

Exhibit 55: Proforma GNPA higher ex-SHTF Exhibit 56: Stage 2 assets increased sequentially, MMFS most
impacted

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

21 Banking & Financials Sector

 Institutional Equities
Exhibit 57: MMFS least resorted to restructuring & ECLGS…

Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 58: …however overall stress for MMFS is higher as compared to peers
Q3FY21 SHTF CIFC MMFS
ECLGS 0.6 2.3 0.4
Restructuring done during the quarter 0.3 2.0 0.0
Gross stage 2 12 5.2 14.1
Gross Stage 3 7.1 3.8 10.0
Stress on books as % of advances 20.0 13.2 24.5
Additional provisions as % of advances 2.2 1.1 1.6
Source: Company, Nirmal Bang Institutional Equities Research
Note: SHTF received restructuring requests for Rs22.7bn (~2% of advances) but restructured proposals worth Rs3 bn. The
rest are likely to come up in Q4FY21 but management indicated that the actual restructuring may be lower

Change in Ratings:
CIFC: Reduce from BUY to ACCUMULATE
SHTF: Retain BUY
MMFS: Reduce from BUY to ACCUMULATE

Exhibit 59: Premium/ (Discount) to 3 yr avg. 12-m fwd P/B Exhibit 60: Premium/ (Discount) to 5 yr avg. 12-m fwd P/B

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

22 Banking & Financials Sector

 Institutional Equities
Exhibit 61: Premium/ (Discount) to 3 yr avg. 12-m fwd P/ABV Exhibit 62: Premium/ (Discount) to 3 yr avg. 12-m fwd P/ABV

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

23 Banking & Financials Sector

 Institutional Equities
Cholamandalam: Reduce to ACCUMULATE (PT of Rs 545) from BUY
We continue to like CIFC due to its multi-product portfolio, balanced geographical presence, management
execution record, digital push and strong underwriting practices reflected in control over its asset quality.
However, CIFC stock has run up ~45%/125% in the last 2/4 months. We change our rating from BUY to
ACCUMULATE as the CMP in our view fully reflects the disbursement growth likely to accrue in the next 2
years. The stock is currently trading at 4.8x 12-m fwd P/ABV vs a 3-yr avg of 3.25x and 5-yr avg of 3.35x.
Our earnings estimates are higher than consensus by 6% for FY22 and 23E. We value it at 3.75x (earlier
3.5X) FY23 P/ABV (~15% premium to 3-yr avg) to arrive at our PT of Rs545 (earlier Rs494).

Earnings revision: We have increased our PAT estimates by 3% and 8% for FY22 and FY23. This is driven
by ~2% to 3.5% reduction in the cost to income ratio in FY22 and FY23. We have also increased our
disbursements estimates from 11% CAGR (FY20-23) to 18% CAGR over the same period.

Exhibit 63: Earnings Revision Table

Revised Estimates Earlier Estimates % Revision
FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E
Net Interest income (Rs mn) 43,487 49,310 56,131 43,614 48,147 53,978 -0.3 2.4 4.0
Operating Profit (Rs mn) 34,414 37,076 42,548 34,541 35,940 39,889 -0.4 3.2 6.7
Profit after tax (Rs mn) 17,387 21,833 25,320 17,481 21,179 23,558 -0.5 3.1 7.5
Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 64: CIFC P/B & P/ABV 12-m fwd Exhibit 65: CIFC P/E 12-m fwd
6.0x 25.0x

