Result Update

January 23, 2018

Rating matrix
Rating
Target
:
:
Buy
| 750
Axis Bank (AXIBAN) | 615
Target Period
Potential Upside
:
:
12 months
22%
Healthy quarter, earnings outlook improves…
 Axis Bank reported an overall healthy quarter
What’s Changed?
 Slippages were at | 4428 crore vs. | 8936 crore QoQ. Absolute GNPA
Target Changed from | 600 to | 750
EPS FY19E Changed from | 30.3 to | 33
was at | 25000 crore vs. | 27402 crore QoQ. GNPA ratio was at
EPS FY20E Introduced at | 39.5
5.28% vs. 5.9% QoQ while PCR increased to 66% vs. 60% QoQ
Rating Changed from Hold to Buy  Corporate slippages were at | 2980 crore while 93% of it came from
low rated BB & below accounts
Quarterly Performance  Recoveries & upgrades were also higher at | 4008 crore. The bank
Q3FY18 Q3FY17 YoY (%) Q2FY18 QoQ (%) recovered a substantial amount from an IT/ITeS account and also
NII 4,732 4,334 9.2 4,540 4.2 upgraded one account in the steel sector. These two accounts were
Other income 2,593 3,400 -23.7 2,586 0.3 classified as NPA by the bank in Q2FY18
PPP 3,854 4,640 -16.9 3,777 2.0  Outstanding against IBC accounts declined 14% QoQ to | 6074 crore.
PAT 726 580 25.3 432 68.0
It has coverage of 68% on these accounts. The loans in the bank’s
watch list declined 12% QoQ and was at | 5309 crore
Key Financials  Credit growth improved to 21.2% YoY to | 420923 crore. Retail &
| crore FY17 FY18E FY19E FY20E SME book grew 29% YoY & 27% YoY, respectively, while corporate
NII 18,093 19,079 23,833 28,585 loan growth improved to 12% YoY led by working capital loans
PPP 17,585 16,660 20,189 23,662 Loan growth ahead of industry in past; retail to remain in focus
PAT 3,679 4,193 8,626 10,309
Axis Bank is the third largest private bank in terms of loans & profitability.
The loan book as on Q3FY18 was at | 420923 crore. Due to its growing
Valuation summary network and strong corporate relationships, the loan book grew at 30%
FY17 FY18E FY19E FY20E CAGR, higher than 19% CAGR in industry. It has largely been a corporate
P/E 40.3 37.9 18.8 15.7 lender though the trend is now changing. Until FY12, the corporate
Target P/E 48.8 45.9 22.7 19.0 segment accounted for 54% of total loans. However, owing to higher risk
P/ABV 3.1 2.9 2.5 2.3 in the corporate portfolio and reduced demand as a fallout, retail focus
Target P/ABV 3.8 3.5 3.1 2.7
(46% of loans) is high. We expect loan traction of 19.9% CAGR in FY18-
RoE 6.8 6.8 11.8 12.4
20E to | 632532 crore, with the major driver being retail.
RoA 0.6 0.7 1.2 1.2
Healthy liability franchise; margins to remain at >3.5% in FY18-20E
Stock data One of the biggest strengths of Axis Bank is its strong liability franchise.
Market Capitalisation | 156965 crore CASA deposits at | 201711 crore account for ~49% of deposits as on
GNPA (Q3FY18) | 25000 crore Q3FY18. The CASA ratio has been ~45% for almost a decade. This has
NNPA (Q3FY18) | 11769 crore been due to constant investment in branches & ATMs, strong brand
NIM (Q3FY18) 3.40 recognition & quality services. Savings account has increased more than
52 week H/L 627 /442
18x since FY05 to | 131219 crore in Q3FY18. This has enabled it to
Net worth | 65548 Crore
Face value |2
maintain healthy NIM of >3% since FY08. With NPA pressure subsiding,
DII Holding (%) 11.3
we expect NIM to stay at healthy levels of >3.5%.
FII Holding (%) 50.7 Asset quality improved majorly in Q3FY18; expect trend to continue
Price performance (%) For the past seven years, GNPA ratio has been in the range of 1-1.3%
1M 3M 6M 12M until Q3FY16 wherein it rose to 1.7%. It further increased to 5.9% by
HDFC Bank 3.6 5.6 15.4 57.9 Q2FY18, led by incremental slippages from corporate exposure. The
Axis Bank 6.6 28.2 13.5 22.0 management had categorised | 22000 crore, exposure under watch list in
KMB 3.8 -1.6 6.7 45.6 FY16, which has now fallen to | 5300 crore. The bank has recognised bulk
Indusind 0.8 -0.4 7.0 38.0 of pain though some exposure to low rated corporate remain vulnerable.
We expect GNPA at | 34702 crore and GNPA ratio at 4.8% by FY20E.
Improving loan growth & quality to lift earnings ahead; upgrade to BUY
Research Analyst
Kajal Gandhi
Dismal asset quality in the past has been a show spoiler for the bank.
kajal.gandhi@icicisecurities.com However, with bulk of the pain now recognised & adequately provided,
the outlook on asset quality is expected to improve ahead as seen in
Vasant Lohiya Q3FY18. Retail has put up a good show. Now, the corporate segment is
vasant.lohiya@icicisecurities.com expected to witness healthy traction & quality ahead. We introduce FY20E
estimates and expect 22% CAGR in NII to | 28585 crore. PAT trajectory in
Vishal Narnolia FY18-20E would be higher on improving operating earnings & lower base
vishal.narnolia@icicisecurities.com in FY18E. We revise our target price higher to | 750 (earlier | 600) valuing
the stock at 2.7x FY20E ABV. We recommend BUY.

