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Investment Thesis
• Largest bank in India with a 24%
market share in loans.
• Expect core PPOP progression to be
robust in F2012 – following strong
performance in F2011.
• Strong liability franchise (48.2%
domestic CASA) will benefit in a rising
rate environment.
• Near term EPS could be under
pressure due to higher credit costs. As
credit cost runs off in F2012, reported
EPS growth should be strong.
• Life insurance subsidiary is now the
biggest amongst private insurance
players.
• Stock is trading at 10.1x F12 core
earnings. On core book value, it is
trading at 1.5x F12.
Key Value Drivers
• Loan growth
• Margin progression
• Fee income
• Credit costs
• Life insurance valuation/market share
Potential Catalysts
• Impaired loan trends in F2H2011
• Margin progression
• System-wide loan growth trends and
rate movements
Key Risks
• Credit costs stay higher for longer
• Lower than expected loan growth
• Impaired loan formation re-accelerates
• Very sharp rise in long bond yields
Price Target Rs3,290 Derived from probability weighted sum of parts
Bull
Case
Rs4,200
2.5x F2013e
BVPS
Stronger than expected revenue progression and credit costs
drop sharply: Loan growth pick-up is much stronger than
expectations (25%) driven by better macro conditions. Credit costs
drop to 50 bps in F2012-13. We value the insurance business at
Rs200/share using a new business multiplier at 16x and an NBAP
margin of 16%.
Base
Case
Rs3,450
2.0x F2013e
BVPS
Core PPOP growth driven by strong revenue progression,
credit costs normalize in F2012: Reported margins normalize
3.20% by end-F2012 from current 3.52%. Loan book growth
averages 17% in F2012-13. Credit costs will run-off from F2012
with restructured loans slippages peaking at 20%. We value the
insurance business at Rs135/share using a new business
multiplier at 14x and an NBAP margin of 14%.
Bear
Case
Rs1,900
1.1x F2013e
BVPS
Disruptive rise in rates: Loan growth slows down sharply and
margins compress more than expectations (margins revert to
F2010 levels of 2.5%). Impaired loan formation re-accelerates
implying that credit costs remain higher for longer (at 120 bps). We
value the insurance business at Rs85/share using a new business
multiplier at 11x and an NBAP margin of 10%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Investment Thesis
• Largest bank in India with a 24%
market share in loans.
• Expect core PPOP progression to be
robust in F2012 – following strong
performance in F2011.
• Strong liability franchise (48.2%
domestic CASA) will benefit in a rising
rate environment.
• Near term EPS could be under
pressure due to higher credit costs. As
credit cost runs off in F2012, reported
EPS growth should be strong.
• Life insurance subsidiary is now the
biggest amongst private insurance
players.
• Stock is trading at 10.1x F12 core
earnings. On core book value, it is
trading at 1.5x F12.
Key Value Drivers
• Loan growth
• Margin progression
• Fee income
• Credit costs
• Life insurance valuation/market share
Potential Catalysts
• Impaired loan trends in F2H2011
• Margin progression
• System-wide loan growth trends and
rate movements
Key Risks
• Credit costs stay higher for longer
• Lower than expected loan growth
• Impaired loan formation re-accelerates
• Very sharp rise in long bond yields
Price Target Rs3,290 Derived from probability weighted sum of parts
Bull
Case
Rs4,200
2.5x F2013e
BVPS
Stronger than expected revenue progression and credit costs
drop sharply: Loan growth pick-up is much stronger than
expectations (25%) driven by better macro conditions. Credit costs
drop to 50 bps in F2012-13. We value the insurance business at
Rs200/share using a new business multiplier at 16x and an NBAP
margin of 16%.
Base
Case
Rs3,450
2.0x F2013e
BVPS
Core PPOP growth driven by strong revenue progression,
credit costs normalize in F2012: Reported margins normalize
3.20% by end-F2012 from current 3.52%. Loan book growth
averages 17% in F2012-13. Credit costs will run-off from F2012
with restructured loans slippages peaking at 20%. We value the
insurance business at Rs135/share using a new business
multiplier at 14x and an NBAP margin of 14%.
Bear
Case
Rs1,900
1.1x F2013e
BVPS
Disruptive rise in rates: Loan growth slows down sharply and
margins compress more than expectations (margins revert to
F2010 levels of 2.5%). Impaired loan formation re-accelerates
implying that credit costs remain higher for longer (at 120 bps). We
value the insurance business at Rs85/share using a new business
multiplier at 11x and an NBAP margin of 10%.
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