5.0x
20.0x
4.0x
15.0x
3.0x
10.0x
2.0x

1.0x 5.0x

0.0x 0.0x
Feb-19
Feb-11

Feb-12

Feb-13

Feb-14

Feb-15

Feb-16

Feb-17

Feb-18

Feb-20

Feb-21

Feb-11

Feb-12

Feb-13

Feb-14

Feb-15

Feb-16

Feb-17

Feb-18

Feb-19

Feb-20

Feb-21
CIFC P/B-12m fwd CIFC P/B adj.-12m fwd CIFC P/E-12m fwd

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

Shriram Transport Finance: Retain BUY (PT of Rs1714), execution remains the key
SHTF reported 9% YoY growth in disbursements in 3QFY21. It has reported positive growth in
disbursements only twice in the last 9 quarters. Asset quality stress was lower than anticipated and
surprised us positively. Demand for used vehicles remained robust due to increase in fleet utilization levels
and freight rates. This is further supported by increase in used LCV prices (~25%) while the HCV prices
have remained stable. This leads us to believe that the disbursements will remain strong over the next few
quarters. The infra push by the government may make it a multi-year growth story. During the CV upcycle,
SHTF has traded in the range of 2.2x to 3.5x (12 month forward P/ABV) with the last 5-year avg multiple
being 2.4x. We have increased our target multiple from 1.8x to 2.1x, in-line with 3-yr average 12 month
forward P/ABV. This gives us a TP of Rs1,714 (earlier Rs1,490), leaving an upside of 22%. If the growth
sustains, we may see further rerating going ahead.
Our earnings remain unchanged.

24 Banking & Financials Sector

 Institutional Equities
Exhibit 66: SHTF 12-m fwd P/B & P/ABV Exhibit 67: SHTF 12-m fwd P/E
4.5x 18.0x
4.0x 16.0x
3.5x 14.0x
3.0x 12.0x
2.5x 10.0x
2.0x 8.0x
1.5x 6.0x
1.0x 4.0x
0.5x 2.0x
0.0x 0.0x
Feb-18
Feb-11

Feb-12

Feb-13

Feb-14

Feb-15

Feb-16

Feb-17

Feb-19

Feb-20

Feb-21

Feb-13
Feb-11

Feb-12

Feb-14

Feb-15

Feb-16

Feb-17

Feb-18

Feb-19

Feb-20

Feb-21
SHTF PB-12m fwd SHTF P/B adj.-12m fwd SHFT P/E-12m fwd

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

Mahindra Finance: Reduce from BUY to Accumulate (PT of Rs224)

MMFS’ share price has appreciated by 20% over the last 2 months. However, 3QFY21 results disappointed
us due to below industry disbursements (indicating loss in market share) and increase in stage 2 and stage 3
assets. 4Q is cyclically a strong quarter in terms of collection efficiencies and recovery of overdue accounts
and we believe that the current stock price is already factoring in that. Rural buoyancy should also aid in
terms of collection. Growth in our view is a key monitorable and may lag peers due to supply issues at M&M
(parent company). In view of our auto analyst, the supply side issue at M&M may persist until 1QFY22, which
may affect disbursements at MMFS. However, as and when M&M is back to normal, MMFS may grow ahead
of peers - until then we remain "hold” as the earnings may not grow.
We have increased our earnings estimates by 27% and 24% for FY22E and FY23E. This is largely driven by
reduction in credit costs by ~60bps. However, we still remain below consensus by 6% and 8% for FY22/23E.
MMFS’ earnings have been very volatile historically based on its provisioning. Management has changed its
write-off policies to quarterly basis (half yearly before) to reduce cyclicality on a quarterly basis.
We value MMFS at 2.1x FY23 P/ABV, in-line with SHTF. This gives us a TP of Rs224 (Rs178 earlier).
Historically, MMFS has traded at 2.1x and 2.7x, 3-yr and 5-yr P/ABV (12-month forward). We believe that
MMFS may re-rate towards its 5-yr avg once the visibility on growth emerges.