ICICI Securities Ltd | Retail Equity Research

Variance analysis
Q3FY18 Q3FY18E Q3FY17 YoY (%) Q2FY18 QoQ (%) Comments
NII 4,732 5,057 4,334 9.2 4,540 4.2 NII growth improved and has been one of the best seen in last several quarters
NIM (%) 3.38 3.50 3.43 -5 bps 3.45 -7 bps Benefit of fund raising on margins to accrue from Q4FY18
Retail fee income continued to remain healthy at 35% YoY, treasury came in lower as
Other Income 2,593 2,553 3,400 -23.7 2,586 0.3 expected

Net Total Income 7,325 7,609 7,734 -5.3 7,125 2.8

Staff cost 1,063 1,094 992 7.2 1,083 -1.8
Other Operating Expenses 2,408 2,288 2,102 14.6 2,265 6.3

PPP 3,854 4,228 4,640 -16.9 3,777 2.0

Provision 2,811 2,990 3,796 -25.9 3,140 -10.5 Provisions were lower as expected
PBT 1,043 1,238 844 23.5 637 63.7
Tax Outgo 316 413 265 19.4 205 54.7
PAT 726 824 580 25.3 432 68.0

Key Metrics
Slippages were at | 4428 crore vs. | 8936 crore in Q2FY18. Corporate slippages were

at | 2980 crore while 93% of it came from low rated BB & below accounts. Slippage
GNPA 25,001 27,676 20,467 22.2 27,402 -8.8 in retail and SME were at | 599 crore and | 166 crore, respectively
NNPA 11,769 14,193 8,295 41.9 14,052 -16.2 Provision coverage ratio increased ~600 bps QoQ at 66%
Retail and SME loan book grew 29% YoY and 27% YoY, respectively while corporate
Credit 420,923 404,111 347,175 21.2 410,171 2.6 loan growth improved to 12% YoY led by working capital loans
Deposit 408,967 401,829 370,790 10.3 416,431 -1.8 CASA remained robust at ~49%
Source: Company, ICICIdirect.com Research

Change in estimates
FY19E Introduced
(| Crore) Old New % Change FY20E
Net Interest Income 23,433 23,833 1.7 28,585
Pre Provision Profit 19,789 20,189 2.0 23,662
NIM(%) (calculated) 3.7 3.7 -5 bps 3.7
PAT 7,914 8,626 9.0 10,309
ABV per share (|) 228.6 244.2 6.8 273.0
Source: Company, ICICIdirect.com Research

