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Investment Thesis
• Strong presence in Northwestern India,
which has a strong deposits base, as
reflected in high CASA ratio (39%).
Strong low-cost deposit base will
benefit in rising rates scenario.
• Expect credit costs to decline to 81 bps
in F2012 from 95 bps in F2011. This
will help provide an offset to margin
normalization from current peak levels
of 4.1%.
• Adjusted Tier I ratio at 9.4% (including
profits for F9M11 & capital infusion by
the govt.)
• The stock is trading at 7.3 x F12e P/E
and 1.4x F12e P/BV. In this context,
we believe that that risk-reward is still
favorable.
Key Value Drivers
• Margin progression.
• Trend in loan growth.
• Fee income growth.
• Credit costs.
• Operating costs.
Potential Catalysts
• New NPL formation trend in QE
Mar-11 and QE Jun-11.
• Margin trends
• Trend in system-wide loan growth
(released on a fortnightly basis).
Key Risks
• Higher than expected slippage from
restructured loans into NPLs.
• New impaired loan formation
accelerates.
• Muted system-wide loan growth.
Price Target Rs1,430 Derived from our probability weighted residual income model.
Bull
Case
Rs1,750
2.2x
F2013e
BVPS
Stronger than expected economic growth. Loan growth in F2011
and F2012 higher than base case estimates at 25% -- driving
stronger fee income growth and more robust margin progression;
Credit costs drop materially below base case estimate to 50 bps in
F2012-13.
Base
Case
Rs1,550
2.0x
F2013e
BVPS
Margins normalize from peak levels, but expect credit cost
provide offset. Expect margins to normalize to 3.3% from current
reported level of ~4.1%; volume growth of 18% in F2012/13. Expect
credit costs to decline to 83 bps in F2012 from 95 bps in F2011.
Bear
Case
Rs750
1.0x F2013
BVPS
Disruptive rise in rates: Loan growth slows down sharply and
margins compress more than expectations. Impaired loan formation
re-accelerates implying that credit costs remain higher for longer (at
100 bps+).
Source: FactSet, Morgan Stanley Research estimates
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Investment Thesis
• Strong presence in Northwestern India,
which has a strong deposits base, as
reflected in high CASA ratio (39%).
Strong low-cost deposit base will
benefit in rising rates scenario.
• Expect credit costs to decline to 81 bps
in F2012 from 95 bps in F2011. This
will help provide an offset to margin
normalization from current peak levels
of 4.1%.
• Adjusted Tier I ratio at 9.4% (including
profits for F9M11 & capital infusion by
the govt.)
• The stock is trading at 7.3 x F12e P/E
and 1.4x F12e P/BV. In this context,
we believe that that risk-reward is still
favorable.
Key Value Drivers
• Margin progression.
• Trend in loan growth.
• Fee income growth.
• Credit costs.
• Operating costs.
Potential Catalysts
• New NPL formation trend in QE
Mar-11 and QE Jun-11.
• Margin trends
• Trend in system-wide loan growth
(released on a fortnightly basis).
Key Risks
• Higher than expected slippage from
restructured loans into NPLs.
• New impaired loan formation
accelerates.
• Muted system-wide loan growth.
Price Target Rs1,430 Derived from our probability weighted residual income model.
Bull
Case
Rs1,750
2.2x
F2013e
BVPS
Stronger than expected economic growth. Loan growth in F2011
and F2012 higher than base case estimates at 25% -- driving
stronger fee income growth and more robust margin progression;
Credit costs drop materially below base case estimate to 50 bps in
F2012-13.
Base
Case
Rs1,550
2.0x
F2013e
BVPS
Margins normalize from peak levels, but expect credit cost
provide offset. Expect margins to normalize to 3.3% from current
reported level of ~4.1%; volume growth of 18% in F2012/13. Expect
credit costs to decline to 83 bps in F2012 from 95 bps in F2011.
Bear
Case
Rs750
1.0x F2013
BVPS
Disruptive rise in rates: Loan growth slows down sharply and
margins compress more than expectations. Impaired loan formation
re-accelerates implying that credit costs remain higher for longer (at
100 bps+).
Source: FactSet, Morgan Stanley Research estimates
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