Exhibit 68: Earnings revision

Revised Estimates Earlier Estimates % Revision
FY21E FY22E FY23E FY21E FY22E FY23E FY21E FY22E FY23E
Net Interest income (Rs mn) 55,082 59,640 68,995 55,082 59,640 68,995 - - -
Operating Profit (Rs mn) 41,940 43,231 50,677 41,940 42,241 49,565 (0.0) 2.3 2.2
Profit after tax (Rs mn) 7,441 17,327 22,930 7,441 13,701 18,493 0.0 26.5 24.0
Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 69: MMFS 12-m fwd P/B & P/ABV Exhibit 70: MMFS 12-m fwd P/E
4.5x 25.0x
4.0x
3.5x 20.0x
3.0x
2.5x 15.0x
2.0x
10.0x
1.5x
1.0x
5.0x
0.5x
0.0x 0.0x
Mar-17

Mar-19
Mar-11

Mar-12

Mar-13

Mar-14

Mar-15

Mar-16

Mar-18

Mar-20

Jan-11

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-19

Jan-20

Jan-21

MMFS P/B-12m fwd MMFS P/B adj.-12m fwd MMFS P/E-12m fwd

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

25 Banking & Financials Sector

 Institutional Equities
Asset management companies (AMCs) – Sequentially strong but still waiting
for a pick-up in flows
Yield bottoming out? Our AMC coverage reported net revenue of Rs7.5bn for 3QFY21, growing by 5%
QoQ but the topline was down 9.4% YoY. The overall QAAUM growth (for coverage AMCs) was 2.1% YoY
and 4.6% QoQ. In 3QFY21, net equity (out)flows were Rs323bn for the overall industry. Despite this, the
equity net AUM for Dec’20 was up 15.5% compared to Sept’20, driven by the equity market rally. Over
coverage companies reported equity QAAUM growth of 5.3% QoQ (down 9.5% YoY). Blended revenue
yields were largely stable for HDFC MF while coming down by 1bp QoQ for Nippon MF. In the last 12-15
months, we have seen blended yields contract by 3-8bps for HDFC MF and Nippon MF. The trend has been
rather stable over 1QFY21-3QFY21, possibly indicating a bottom as far as yield compression is concerned.
Increasing share of equity AUM can result in improved blended yields going forward and therefore higher
revenue growth.
Equity AUM growth (QoQ) driven by market rally; flows yet to pick up: In 3QFY21, the net equity
(out)flows stood at Rs323bn for the overall industry. Despite this, the equity net AUM for Dec’20 was up
15.5% compared to Sept’20, driven by the equity market rally. Over coverage companies reported equity
QAAUM growth of 5.3% QoQ (down 9.5% YoY). Share of equity QAAUM was stable QoQ (marginally
positive for HDFC MF), but was still down 490-500bps YoY.
HDFC MF continues to lose equity market share: The company has lost 230bps of equity market share
since Sept’19 and it currently stands at 13.3% (Jan’21). The management is cognizant of the issue and is
addressing the same. During the quarter, one of the large funds was separated to have a different
orientation while 3 new funds would be launched in the coming months. Funds that underperformed in
1QFY21 and 2QFY21 performed better in 3QFY21 and improvement in the performance is expected to
positively contribute to inflows, in addition to other measures being undertaken.
PAT was buoyed by one-offs: During the quarter, our AMC coverage reported a PAT growth of 15.7% YoY
and 20.2% QoQ. Both the companies witnessed exceptional non-core gains from their investment books,
resulting in better profitability for the quarter. In case of HDFC MF, the company saw MTM gains on Essel
NCDs worth Rs1.15bn. Similarly, Nippon MF saw exceptionally high equity MTM gains for the quarter,
leading to a PAT growth of 41.7% YoY and 45.7% QoQ.
NAM operationally stronger: Nippon MF also reported strong underlying operational performance (before
other income) with employee costs down 18.3% YoY and 2.2% QoQ while other opex was down 30.4% YoY
and 2.2% QoQ. EBITDA was up 1.2% YoY despite revenue being down 11.4% YoY.