Assumptions
Current Earlier
FY17 FY18E FY19E FY20E FY18E FY19E
Credit growth (%) 10.1 18.0 19.4 20.4 14.9 16.0
Deposit Growth (%) 15.8 11.6 16.2 16.3 13.8 14.2
CASA ratio (%) 51.4 50.4 49.3 48.8 50.5 50.1
NIM Calculated (%) 3.7 3.4 3.7 3.7 3.5 3.5
Cost to income ratio (%) 41.0 45.0 43.7 43.3 43.9 43.0
GNPA (| crore) 21,280 27,470 30,737 34,702 24,902 26,171
NNPA (| crore) 8,627 12,340 14,590 16,448 8,020 5,363
Slippage ratio (%) 6.4 6.0 2.4 2.4 1.7 1.2
Credit cost (%) 3.2 2.4 1.4 1.3 2.1 1.3
Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 2

 Company Analysis
Expect loan growth to be better than industry ahead….
Axis Bank’s advances growth in the past decade has consistently been
ahead of the industry. In the past eight years, the increase has been at
30% CAGR compared to 19% CAGR for the industry. This was due to a
sustained increase in branch network (>25% CAGR increase in branches
in the past decade) and the bank’s strong corporate relationships. One
must note that in the last few years, the difference between the bank and
industry’s growth has reduced.

Until FY12, the bank’s loan book was largely skewed towards the
corporate segment. However, later it shifted its focus towards the retail &
SME segments owing to a lack of quality growth opportunities in the
corporate segment. Since then, the retail loan proportion has increased
sharply to 46% as on Q3FY18 from 22% in FY12.

We expect 19.9% CAGR in advances over FY18-20E to Credit traction on a YoY basis improved further in Q3FY18 at 21.2% YoY
| 632532 crore to 420923 crore, led by improvement across segments. Retail segment
growth continued to remain healthy at 29% YoY while corporate and SME
book growth picked up at 12% and 27% YoY, respectively. We expect
19.9% CAGR in advances in FY18-20E to | 632532 crore. We believe
adequate capital adequacy ratio of ~18% and a strong branch network
will aid in higher growth of the retail segment in the overall pie.

Exhibit 1: Advances expected to grow at 19.9% CAGR in FY18-20E led by retail loans

700,000 25
600,000 20.5 21.2 21.2
19.4 20.420
500,000 18.5 18.0
16.1
400,000 15
(| crore)

11.8

(%)
300,000 10.1 10.1 10
353169.94

347174.69

385480.54

410170.76

420922.74

200,000
344925.2

440,357

632,532
338,774

373,069

525,571
5
100,000
0 0
Q1FY17

Q2FY17

Q3FY17

Q1FY18

Q2FY18

Q3FY18
FY17E

FY18E

FY19E

FY20E
FY16

Advances Growth (RHS)

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 3

 Exhibit 2: Proportion of retail segment on the rise to ~46% as on Q3FY18

120

100

80 40.5 40.1 39.9 40.9 41.5 42.3 43.1 45.0 45.5 44.9 45.9
60

(%)
14.0 13.4 13.1 13.2 12.6 13.0 12.4 13.2 12.4 12.9 13.0
40

20 45.5 46.5 47.1 45.9 45.9 44.7 44.5 41.8 42.1 42.2 41.0

0
Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18

Corporate SME Retail

Source: Company, ICICIdirect.com Research

Outstanding retail advances, including retail agriculture, were at | 193296

crore as on Q3FY18 against | 167993 crore as on Q3FY17 growing at 29%
YoY. It accounted for 46% of net advances of the bank. SME advances
(including non-retail agriculture) growth was also healthy at 27% YoY and
were at | 54884 crore. It accounted for 13% of net advances. After the
sluggishness witnessed in recent quarters, corporate traction picked up in
Q3FY18 at 12% YoY to | 172743 crore led by working capital loans.
Deposit franchise to remain healthy
Axis Bank’s major strength is its healthy deposit franchise. CASA deposits
at | 201711 crore account for ~49% of total deposits of | 408967 crore as
on Q3FY18, which is one of the best in the class. This has been due to
constant investment in branches and ATMs, strong brand recognition and
We expect deposit CAGR of 16.3% in FY18-20E to quality services.
| 625078 crore
Currently, CASA + retail term deposits constitute ~83% of total deposits.
Savings account (SA) balances have increased more than18x since FY05
to | 131219 crore as on Q3FY18. Axis Bank has the best SA/branch in the
industry of ~| 37 crore.

