Result Update February 10, 2017

Rating matrix Rating : Buy City Union (CITUNI) | 151 Target : | 166 Target Period : 12 months Steady performance sustains; strong margins... Potential Upside : 10% • PAT came in at | 126 crore, up 12% YoY higher than estimated | 113 What’s Changed? crore, mainly led by strong traction in net interest income (NII), up Target Unchanged 21.4% YoY to | 307 crore & sharp surge in other income rising 38% EPS FY17E Changed from | 8.5 to | 8.1 YoY to | 143 crore (high trading income) vs. estimate | 116 crore EPS FY18E Changed from | 10.1 to | 9.6 • Asset quality witnessed marginal deterioration but was still better Rating Unchanged placed relative to peers. Absolute GNPA increased 9% QoQ and 31% YoY to | 649 crore. Net additions came in at | 118 crore similar to Quarterly Performance last two quarters. GNPA, NNPA ratios increased to 3%, 1.7% from | crore Q3FY17 Q3FY16 YoY (%) Q2FY17 QoQ (%) NII 307.0 252.8 21.4 301.2 1.9 2.7%, 1.6%, respectively. Provision surged to | 9196 crore from | 67 Other Income 142.8 103.3 38.2 104.2 37.1 crore QoQ, higher-than-expected, which led provision coverage ratio PPP 273.6 206.9 32.2 236.7 15.6 to rise to 62% from 60% PAT 126.6 113.0 12.0 123.7 2.3 • Credit grew ~12.5% YoY to | 21800 crore in line with estimate.

Deposits grew 15.5% YoY to | 29986 crore, with the share of CASA Key Financials surging to 24% from 20.7% QoQ. This led to better NII with net | Crore FY15 FY16 FY17E FY18E interest margin (NIM) at 4.18%. Accordingly, the operational profit NII 807 981 1,090 1,236 increased 16% YoY to | 273 crore PPP 682 835 911 1,028 Strong regional bank; expect 15.7% CAGR in loans in FY16-18E PAT 384 445 484 573 City Union Bank is the oldest bank in the “old private sector bank” category with 100+ years of existence with continuous profitability and Valuation summary dividend payout. It is largely a south oriented bank with a network of FY15 FY16 FY17E FY18E 528 branches of which 472 are in South India and 362 in P/E 23.2 20.0 18.4 15.6 alone. CUB’s business traction at 29% CAGR in FY06-13 has been higher Target P/E 25.8 22.3 20.5 17.3 than industry except in FY14-15 wherein business growth fell to 8.6% at P/ABV 3.6 3.2 2.9 2.4 | 17965 crore, focussing on quality rather than growth. We revised credit Target P/ABV 4.0 3.6 3.2 2.7 growth lower to 12.9% from 15.7% CAGR in FY16-18E to | 26843 crore. RoA 1.4 1.5 1.5 1.5 NIM above 3%+ for over decade; expect healthy levels to sustain ahead RoE 15.9 15.6 14.9 15.5 One of the commendable features of CUB is that it has been able to Stock data maintain NIMs of 3%+ for over a decade across economic cycles despite Market Capitalisation |8979 crore a low CASA base (~20% of total deposits). This is owing to the structure GNPA (Q3FY17) |650 crore of its loan book, which is focused on the SME/MSME segment (~56% of NNPA (Q3FY17) |371 crore loans) that is high yielding and wherein re-pricing is possible. Further, NIM (Q3FY17) 0.0 ~90% of the book is on a floating basis, which reduces interest rate risk. 52 week H/L 168 /80 We expect calculated NIM to stay healthy at >3% levels in FY17-18E. Networth | 3716 crore Face value | 1 Asset quality expected to remain resilient compared to peers DII Holding (%) 37.5 CUB’s philosophy of giving small ticket secured loans help control NPA. FII Holding (%) 11.9 Around 1:1 loan to collateral ratio was maintained with unsecured loans at 1% of loans. It did not go overboard on growth in the peak years of Price performance (%) 2007-08. It maintained 25-30% credit growth and improved its NNPA from 1M 3M 6M 12M 7-8% in the FY00 crisis to <1.0% in FY10 and maintained till FY13. Post City Union Bank 13.4 3.8 23.3 86.5 this, in Q3FY17, GNPA ratio was at 3%. We expect GNPA, NNPA ratios at South 12.6 1.1 7.7 25.1 2.6%, 1.3% to | 705 crore, | 336 crore, respectively, by FY18E. 24.1 8.2 31.2 80.9 Operational performance holding up well vs. peers; maintain BUY