Exhibit 71: Equity market share (%)

16%
14.1%
14% 13.3%13.7%
12.6%
12%
10.0% 10.2%
10%
7.5% 7.3% 7.1%
8% 6.9%
6% 4.5% 4.8%
4%
2%
0%
HDFC Mutual ICICI Prudential SBI Mutual Fund Aditya Birla Sun Nippon Mutual UTI Mutual Fund
Fund Mutual Fund Life Mutual Fund Fund

Jun-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21

Source: Company, Nirmal Bang Institutional Equities Research

26 Banking & Financials Sector

 Institutional Equities
Exhibit 72: Debt market share (%)
18%
16.1%
16% 15.3%
14.0% 13.8%13.8% 14.2%
14%
12% 10.6% 10.7%
10%
8% 6.6% 6.2%
6% 5.3% 5.1%
4%
2%
0%
HDFC Mutual ICICI Prudential SBI Mutual Fund Aditya Birla Sun Nippon Mutual UTI Mutual Fund
Fund Mutual Fund Life Mutual Fund Fund

Jun-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21

Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 73: QAAUM (Rsbn) Exhibit 74: QAAUM growth (%)

4,500 20%
3,895
3,825
3,766

3,755
3,698

15%
3,562

4,000
10%
3,500
5%
3,000
0%
2,044
1,994

1,996

2,500
1,973

-5%
1,923
1,733

2,000 -10%
-15%
1,500
-20%
1,000
-25%
3QFY20

4QFY20

1QFY21

2QFY21

3QFY21
500

0
2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21
HDFC MF (yoy) Nippon MF (yoy)
HDFC MF Nippon MF HDFC MF (qoq) Nippon MF (qoq)

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 75: Equity mix (%) (QAAUM basis) Exhibit 76: Equity QAAUM (Rsbn)
1,666
1,610

1,800
1,574

50%
1,505

42.8% 43.6% 42.6%

1,436

45% 43.0% 44.0% 1,600

42.0%
1,293

38.0% 39.0% 39.0%

40% 38.2% 38.6% 1,400
36.3%
35%
1,200
30%
877
848

1,000
838

797
750

25%
659

800
20%
600
15%
400
10%

5%
200

0% 0
2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21

HDFC MF Nippon MF HDFC MF Nippon MF

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

27 Banking & Financials Sector

 Institutional Equities
Exhibit 77: Revenues (Rsbn) Exhibit 78: PAT (Rsbn)
6.0 4.0 3.7 3.7
5.2 3.5
5.0 3.4
4.8 4.8 3.5
5.0 4.6 3.0
4.1 3.0
4.0 2.5
2.5
3.0 2.1
3.0
3.0 2.7 2.6 2.7 2.0
2.3 1.5 1.6 1.5
1.4
1.5
2.0
1.0
1.0
0.5
0.0
0.0 0.0
2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21

HDFC MF Nippon MF HDFC MF Nippon MF

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 79: Financial performance of coverage AMCs during Exhibit 80: Change in equity mix (bps) - Q3FY21
3QFY21
25% 100 40
20.2% 0
20% 0
15.7%
15%
-100
10%
5.0% 4.6% -200
5% 2.1%
-300
0%
-400
-5%

-10% -500
-9.4% -492 -500
-15% -600
Revenues PAT QAAUM HDFC MF Nippon MF

YoY (%) QoQ (%) YoY (bps) QoQ (bps)

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 81: Change in equity AUM (%) Exhibit 82: Equity yields (bps)
HDFC MF Nippon MF 102
-8.8%
100
-8.9% 98
-9.0% 96
-9.1% 94 94

-9.2% 92
90 90
-9.3%
88
-9.4%
86
-9.5%
84
-9.6% 82
2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21
-9.7%

-9.8% HDFC MF Nippon MF

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

28 Banking & Financials Sector

 Institutional Equities
Exhibit 83: Overall revenue yield (bps) Exhibit 84: Net flows (Rsbn)
1,500 150

62 1,000
100
500
50
57 0

-500 0
52 53
-1,000
-50
49 -1,500
47 -100
-2,000

-2,500 -150

Aug-19

Aug-20
Jun-19

Feb-20

Jun-20
Apr-19

Oct-19

Dec-19

Apr-20

Oct-20

Dec-20
42
2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21

HDFC MF Nippon MF Debt (LHS) Equity (RHS)