Going ahead, we expect the CASA ratio to sustain at current levels

though the pace of SA accretion may slow down. We expect total
deposits to increase at 16.3% CAGR over FY17-19E.

Exhibit 3: Deposit traction to be higher than industry

700000 20
17.3 18
600000
16.2 16.3 15.8 16.2 16.3
16
500000 14.8 14.2 14
13.2
400000 11.6 12
(| crore)

11.0 10.3
9.6 10.0 9.5 10
300000 8
200000 6
322442

307784

324101

338343

357858

370790

393741

408967

537539
357968

380187

414379

416431

462465

625079

4
100000
2
0 0
Q1FY16

Q2FY16

Q3FY16

Q1FY17

Q2FY17

Q3FY17

Q1FY18

Q2FY18

Q3FY18

FY18E

FY19E

FY20E
FY15

FY16

FY17

Deposits Growth (RHS)

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 4

 Exhibit 4: SA proportion to remain steady, going ahead

120
100
80
57.6 55.5 56.9 55.2 57.2 55.8 56.8 52.7 56.6 55.3 52.4 48.6 50.8 49.6 50.7 49.6 50.7 51.2
60

(%)
40 30.4 31.0 31.3 32.1 30.0 28.6 27.8
27.4 28.2 27.5 27.4 27.5 27.7 27.4 29.6 28.0 28.4 31.8
20
14.9 16.4 15.7 17.4 15.2 16.6 15.8 17.8 15.4 16.3 15.7 21.0 18.2 19.2 17.2 20.4 20.7 21.0
0

FY15

FY16

FY17
Q1FY15
Q2FY15

Q3FY15

Q1FY16
Q2FY16
Q3FY16

Q1FY17

Q2FY17
Q3FY17

Q1FY18
Q2FY18
Q3FY18

FY18E
FY19E

FY20E
CA SA Term deposit

Source: Company, ICICIdirect.com Research

A strong deposit franchise has enabled the bank to maintain healthy

margins of >3% since FY08 despite a challenging environment. In the
past two years, owing to increased focus on the retail & SME segment,
yields have improved. This has further given a boost to margins, which
increased to ~3.7% as on FY17 from 3.3% in FY12. However, owing to
higher slippages in H1FY18E, NIM witnessed pressure and was ~3.4%.
However, the management has guided that NIM has bottomed out and
should see improvement ahead

Exhibit 5: Margins to stay at healthy level of >3.5% in next two years

3.9
3.8 3.8
3.8 3.7
3.7 3.7
3.6 3.7
3.6
3.5
3.5 3.4
3.4 3.4 3.4
(%)

3.3 3.3
3.2
3.2
3.1
3.0
2.9
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E

NIM (calculated)

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 5

 Asset quality stabilises after surge in slippages seen in Q2FY18
Concerns on Axis Bank’s asset quality frequently come up owing to its
exposure to certain troubled corporates and certain stressed sectors like
power, iron & steel, infrastructure, etc.

In Q2FY18, as part of risk based review, RBI has pointed to divergence in

GNPA to the extent of | 5632.8 crore as of FY17. Consequently, nine
Watchlist is now at | 5300 crore, largely attributable to
accounts were classified as NPA (with exposure of | 4867 crore) wherein
power sector, which contributes 67%
| 2400 crore was part of watchlist or restructured asset and | 200 crore
was classified as NPA in Q1FY18. These exposures comprised one
account pertaining to steel sector (| 1128 crore), three accounts from
power sector (| 1685 crore), ITeS comprising one account (| 1143 crore)
and other four accounts with exposure of | 911 crore. Factoring in the
divergence, slippages surged to | 8936 crore in Q2FY18 compared to
| 3519 crore in Q1FY18. Consequently, absolute GNPA increased to
| 27402 crore compared to | 22031 crore in Q1FY18. GNPA ratio also
inched up 86 bps QoQ to 5.9%.