We expect PAT CAGR of 13.4% in FY16-18E to | 574 crore with RoEs at ~15% and RoAs at ~1.5%, which is remarkable to sustain in the current

tough environment. We continue to prefer CUB as it is well placed among Research Analyst regional players and comfortable on the capital adequacy front with tier I Kajal Gandhi ratio at 14.4%. CUB has historically traded at a slight premium to other [email protected] regional owing to better return ratios. We maintain our BUY Vasant Lohiya recommendation and target price of | 166 with target multiple of 2.7x [email protected] FY18E ABV. The bank seems to be in a better position vs. peers to Vishal Narnolia leverage on the improving economic outlook as and when it happens. [email protected] Strength in major operating parameters would help sustain valuations.

ICICI Securities Ltd | Retail Equity Research

Variance analysis

Q3FY17 Q3FY17E Q3FY16 YoY (%) Q2FY17 QoQ (%) Comments NII 307 277 253 21.4 301 1.9 NII traction continued to be healthy with margins stable at 4.18% These margins seem unsustainable. The management has guided for full year margins NIM (%) 4.2 4.1 3.8 36 bps 4.2 -2 bps at 3.4-3.6% Within other income treasury income increased to | 79.3 crore from | 41.5 crore QoQ Other Income 143 116 103 38.2 104 37.1 led by a fall in 10 year G-sec yields by over 20 bps in Q3FY17

Net Total Income 450 393 356 26.3 405 11.0 Staff cost 80 83 63 27.0 77 4.4 Other Operating Expenses 96 94 86 11.5 92 4.5

PPP 274 217 207 32.2 237 15.6 Operational performance has sustained well Higher-than-expected provisions as slippages continued at Q2 levels, offset by higher Provision 92 62 65 41.8 67 37.3 other income PBT 182 155 142 27.9 170 7.0 Tax Outgo 55 42 29 89.7 46 19.6

PAT 127 113 113 12.0 124 2.3 PAT grew 12% YoY, better-than-expected as NII and other income beat estimates

Key Metrics

Slippages were | 118 crore similar to | 122 crore in Q2 and | 100 crore in Q1FY17. The incremental slippage was on account of a steel manufacturing account of | 44 crore, textile account | 7.85 crore, educational institution of | 6 crore with remaining GNPA 650 604 460 41.3 598 8.7 being small accounts spread across various industries NNPA 371 369 287 29.2 359 3.4 Provision coverage ratio improved QoQ to 62% vs 60% Outstanding restructured asset was flat QoQ at 0.9% of total credit. There is no Total Restructured assets 190 200 316 -39.8 187 1.4 pipeline of any accounts in the 5:25 scheme

Source: Company, ICICIdirect.com Research

Change in estimates FY17E FY18E (| Crore) Old New % Change Old New % Change Credit growth has been revised downwards to 9.6% for FY17 leading to lowered NII Net Interest Income 1,112 1,090 -2.0 1,309 1,236 -5.6 estimates Pre Provision Profit 933 911 -2.4 1,101 1,028 -6.7 NIM (%) 3.5 3.5 -3 bps 3.6 3.5 -12 bps High deposit growth with lower credit impacted margins PAT 508 484 -4.7 604 573 -5.2 Factored in higher provisions apart from lower NII reducing PAT expectation ABV (|) 52.5 51.7 -1.5 62.7 61.0 -2.7

Source: Company, ICICIdirect.com Research

Assumptions Current Earlier FY15 FY16 FY17E FY18E FY17E FY18E Credit growth (%) 11.6 17.2 9.6 16.3 15.2 16.3 Deposit Growth (%) 9.3 12.8 13.2 14.4 13.9 14.3 Higher savings deposit accretion due to demonetisation led to upward revision in CASA ratio (%) 19.2 20.4 21.2 21.5 20.7 20.9 CASA NIM Calculated (%) 3.2 3.5 3.5 3.5 3.5 3.6 Cost to income ratio (%) 43.7 39.9 40.8 40.8 40.2 39.2 GNPA (| crore) 336 513 651 705 610 666 NNPA (| crore) 233 323 389 336 367 290

Slippage ratio (%) 2.4 2.0 1.8 1.4 1.6 1.4 Continued slippages addition forced increase in slippage ratio assumptions Credit cost (%) 1.0 1.0 1.0 0.7 0.9 0.8

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 2

Company Analysis Regional bank with focus on SME segment; expect 15.7% CAGR in loans CUB is a south India based small sized bank with a legacy of over 100 years. Based out of Tamil Nadu, it has a network of 528 branches with 472 branches concentrated in southern India and 362 branches in Tamil Nadu alone. CUB has a history of 100 years of profits and dividend payouts.