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

29 Banking & Financials Sector

 Institutional Equities
Financials – Cholamandalam
Exhibit 85: Income statement Exhibit 86: Key Ratios
Y/E March (Rs in crores) FY19 FY20 FY21E FY22E FY23E Y/E March FY19 FY20 FY21E FY22E FY23E
Financing Income 6,576 8,124 8,923 10,037 11,555 Spreads Analysis on AUM (%)
Finanancing charges 3,589 4,592 4,574 5,106 5,942 Avg. Yield 13.5 14.2 14.0 14.0 14.1
Net Financing income 2,987 3,532 4,349 4,931 5,613 Avg Cost of funds 7.4 8.0 7.2 7.1 7.2
Change (%) 18 18 23 13 14 Int Spread 6.1 6.2 6.8 6.9 6.8
Other Income 417 529 529 564 614
Net Income 3,404 4,061 4,878 5,495 6,227 Profitability Ratios (%)
Change (%) 9 19 20 13 13 RoE 20.9 14.7 19.5 20.5 20.0
Employee cost 591 655 575 733 809 RoA 2.4 1.7 2.6 2.9 2.9
Other Operating Exp. 679 923 862 1,054 1,164 Int. Expended/Int.Earned 54.6 56.5 51.3 50.9 51.4
Operating Profit 2,134 2,483 3,441 3,708 4,255 Other Inc./Net Income 12.3 13.0 10.9 10.3 9.9
Change (%) 17 16 39 8 15
Total Provisions 311 897 1,101 769 847 Efficiency Ratios (%)
% to operating income 15 36 32 21 20 Op. Exps./Net Income 37.3 38.9 29.4 32.5 31.7
Excpetional items 0 0 0 0 0 Empl. Cost/Op. Exps. 46.5 41.5 40.0 41.0 41.0
PBT 1,823 1,586 2,340 2,938 3,408
Tax 637 533 601 755 876 Asset-Liability Profile (%)
Tax Rate (%) 35 34 26 26 26 Loans/Borrowings Ratio 104.1 100.7 102.9 103.3 103.3
PAT 1,186 1,052 1,739 2,183 2,532 GNPA 1,438.5 2,163.3 3,071.2 3,001.2 2,928
Change (%) 22 -11 65 26 16 NNPA 892.1 1,265.0 1,842.7 1,890.8 1,845
Dividend 122.7 168.0 217.3 305.7 354.5 GNPL ratio (%) 2.7 3.8 4.8 4.1 3.5
Source: Company, Nirmal Bang Institutional Equities Research NNPL ratio (%) 1.7 2.3 2.9 2.6 2.2
Leverage 9.3 7.8 7.3 6.9 6.8
Exhibit 87: Balance sheet
Average leverage (on BS) 8.6 8.5 7.5 7.1 6.9
Y/E March (Rs in cr) FY19 FY20 FY21E FY22E FY23E
CAR 17.4 20.7 20.2 20.7 20.5
Capital 156 164 164 164 164
Source: Company, Nirmal Bang Institutional Equities Research
Reserves & Surplus 6,019 8,008 9,529 11,407 13,584
Net Worth 6,176 8,172 9,693 11,571 13,748
Exhibit 88: Valuations
Borrowings 50,567 55,005 60,790 68,386 80,061
Change (%) 58.5 8.8 10.5 12.5 17.1 Valuations FY19 FY20 FY21E FY22E FY23E