However, in Q3FY18, asset quality stabilised with slippages at | 4428

crore vs. | 8936 crore in Q2FY18. Absolute GNPA was at | 25000 crore vs.
| 27402 crore in Q2FY18. The GNPA ratio improved to 5.28% vs. 5.9%
QoQ and provision coverage ratio increased to 66% vs. 60% QoQ.
Recoveries and upgrades were also higher at | 4008 crore. The bank
recovered a substantial amount in cash from an IT/ITeS account and also
upgraded one account in the steel sector as mentioned above.

The bank’s total loan amount outstanding against the IBC accounts has
declined 14% QoQ to | 6074 crores. It has provision coverage of 68% on
these select accounts. As on Q3FY18, loans outstanding on the bank’s
watch list declined 12% over the previous quarter and was at | 5309
crore. The bank continues to retain its credit cost guidance for FY18 in the
range of 220-260 basis points. Overall restructured asset (including
restructured accounts, SDR, S4A and 5:25) declined QoQ to | 6985 crore
vs. | 10087 crore in Q2FY18. In addition, low rated corporate (with rating
BB and below) was at ~| 16100 crore.

We expect near term asset quality pressure to stay but remain below that
seen in the past and also manageable owing to improving operating
earnings.

Exhibit 6: Asset quality outlook improving for long term

40000 7.0
35000 6.0
30000 5.0
25000
4.0
(| crore)

20000
(%)

3.0
15000
2.0
16378.65

22030.87

25000.51
11769.49
20466.82

27402.32
14052.34

10000
9553.17
4010.23

7761.15

8294.78

9765.98
21280

27470
12340
30737

16448
14590
34702
2522
6087

8627

5000 1.0
0 0.0
Q1FY17

Q2FY17

Q3FY17

Q1FY18

Q2FY18

Q3FY18

FY18E

FY19E

FY20E
FY16

FY17

GNPA NNPA GNPA ratio NNPA ratio

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 6

 Exhibit 7: Bank network increases consistently at healthy pace

16000 14163 14311 14332 13977

14000 12922 12355 12743
12000 11245
9924
10000
8000 6270
6000 4293
3595 3304 3385 3485 3589
4000 2402 2589 2904
1390 1613 1947
2000 835 1035
0
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Q1FY18 Q2FY18 Q3FY18

Branches ATM

Source: Company, ICICIdirect.com Research

Despite a strong increase in the network, Axis Bank has managed its cost
well. The cost to income ratio (CIR) has fallen below 40% in FY16 from
49% in FY08. However, owing to weak operating earnings in FY17, the
ratio increased to 41% and was at 47.4% in Q3FY18.

Non interest income of Axis Bank accounts for 37-40% of its operating
income. It mainly comprises fee income, which was | 2246 crore of the
total other income of | 2593 crore during Q3FY18. Fee income relates to
corporate banking, business banking, retail and SME banking.

ICICI Securities Ltd | Retail Equity Research Page 7

 Outlook and valuation
Dismal asset quality in the past has been a show spoiler for the bank.
However, with bulk of the pain now recognised and adequately provided,
the outlook on asset quality is expected to improve ahead as seen in
Q3FY18. Retail has put up a good show while the corporate segment is
now expected to witness healthy traction and quality ahead. We introduce
FY20E estimates and expect 22% CAGR in NII to | 28585 crore. The PAT
trajectory in FY18-20E is expected to be higher on improving operating
earnings & lower base in FY18E. We revise our target price higher to | 750
(earlier | 600) valuing the stock at 2.7x FY20E ABV. We recommend BUY.

Exhibit 8: Valuation
NII Growth PAT Growth P/E ABV P/ABV RoA RoE
(| cr) (%) (| cr) (%) (x) (|) (x) (%) (%)
FY16 16,833 18.3 8,223.7 11.8 18.0 212.5 2.9 1.6 16.8
FY17 18,093 7.5 3,679.2 (55.3) 40.3 196.8 3.1 0.6 6.8
FY18E 19,079 5.4 4,192.7 14.0 37.9 217.2 2.9 0.7 6.8
FY19E 23,833 24.9 8,626.1 105.7 18.8 244.2 2.5 1.2 11.8
FY20E 28,585 19.9 10,309.3 19.5 15.7 273.0 2.3 1.2 12.4
Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 8