One of its distinguishing features is its focus on its target segment of SME/MSME in southern India, which accounts for ~53% of CUB’s advances book. The bank capitalises on knowledge of its niche market of small businesses, SME and traders primarily based in south India. Going ahead, the bank maintains that its focus would continue to be the SME/MSME segment.

CUB’s credit grew above industry at 29% CAGR to | 15246 crore between FY06 and FY13. However, owing to a weak economic scenario, the bank scaled down its advances traction at 8.6% YoY CAGR to | 17965 crore over FY14-15 and was 14.2% in FY16. Moderation has set in even in FY17, with Q3FY17 growth at just 12.5% YoY. Going ahead, we expect advances growth of 12.9% CAGR in FY17-18E to | 26843 crore with MSME and retail remaining the thrust areas. Any major improvement in the economic scenario could result in higher-than-expected traction in loans than factored in by us. Going ahead, we expect advances growth of 12.9% CAGR Exhibit 1: Credit traction moderating over FY17-18E to | 26843 crore 30,000 30 25,000 25.6 25 20,000 20 18.5 17.2 17.0 16.3 15,000 14.2 15 12.1 12.5 (%)

(| crore) 11.6 10,000 10.8 9.6 10 7.2 5,000 5.6 5.0 5.7 5

0 15,246 16,097 16153 16758 16968 17,966 17901 18785 19374 21,058 21216 21972 21801 23,084 26,844 0 FY13 FY14 FY15 FY16 FY17E FY18E Q1FY15 Q2FY15 Q3FY15 Q1FY16 Q2FY16 Q3FY16 Q1FY17 Q2FY17 Q3FY17

Advances Growth (YoY)

Source: Company, ICICIdirect.com Research

Exhibit 2: Loan break-up ---- Sector wise Exhibit 3: Loan break-up ---- Product wise Bills Purchased & discounted, Agri, 10% MSME, 22% 1%

Others, - Retail , 7% 18% Term loans, 36% CRE, 3% Working Wholesale capital loans, Large Ind. Traders, 8% 63% 7% Retail Traders, 27%

Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 3

Deposits franchise improving with improvement in CASA CUB’s deposits have also tracked credit growth. It registered healthy CAGR of 28% in FY06-13 to | 20305 crore. Like credit, deposit growth also slowed in FY14 at 8.4% and 9.3% in FY15. Due to demonetisation, FY17 saw deposit growth surging with CASA ratio improving to 23.9% in Q3FY17 from earlier 20% range. CASA ratio is estimated to gradually move up at ~21.5% by FY18E factoring in the excess CASA to settle gradually. Exhibit 4: CASA ratio expected to gradually move up, going ahead

40000 30 35000 25 30000 23.9 25000 20 20.6 20.7 21.2 21.5 19.2 19.2 19.5 20.4 20000 17.8 18.1 18.9 18.8 15 (%)

(| crore) 15.5 15000 14.4 10 12.2 12.8 13.2 10000 10.6 11.9 11.2 10.8 9.1 10.0 9.3 5000 8.4 5 0 22017 22383 23152 24075 25111 25616 25959 27157 27936 28393 29986 30742 35155 0 FY14 FY15 FY16 FY17E FY18E Q1FY15 Q2FY15 Q1FY16 Q2FY16 Q3FY16 Q1FY17 Q2FY17 Q3FY17

Deposits Growth (YoY) CASA ratio

Source: Company, ICICIdirect.com Research

We have revised deposit CAGR to 13.8% in FY16-18E to CUB’s deposits are largely retail in nature with nil bulk deposits. Going | 35154 crore. CASA ratio is estimated to gradually move ahead, we expect deposit to grow slightly higher at 13.8% CAGR in FY17- up at ~21.5% by FY18E 18E to | 35154 crore. Structure of loan book aids NIMs; expect to stay at healthy levels CUB has historically maintained a higher NIM of above 3%. In FY16, reported margins were at 3.81%. This is commendable considering that its CASA ratio has been ~20%. As discussed above, given its positioning as an SME/MSME (~53% of loans) focused bank catering to their specific requirements, higher churn We expect margins to stay at healthy levels of > 3% over and yields due to greater proportion of short-term loans (working capital FY16-18E loans at ~63%), extensive knowledge about its market dynamics and a floating loan book size of ~90%, the bank has been able to manage its yields on advances across business cycles, thus maintaining the spread. The bank has enjoyed high yields of over 12% since FY08 and is expected Margins for Q3FY17 still sustained strong at 4.2% to continue.