Other Liabilities 684 816 82 71 156 BVPS (INR) 79 99.71 118.27 141.18 167.75

Total Liabilities 57,426 63,993 70,565 80,028 93,965 BV Growth (%) 19.8 26.3 18.6 19.4 18.8
Investments 73 73 89 93 100 Price-BV (x) 6.7 5.3 4.5 3.8 3.2
Change (%) -77.1 0.0 22.3 4.2 7.2 Adjusted book value (Rs) 67.6 84.24 95.78 118.11 145.24
Loans 52,622 55,403 62,559 70,718 82,680 Price-ABV(x) 7.9 6.3 5.5 4.5 3.7
Change (%) 41.5 5.3 12.9 13.0 16.9 EPS (INR) 15.2 12.8 21.2 26.6 30.9
Net Fixed Assets 176 284 369 443 531 Growth (%) 21.6 -15.3 65.2 25.6 16.0
Net Current Assets 4,555 8,233 7,548 8,774 10,654 Price-Earnings (x) 35.0 41.3 25.0 19.9 17.2
Total Assets 57,426 63,993 70,565 80,028 93,965 Dividend 1.6 2.0 2.7 3.7 4.3
Source: Company, Nirmal Bang Institutional Equities Research Dividend Yield (%) 0.30 0.39 0.50 0.70 0.82
Source: Company, Nirmal Bang Institutional Equities Research

30 Banking & Financials Sector

 Institutional Equities
Financials – Mahindra Finance
Exhibit 89: Income statement Exhibit 90: Key Ratios
Y/E March (Rs mn) FY19 FY20 FY21E FY22E FY23E Y/E March FY19 FY20 FY21E FY22E FY23E
Interest Income 86,146 99,417 1,03,688 1,07,081 1,23,254 Spreads Analysis (%)
Interest Expended 39,446 48,287 48,605 47,440 54,258 Yield on Portfolio 15.7 15.8 16.2 16.1 16.0
Net Interest Income 46,700 51,130 55,082 59,640 68,995 Cost of Borrowings 8.5 8.6 8.4 8.1 8.1
Change (%) 33.3 9.5 7.7 8.3 15.7 Interest Spread 7.2 7.2 7.8 8.0 7.9
Other Operating Income 1,084 1,561 1,718 1,889 2,078 Net Interest Margin 8.7 8.3 8.9 9.3 9.2
Other Income 869 1,473 1,252 1,377 1,515
Net Income 48,653 54,164 58,052 62,907 72,588 Profitability Ratios (%)
Change (%) 35.0 11.3 7.2 8.4 15.4 Cost/Income 38.0 37.3 27.8 31.3 30.2
Operating Expenses 18,476 20,182 16,112 19,676 21,912 Empl. Cost/Op. Exps. 59.0 56.9 61.3 62.7 62.0
Operating Profits 30,177 33,982 41,940 43,231 50,677 RoE 15.8 8.3 5.6 11.0 13.4
Change (%) 39.1 12.6 23.4 3.1 17.2 RoA 2.6 1.3 1.0 2.2 2.6
Provisions 6,352 20,545 31,718 19,430 19,179
PBT 23,824 13,438 10,222 23,801 31,497 Asset Quality (%)
Tax 8,254 4,374 2,780 6,474 8,567 GNPA 40,706 57,468 79,698 76,252 71,978
Tax Rate (%) 34.6 32.5 27.2 27.2 27.2 NNPA 32,907 39,665 50,210 49,564 46,786
PAT 15,571 9,064 7,441 17,327 22,930 GNPA % 6.4 8.4 11.9 10.3 8.2
Change (%) 54.0 -41.8 -17.9 132.9 32.3 NNPA % 5.4 6.1 7.8 6.9 5.5
Pro. Dividend (Incl Tax) 4,779 0 744 5,198 6,879 PCR % 19.2 31.0 37.0 35.0 35.0

Source: Company, Nirmal Bang Institutional Equities Research Total Provisions/loans % 3.4 4.9 6.3 6.0 5.4

Exhibit 91: Balance sheet Capitalisation (%)