Recommendation history vs. Consensus
700 100.0

600 80.0

500 60.0
(|)

(%)
400 40.0

300 20.0

200 0.0
Jan-15 Mar-15 Jun-15 Aug-15 Nov-15 Jan-16 Apr-16 Jun-16 Aug-16 Nov-16 Jan-17 Apr-17 Jun-17 Aug-17 Nov-17 Jan-18

Price Idirect target Consensus Target Mean % Consensus with HOLD

Source: Bloomberg, Company, ICICIdirect.com Research

Key events
Date Event
FY99 Axis comes out with a public issue of | 73.5 crore at | 21 per share
Dec-05 Bank sets up Axis Securities with sales to market credit cards and retail asset products
FY06 The bank raises $239.3 million through GDR
FY08 Bank again raises $218.7 million through GDR
Jan-08 Sharp stock price appreciation as Axis benefits from strong economic growth. During FY04-08, its credit, PAT grew at 59%, 40% CAGR, respectively
Jan-09 The bank sets up Axis asset management company to carry on the activities of managing a mutual fund business
Apr-09 Shikha Sharma (51 years age), the chief of ICICI group's life insurance business, appointed CEO of Axis Bank
Nov-10 Axis Bank merges Enam Securities, one of the major players in investment banking segment. All stock deal of | 2067 crore with Enam holding 3.3% of Axis
Jun-12 ADDL, accelerates bookbuild, secondary share offering to raise | 1900 crore.
Jun-12 HSBC sells its 4.75% stake in Axis Bank at | 955.9 per share in order to raise funds
FY13 Axis inducts Schroders as a 25% partner in Axis AMC. Also, joins hand with Axis Capital and Baird to offer investment banking services
Jan-13 Begins a share sale to raise as much as | 5550 crore at the price of | 1390
Mar-13 Indian private banks stuck in money laundering case by agencies, post which PSU banks also get embroiled
Jul-13 RBI tightens liquidity by raising MSF rate by 3% and various other measures. Axis impacted due to high AFS book of ~35%, reliance on bulk deposit
Sep-13 Arrival of new RBI Governor changes sentiment, eases few of the tight liquidity measures
Nov-13 Government seeks to raise funds by selling SUUTI stake in Axis Bank
Mar-14 The stake sale overhang goes as the government sells 9% stake in the bank
Mar-15 In the Union Budget the distinction between different types of foreign investments, especially between FPI and FDI was done away with to be replaced with
composite caps. Earlier, the maximum foreign investment in private banks was capped at 74% of which FII holding was capped at 49%
Source: Company, ICICIdirect.com Research
Top 10 shareholders Shareholding Pattern
Rank Name Latest Filing Date % O/S Position (m) Change (m) (in %) Dec-16 Mar-17 Jun-17 Sep-17 Dec-17
1 Life Insurance Corporation of India 30-12-2017 13.19% 338.09M +8.01M Promoter 30.2 30.1 30.1 30.4 28.0
2 UTI Asset Management Co. Ltd. 18-12-2017 9.88% 253.27M 0 FII 49.4 52.8 52.4 52.1 50.7
3 Harris Associates L.P. [Activist] 18-12-2017 3.10% 79.61M +11.83M DII 11.0 8.3 8.5 10.5 11.3
4 Capital Research Global Investors 18-12-2017 2.51% 64.27M +61.04M Others 9.4 8.8 9.0 7.1 10.0
5 The Vanguard Group, Inc. 30-11-2017 2.30% 58.94M +0.21M
6 ICICI Prudential Asset Management Co. Ltd. 18-12-2017 2.18% 55.99M +13.22M
7 Bain Capital Private Equity, LP 18-12-2017 2.17% 55.60M +55.60M
8 BlackRock Institutional Trust Company, N.A. 31-12-2017 1.89% 48.51M -0.01M
9 HDFC Asset Management Co., Ltd. 18-12-2017 1.88% 48.11M +2.31M
10 Cinnamon Capital, Ltd. 30-09-2017 1.76% 45.06M -60.23M
Source: Reuters, ICICIdirect.com Research
Recent Activity
Buys Sells
Investor name Value Shares Investor name Value Shares
Capital Research Global Investors +539.34M +61.04M Cinnamon Capital, Ltd. -469.61M -60.23M
Bain Capital Private Equity, LP +491.24M +55.60M Lazard Asset Management, L.L.C. -114.51M -12.96M
Pricol Holdings, Ltd. +281.84M +31.90M Harding Loevner LP -92.87M -11.91M
Dodge & Cox +270.98M +30.67M ICICI Prudential Life Insurance Company Ltd. -59.32M -6.71M
Invest AD +262.23M +29.68M Waddell & Reed Investment Management Company -40.54M -5.20M
Source: Reuters, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 9