Moreover, the deposit base consists mainly of retail term deposits, which have a higher maturity. This reduces the bank’s dependence on high cost bulk deposits, which is currently nil. However, owing to a declining interest rate scenario and rising NPA pressure, we expect some pressure on margins. Q3FY17 margins came in at 4.18% similar to the previous two quarters. It is expected NIM can stay at healthy levels of >3% ahead.

NII is expected to grow at 12.3% CAGR to | 1235 crore in FY17-18E tracking moderate credit growth.

ICICI Securities Ltd | Retail Equity Research Page 4

Exhibit 5: Margins historically healthy at >3% levels; expected to be maintained

16.0

14.0 13.5 13.6 13.5 13.4 13.0 12.7 12.0 12.5 12.1 12.1 12.1 10.0 9.3 8.4 8.4 8.8 8.8 8.7 8.0 8.0 7.7 8.1 (%) 6.9 6.0 4.0 3.5 3.2 3.6 3.4 3.4 3.5 3.2 3.5 3.5 3.5 2.0 0.0 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E* FY18E*

Reported Yields on Advances Reported Cost of Deposits Reported NIM

Source: Company, ICICIdirect.com Research, * Calculated

Asset quality expected to remain prudent CUB has largely maintained its asset quality well over a long time. The GNPA and NNPA ratios declined to 1.1% and 0.6% as on FY13 from 4.43% and 1.95%, respectively, in FY06. CUB’s lending philosophy of giving small ticket secured loans helps control asset quality. Around 1:1 loan to collateral ratio is maintained. Unsecured advances aggregate to only 1% of loans. The bank did not go overboard on growth in the peak years of 2007-08 and maintained its 25-30% credit growth.

RA is also one of the lowest in the industry at 0.9% (| 187 crore) as on Q2FY17. However, in FY14, owing to a weak economy, CUB witnessed asset quality pressures with fresh slippages rising to | 456 crore from | 223 crore in FY13. During FY14, absolute GNPA and NNPA increased to | 293 crore (GNPA ratio at 1.8%) and | 197 crore (NNPA ratio at 1.2%), respectively. Further, PCR fell to 62% from 70% earlier. In FY15, slippages came in higher than trajectory prior to FY14. However, it remained lower compared to last year at | 425 crore along with higher reduction at | 382 crore in FY15 vs. 336 crore in FY14. Consequently, GNPA, NNPA We expect GNPA and NNPA ratios at 2.6% and 1.3%, increased to | 336 crore, | 233 crore, respectively. In FY16, slippages respectively, by FY18E stayed at ~| 430 crore and overall GNPA surged 52% YoY.

Fresh slippages in Q3FY17 were | 118 crore vs. | 122 crore in Q2 and | 101 crore seen in Q1FY17. Absolute GNPA increased 9% QoQ and 31% YoY to | 649 crore, net additions came in at | 118 crore similar to the last two quarters. GNPA and NNPA ratios increased QoQ to 3% and 1.7% from 2.7% and 1.6%, respectively. The management guided that slippages will remain between 1.75% and 2% in FY17E. We expect GNPA, NNPA ratios at 2.6%, 1.3% to | 704 crore, | 335 crore, respectively, by FY18E. Despite deterioration, we believe CUB’s asset quality remains manageable compared to its peers. Lower exposure to stressed segments like the infra segment at ~1% also provide comfort.