Y/E March (Rs mn) FY19 FY20 FY21E FY22E FY23E CAR 20.3 19.6 23.8 22.8 20.5
Equity Share Capital 1,230 1,231 2,466 2,466 2,466 Tier I 15.5 15.4 20.2 19.9 18.4
Reserves & Surplus (Ex OCI) 1,03,072 1,12,408 1,48,759 1,60,889 1,76,940 Tier II 4.8 4.2 3.6 2.9 2.2
Net Worth 1,04,221 1,13,558 1,51,145 1,63,274 1,79,406 Avg Leverage on Assets (x) 6.1 6.5 5.6 5.0 5.2
Other Comprehensive Income 81 81 81 81 81 Source: Company, Nirmal Bang Institutional Equities Research
Net Worth 1,04,302 1,13,639 1,51,226 1,63,355 1,79,487
Change (%) 11.8 9.0 33.1 8.0 9.9
Exhibit 92: Key ratios
Borrowings 5,28,469 5,94,623 5,62,643 6,08,725 7,30,988
Valuation FY19 FY20 FY21E FY22E FY23E
Change (%) 31.8 12.5 -5.4 8.2 20.1
Book Value (INR) 169.5 184.5 122.6 132.4 145.5
Other liabilities 38,009 32,451 37,318 42,916 49,353
Total Liabilities 6,70,780 7,40,712 7,51,186 8,14,996 9,59,747 BV Growth (%) 11.7 8.9 -33.6 8.0 9.9

Investments 37,917 59,110 65,021 68,272 71,685 Price-BV (x) 1.2 1.1 1.7 1.6 1.4
Change (%) 38.7 55.9 10.0 5.0 5.0 Adjusted BV (INR) 132.0 136.2 92.0 102.3 117.0
Loans and Advances 6,12,496 6,49,935 6,30,160 7,00,034 8,40,637 Price-ABV (x) 1.6 1.5 2.3 2.0 1.8
Change (%) 26.2 6.1 -3.0 11.1 20.1 OPS (INR) 49.1 55.2 34.0 35.1 41.1
Other assets 20,367 31,668 56,006 46,690 47,426 OPS Growth (%) 39.0 12.5 -38.4 3.1 17.2
Total Assets 6,70,780 7,40,712 7,51,186 8,14,996 9,59,747 Price-OP (x) 4.2 3.8 6.1 5.9 5.1
EPS (INR) 25.3 14.7 6.0 14.1 18.6
Source: Company, Nirmal Bang Institutional Equities Research
EPS Growth (%) 53.9 -41.8 -59.0 132.9 32.3
Price-Earnings (x) 8.2 14.2 34.6 14.8 11.2
Dividend 6.5 0.0 0.6 4.2 5.6
Dividend Yield (%) 3.1 0.0 0.3 2.0 2.7
Source: Company, Nirmal Bang Institutional Equities Research

31 Banking & Financials Sector

 Institutional Equities
DISCLOSURES
This Report is published by Nirmal Bang Equities Private Limited (hereinafter referred to as “NBEPL”) for private circulation. NBEPL is a registered
Research Analyst under SEBI (Research Analyst) Regulations, 2014 having Registration no. INH000001436. NBEPL is also a registered Stock
Broker with National Stock Exchange of India Limited and BSE Limited in cash and derivatives segments.

NBEPL has other business divisions with independent research teams separated by Chinese walls, and therefore may, at times, have different or
contrary views on stocks and markets.

NBEPL or its associates have not been debarred / suspended by SEBI or any other regulatory authority for accessing / dealing in securities Market.
NBEPL, its associates or analyst or his relatives do not hold any financial interest in the subject company. NBEPL or its associates or Analyst do not
have any conflict or material conflict of interest at the time of publication of the research report with the subject company. NBEPL or its associates or
Analyst or his relatives do not hold beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the
date of publication of this research report.

NBEPL or its associates / analyst has not received any compensation / managed or co-managed public offering of securities of the company covered
by Analyst during the past twelve months. NBEPL or its associates have not received any compensation or other benefits from the company covered
by Analyst or third party in connection with the research report. Analyst has not served as an officer, director or employee of Subject Company and
NBEPL / analyst has not been engaged in market making activity of the subject company.