Financial summary
Profit and loss statement | crore Key ratios
(Year-end March) FY17 FY18E FY19E FY20E (Year-end March) FY17 FY18E FY19E FY20E
Interest Earned 44,542 48,007 56,867 67,281 Valuation
Interest Expended 26,449 28,928 33,035 38,697 No. of Equity Shares 239.5 256.8 261.3 261.3
Net Interest Income 18,093 19,079 23,833 28,585 EPS (Rs.) 15.4 16.3 33.0 39.5
growth (%) 7.5 5.4 24.9 19.9 BV (Rs.) 232.8 265.3 300.0 336.0
Non Interest Income 11,691 11,193 12,012 13,160 ABV (Rs.) 196.8 217.2 244.2 273.0
Fees and advisory 7,028 8,012 9,214 10,596 P/E 40.3 37.9 18.8 15.7
Treasury Income 3,174 1,587 1,111 778 P/BV 2.7 2.3 2.1 1.8
Other income 1,489 1,594 1,687 1,786 P/ABV 3.1 2.9 2.5 2.3
Net Income 29,784 30,272 35,845 41,745 Yields & Margins (%)
Staff cost 3,892 4,408 4,857 5,410 Net Interest Margins 3.7 3.4 3.7 3.7
Other operating Expense 8,308 9,204 10,798 12,672 Yield on assets 9.0 8.6 8.8 8.8
Operating Profit 17,585 16,660 20,189 23,662 Avg. cost on funds 5.4 5.3 5.3 5.4
Provisions 12,117 10,583 7,314 8,275 Yield on average advances 9.3 9.1 9.2 9.2
PBT 5,467 6,076 12,875 15,387 Avg. Cost of Deposits 5.1 5.1 5.2 5.2
Taxes 1,788 1,884 4,249 5,078 Quality and Efficiency
Net Profit 3,679 4,193 8,626 10,309 Cost to income ratio 41.0 45.0 43.7 43.3
growth (%) -55.3 14.0 105.7 19.5 Credit/Deposit ratio 90.0 95.2 97.8 101.2
EPS (|) 15.4 16.3 33.0 39.5 GNPA 5.0 5.5 5.2 4.8
Source: Company, ICICIdirect.com Research NNPA 2.3 2.8 2.8 2.6
ROE 6.8 6.8 11.8 12.4
ROA 0.6 0.7 1.2 1.2
Source: Company, ICICIdirect.com Research

Balance sheet | crore Growth ratios (% growth)

(Year-end March) FY17 FY18E FY19E FY20E (Year-end March) FY17 FY18E FY19E FY20E
Sources of Funds Total assets 11.4 12.8 15.7 15.7
Capital 479 514 523 523 Advances 10.1 18.0 19.4 20.4
Reserves and Surplus 55288 67606 77871 87263 Deposit 15.8 11.6 16.2 16.3
Networth 55767 68120 78394 87786 Total Income 11.7 5.3 16.4 16.8
Deposits 414379 462465 537539 625079
Net interest income 7.5 5.4 24.9 19.9
Borrowings 105031 114436 128306 145449
Operating expenses 20.8 11.6 15.0 15.5
Other Liabilities & Provisions 26295 33147 40535 49692
Operating profit 9.2 -5.3 21.2 17.2
Total 601472 678168 784774 908005
Net profit -55.3 14.0 105.7 19.5
Net worth 4.9 22.2 15.1 12.0
Application of Funds
Fixed Assets 3747 4241 4939 5851 EPS (55.5) 6.3 102.2 19.5
Investments 128793 142956 159719 178484 Source: Company, ICICIdirect.com Research
Advances 373069 440357 525571 632532
Other Assets 45606 39189 34467 20893
Cash with RBI & call money 50256 51425 60078 70246
Total 601472 678168 784774 908005
Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 10

