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Why Overweight?
• Beneficiary of strong macro and
corporate activity pickup. We expect
revenue growth to be robust at 21%
CAGR in F2012-13
• Strong balance sheet with a Tier I ratio
of 10.2% (including F9M11 profits) and
CASA/assets ratio of 37%.
• Near-term pressures likely from
margin normalization.
• Credit costs will likely normalize in
F2012 given continued macro
recovery and coverage ratio of 83% on
NPLs.
• Higher CASA ratio will provide partial
offset against higher wholesale term
deposit base
• Valuation premium against SOE banks
has decreased. Stock is trading at
13.2x F2012e earnings.
Key Value Drivers
• Margin progression
• Trend in loan growth
• Fee income growth
• Credit costs
• Operating costs
Potential Catalysts
• System-wide loan and deposit growth
trends in F2012.
• Pickup in core earnings momentum –
stronger NIMs, better cost and fee
income progression.
• Asset quality improvement in F2012.
Key Risks
• Asset quality pressures given existing
stock of restructured loans.
• Micro finance institutions (MFIs) are
one segment that could put upward
pressure on credit costs
• The other potential stress point could
be exposure to commercial real estate
developers
Price Target Rs1510 Derived from our probability-weighted residual income model
Bull
case
Rs2000
3.5x
F2013E
BVPS
Macro picture is stronger than expected. Loan growth and fee income
accelerate more sharply than base case estimate (loan growth at 35%).
Margin progression is more robust given pricing power (i.e. remains
elevated around 3.6%). Credit costs drop materially below risk tendency
levels in F2012 (i.e. to 50 bps).
Base
case
Rs1375
2.4x
F2013E
BVPS
Robust loan growth and credit costs drop below normalized levels. Loan
growth remains robust at 25% CAGR in F2012-13. Credit costs drop from
104 bps in F2011 to 77 bps in F2012. Reported NIMs normalize to 3.3%
by end of F2012-end.
Bear
case
Rs965
1.7x
F2013E
BVPS
Sharp slowdown in economic growth; asset quality concerns return.
Loan growth slows down over the coming year to 18%. Margins contract
driven by falling asset yields to 2.7-3.0%. Credit costs return to elevated
levels seen in F1H2010 driven by greater than expected slippage from
restructured loans and CRE loans.
Source: Company data, Morgan Stanley Research estimates
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Why Overweight?
• Beneficiary of strong macro and
corporate activity pickup. We expect
revenue growth to be robust at 21%
CAGR in F2012-13
• Strong balance sheet with a Tier I ratio
of 10.2% (including F9M11 profits) and
CASA/assets ratio of 37%.
• Near-term pressures likely from
margin normalization.
• Credit costs will likely normalize in
F2012 given continued macro
recovery and coverage ratio of 83% on
NPLs.
• Higher CASA ratio will provide partial
offset against higher wholesale term
deposit base
• Valuation premium against SOE banks
has decreased. Stock is trading at
13.2x F2012e earnings.
Key Value Drivers
• Margin progression
• Trend in loan growth
• Fee income growth
• Credit costs
• Operating costs
Potential Catalysts
• System-wide loan and deposit growth
trends in F2012.
• Pickup in core earnings momentum –
stronger NIMs, better cost and fee
income progression.
• Asset quality improvement in F2012.
Key Risks
• Asset quality pressures given existing
stock of restructured loans.
• Micro finance institutions (MFIs) are
one segment that could put upward
pressure on credit costs
• The other potential stress point could
be exposure to commercial real estate
developers
Price Target Rs1510 Derived from our probability-weighted residual income model
Bull
case
Rs2000
3.5x
F2013E
BVPS
Macro picture is stronger than expected. Loan growth and fee income
accelerate more sharply than base case estimate (loan growth at 35%).
Margin progression is more robust given pricing power (i.e. remains
elevated around 3.6%). Credit costs drop materially below risk tendency
levels in F2012 (i.e. to 50 bps).
Base
case
Rs1375
2.4x
F2013E
BVPS
Robust loan growth and credit costs drop below normalized levels. Loan
growth remains robust at 25% CAGR in F2012-13. Credit costs drop from
104 bps in F2011 to 77 bps in F2012. Reported NIMs normalize to 3.3%
by end of F2012-end.
Bear
case
Rs965
1.7x
F2013E
BVPS
Sharp slowdown in economic growth; asset quality concerns return.
Loan growth slows down over the coming year to 18%. Margins contract
driven by falling asset yields to 2.7-3.0%. Credit costs return to elevated
levels seen in F1H2010 driven by greater than expected slippage from
restructured loans and CRE loans.
Source: Company data, Morgan Stanley Research estimates
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