ICICI Securities Ltd | Retail Equity Research Page 5

Exhibit 6: Asset quality remains acceptable despite pressures witnessed recently

800 3.5 700 3.0 3.0 2.8 600 2.6 2.7 2.6 2.4 2.4 2.5 500 2.1 2.1 1.9 2.0 1.9 2.0 2.0 400 1.7 1.7 (%) 1.5 1.5 1.6 1.6 1.5 (| crore) 300 1.3 1.3 1.3 1.3 1.3 1.4 1.3 200 1.0 100 0.5 0 308.3 204.4 337.9 218.7 360.7 220.4 335.7 232.8 359.4 234.3 398.3 255.9 459.9 286.8 512.6 322.9 555.0 334.0 598 358.6 650 370.66 651.1 389.4 704.8 335.7 0.0 FY15 FY16 FY17E FY18E Q1FY15 Q2FY15 Q3FY15 Q1FY16 Q2FY16 Q3FY16 Q1FY17 Q2FY17 Q3FY17

GNPA NNPA GNPA (RHS) NNPA (RHS)

Source: Company, ICICIdirect.com Research

Exhibit 7: Superior operational efficiency in past; expected to stabilise near 40-41% in FY17-18E

50 44.1 45.3 41.7 41.9 41.7 43.7 41.9 45 39.6 40.0 39.9 39.7 41.6 40.8 40.8 37.5 38.7 39.2 40 35 30 25 (%) 20 15 10 5 0 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E Q1FY15 Q2FY15 Q3FY15 Q1FY16 Q2FY16 Q3FY16 Q1FY17 Q2FY17 Q3FY17

C/I ratio

Source: Company, ICICIdirect.com Research

CUB’s cost-to-income ratio (C/I ratio) has largely stayed near 40%, which is been better than its peers wherein the C/I ratio is~45%. Positives for the bank include no large pressure from provisioning for gratuity & pension as faced by public sector banks. C/I ratio declined further in Q3FY17 to 39.2% led by strong total income. Exhibit 8: Other income break up & trend

350 300 50.1 250 65.5 55.5 200 35.4 150 11.2 10.5 21.7 10.9 (| crore) 100 195.6 18.4 7.1 10.5 172.7 38.9 14.3 14.5 22.6 79.3 42.1 31.2 28.9 30.8 35.1 49.1 41.5 50 22.3 24.9 40 49.5 51 43.3 52.9 52 54.8 49.9 53.8 54.9 52.2 52.3 0 FY13 FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17

CEB & charges Treasury Income others

Source: Company, ICICIdirect.com Research

Strong treasury gains at | 79.3 crore from fall in G-sec yields boosted overall other income for the quarter and also supported bottomline.

ICICI Securities Ltd | Retail Equity Research Page 6

Outlook and valuation We expect PAT CAGR of 13.4% in FY16-18E to | 574 crore with RoEs at ~15% and RoAs at ~1.5%, which is remarkable to sustain in current tough environment. We continue to prefer CUB as it is well placed among regional players and comfortable on the capital adequacy front with tier I ratio at 14.4%. CUB has historically traded at a slight premium to other regional banks owing to better return ratios. We maintain our BUY rating and target price of | 166 with a target multiple to 2.7x FY18E ABV. The bank seems to be in a better position vs. peers to leverage on the improving economic outlook as and when it happens. Strength in major operating parameters would help sustain valuations.

Exhibit 9: RoEs better relative to peers and expected to improve

30 1.8 1.7 1.7 25 1.6 24.9 1.6 23.5 1.6 20 22.3 1.5 1.5 1.5 1.5 1.5 19.9 20.61.5 1.4 15 18.9 1.4 1.4 (%) 15.9 15.6 14.9 15.5 1.3 10 1.2 5 1.1 0 1.0 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E

RoE RoA (RHS)

Source: Company, ICICIdirect.com Research

Exhibit 10: Valuation NII Growth PAT Growth P/E ABV P/ABV RoA RoE (| cr) (%) (| cr) (%) (x) (|) (x) (%) (%) FY15 807 6.3 384.1 10.7 23.2 41.2 3.6 1.4 15.9 FY16 981 21.5 445.3 15.9 20.0 45.9 3.2 1.5 15.6 FY17E 1,090 11.1 484.0 8.7 18.4 51.7 2.9 1.5 14.9 FY18E 1,236 13.4 573.0 18.4 15.6 61.0 2.4 1.5 15.5

Source: Company, ICICIdirect.com Research

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Recommendation History vs. Consensus

200 100.0 175 80.0 150

125 60.0

(|) 100 (%) 75 40.0 50 20.0 25 0 0.0 Jan-15 Mar-15 Jun-15 Aug-15 Oct-15 Jan-16 Mar-16 Jun-16 Aug-16 Oct-16 Jan-17