ICICIdirect.com coverage universe (Banking)
CMP M Cap EPS (|) P/E (x) P/ABV (x) RoA (%) RoE (%)
Sector / Company (|) TP(|) Rating (| Cr) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E
Bank of Baroda (BANBAR) 167 220 Buy 38,008 6 10 19 27.9 16.4 8.8 1.3 1.1 1.0 0.2 0.3 0.6 3 6 10
Punjab National Bank (PUNBAN) 178 245 Buy 42,730 6 10 18 28.6 17.3 9.9 1.7 1.5 1.2 0.2 0.3 0.5 3 6 9
State Bank of India (STABAN) 311 390 Buy 264,821 11 16 26 29.3 19.1 12.0 2.0 1.9 1.5 0.3 0.4 0.7 4 6 10
Axis Bank (AXIBAN) 620 750 Buy 156,965 15 16 33 40.3 37.9 18.8 3.1 2.9 2.5 0.6 0.7 1.2 7 7 12
City Union Bank (CITUNI) 175 180 Buy 11,592 8 9 11 23.0 19.3 16.6 3.6 3.1 2.6 1.5 1.6 1.6 15 16 16
DCB Bank (DCB) 187 200 Hold 5,789 7 8 10 26.7 23.1 17.9 2.9 2.4 2.1 0.9 1.0 1.0 11 11 12
HDFC Bank (HDFBAN) 1,960 2,300 Buy 509,392 57 67 83 34.5 29.2 23.7 5.7 4.2 3.7 1.9 1.9 2.0 18 17 16
IndusInd Bank (INDBA) 1,708 1,920 Buy 101,074 48 59 74 35.6 29.0 23.1 5.2 4.5 3.9 1.8 1.8 1.9 15 16 18
Jammu & Kashmir Bk(JAMKAS) 76 105 Buy 4,283 -31 8 12 -2.4 9.8 6.4 1.2 1.1 1.0 -2.0 0.5 0.7 -27 7 10
Kotak Mahindra Bank (KOTMAH) 1,080 1,200 Buy 204,806 19 22 29 58.3 48.1 37.4 7.7 6.7 5.9 1.7 1.8 1.9 13 14 16
Yes Bank (YESBAN) 357 375 Hold 81,762 15 18 24 24.0 19.5 14.9 3.8 3.3 2.8 1.8 1.7 1.8 19 17 19
Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 11

RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;

Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com

ICICI Securities Ltd | Retail Equity Research Page 12

ANALYST CERTIFICATION
We /I, Kajal Gandhi, CA, Vasant Lohiya, CA and Vishal Narnolia, MBA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research
report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s)
or view(s) in this report.

Terms & conditions and other disclosures:

ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities
Limited is a Sebi registered Research Analyst with Sebi Registration Number – INH000000990. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and has
its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which
are available on www.icicibank.com.

ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking
and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts
and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and
meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without
prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current.
Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended
temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this
company, or in certain other circumstances.

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This
report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial
instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their
receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific
circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment
objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate
the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any
loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the
risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to
change without notice.

ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment
in the past twelve months.

ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in
respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.

ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned
in the report in the past twelve months.

ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any
compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts
and their relatives have any material conflict of interest at the time of publication of this report.

It is confirmed that Kajal Gandhi, CA, Vasant Lohiya, CA and Vishal Narnolia, MBA Research Analysts of this report have not received any compensation from the companies mentioned in the report in the
preceding twelve months.

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month
preceding the publication of the research report.

Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject
company/companies mentioned in this report.

It is confirmed that Kajal Gandhi, CA, Vasant Lohiya, CA and Vishal Narnolia, MBA, Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report.

ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.

Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.

We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,
publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities
described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and
to observe such restriction.

ICICI Securities Ltd | Retail Equity Research Page 13