Analyst Certification: We, Raghav Garg and Sonal Gandhi, research analyst and Arjun Bagga, Research Associate the authors of this report,
hereby certify that the views expressed in this research report accurately reflects our personal views about the subject securities, issuers, products,
sectors or industries. It is also certified that no part of the compensation of the analysts was, is, or will be directly or indirectly related to the inclusion
of specific recommendations or views in this research. The analysts are principally responsible for the preparation of this research report and have
taken reasonable care to achieve and maintain independence and objectivity in making any recommendations.

32 Banking & Financials Sector

 Institutional Equities
Disclaimer
Stock Ratings Absolute Returns
BUY > 15%
ACCUMULATE -5% to15%
SELL < -5%
DISCLAIMER
This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. NBSPL is not soliciting any
action based upon it. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any such
transaction. In preparing this research, we did not take into account the investment objectives, financial situation and particular needs of the reader.
This research has been prepared for the general use of the clients of NBSPL and must not be copied, either in whole or in part, or distributed or redistributed to any other
person in any form. If you are not the intended recipient you must not use or disclose the information in this research in any way. Though disseminated to all the customers
simultaneously, not all customers may receive this report at the same time. NBSPL will not treat recipients as customers by virtue of their receiving this report. This report is not
directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would
be contrary to law, regulation or which would subject NBSPL & its group companies to registration or licensing requirements within such jurisdictions.
The report is based on the information obtained from sources believed to be reliable, but we do not make any representation or warranty that it is accurate, complete or up-to-
date and it should not be relied upon as such. We accept no obligation to correct or update the information or opinions in it. NBSPL or any of its affiliates or employees shall not
be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. NBSPL or any of its affiliates
or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied
warranties of merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations.
This information is subject to change without any prior notice. NBSPL reserves its absolute discretion and right to make or refrain from making modifications and alterations to
this statement from time to time. Nevertheless, NBSPL is committed to providing independent and transparent recommendations to its clients, and would be happy to provide
information in response to specific client queries.
Before making an investment decision on the basis of this research, the reader needs to consider, with or without the assistance of an adviser, whether the advice is
appropriate in light of their particular investment needs, objectives and financial circumstances. There are risks involved in securities trading. The price of securities can and does
fluctuate, and an individual security may even become valueless. International investors are reminded of the additional risks inherent in international investments, such as
currency fluctuations and international stock market or economic conditions, which may adversely affect the value of the investment. Opinions expressed are subject to change
without any notice. Neither the company nor the director or the employees of NBSPL accept any liability whatsoever for any direct, indirect, consequential or other loss arising
from any use of this research and/or further communication in relation to this research. Here it may be noted that neither NBSPL, nor its directors, employees, agents or
representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profit that may arise from or in
connection with the use of the information contained in this report.
Copyright of this document vests exclusively with NBEPL.
Our reports are also available on our website www.nirmalbang.com

Access all our reports on Bloomberg, Thomson Reuters and Factset.

Team Details:
Name Email Id Direct Line
Rahul Arora CEO rahul.arora@nirmalbang.com -

Girish Pai Head of Research girish.pai@nirmalbang.com +91 22 6273 8017 / 18

Dealing

Ravi Jagtiani Dealing Desk ravi.jagtiani@nirmalbang.com +91 22 6273 8230, +91 22 6636 8833

Michael Pillai Dealing Desk michael.pillai@nirmalbang.com +91 22 6273 8102/8103, +91 22 6636 8830

Nirmal Bang Equities Pvt. Ltd.

Correspondence Address
B-2, 301/302, Marathon Innova,
Nr. Peninsula Corporate Park,
Lower Parel (W), Mumbai-400013.
Board No. : 91 22 6273 8000/1; Fax. : 022 6273 8010

33 Banking & Financials Sector