Price Idirect target Consensus Target Mean % Consensus with BUY

Source: Bloomberg, Company, ICICIdirect.com Research

Key events Date Event FY98 A 100 year old regional bank, gets listed in FY98 FY02 They enter into an MoU with Life Insurance Corporation of India and National Insurance Co Ltd for selling insurance products FY03 Bank starts expanding beyond south and opens branch in Mumbai FY07 Bank makes major preferential placement to L&T, LIC and other funds in |169 to |190 range FY07 Announces share split in the ratio of 1:10 and rights issue in 1:4 ratio at | 10 FY10 Mr Kamakodi takes over as CEO and MD, a young top management replacing Mr Balasubramanian, who became chairman FY13 Further rights issue announced at | 30 in 1:4 ratio Jul-14 The bank raises | 350 crore via QIP by diluting 8% stake

Source: Company, ICICIdirect.com Research

Top 10 shareholders Shareholding Pattern Rank Name Latest Filing date % O/S Position Change (in %) Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 1 NTAsset (Cayman) Ltd. 30-Jun-2016 3.99% 23.98M +1.41M Promoter----- 2 Lavender Investments, Ltd. 30-Jun-2016 3.93% 23.61M 0 FII 37.5 39.0 39.2 39.5 37.5 3 George Kaiser Family Foundation 30-Jun-2016 3.91% 23.49M 0 DII 9.6 9.6 10.0 9.8 11.9 4 Life Insurance Corporation of India 30-Jun-2016 3.41% 20.49M 0 Others 52.9 51.4 50.8 50.7 50.6

5 Capital Research Global Investors 30-Jun-2016 3.32% 19.96M +19.96M 6 HDFC Asset Management Co., Ltd. 30-Nov-2016 3.16% 19.01M +9.94M 7 Ardisia Ltd 30-Jun-2016 2.44% 14.65M 0 8 Wasatch Advisors, Inc. 30-Sep-2016 2.10% 12.65M +5.99M 9 Vaidyanathan (Vilasini) 30-Jun-2016 2.08% 12.50M 0 10 Visalam (G) 30-Jun-2016 2.08% 12.50M 0

Source: Reuters, ICICIdirect.com Research

Recent Activity Buys Sells Investor name Value Shares Investor name Value Shares Capital Research Global Investors +34.43M +19.96M First State Investments (Singapore) -3.68M -1.88M HDFC Asset Management Co., Ltd. +19.53M +9.94M ICICI Prudential Asset Management Co. Ltd. -1.35M -0.78M Wasatch Advisors, Inc. +11.89M +5.99M Champlain Investment Partners, LLC -0.69M -0.40M Aberdeen Asset Management (Asia) Ltd. +8.97M +4.00M J.P. Morgan Asset Management (Hong Kong) Ltd. -0.46M -0.24M NTAsset (Cayman) Ltd. +2.44M +1.41M Dimensional Fund Advisors, L.P. -0.36M -0.16M

Source: Reuters, ICICIdirect.com Research

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Financial summary

Profit and loss statement | Crore Key ratios (Year-end March) FY15 FY16 FY17E FY18E (Year-end March) FY15 FY16 FY17E FY18E Interest Earned 2,698.9 2,942.7 3,275.3 3,688.5 Valuation Interest Expended 1891.5 1961.9 2185.4 2452.7 No. of Equity Shares 59.7 59.8 59.8 59.8 Net Interest Income 807.4 980.8 1,089.9 1,235.8 EPS (Rs.) 6.4 7.4 8.1 9.6 growth (%) 6.3 21.5 11.1 13.4 BV (Rs.) 45.1 51.3 58.2 66.6 Non Interest Income 404.1 411.1 454.1 506.3 ABV (Rs.) 41.2 45.9 51.7 61.0 Net Income 1211.5 1391.8 1543.9 1742.1 P/E 23.2 20.0 18.4 15.6 P/BV Staff cost 210.3 215.7 242.9 273.3 3.3 2.9 2.6 2.2 Other Operating expense 319.4 341.6 390.4 440.7 P/ABV 3.6 3.2 2.9 2.4 Operating profit 681.8 834.5 910.7 1028.0 Yields & Margins (%) Provisions 182.5 232.7 256.6 221.0 Net Interest Margins 3.2 3.5 3.5 3.5 Taxes 126.0 156.5 170.1 234.0 Yield on assets 10.6 10.5 10.4 10.3 Net Profit 384.1 445.3 484.0 573.0 growth (%) 10.7 15.9 8.7 18.4 Avg. cost on funds 8.1 7.6 7.5 7.4 EPS (|) 6.4 7.4 8.1 9.6 Yield on average advances 12.7 12.1 12.1 12.1

Source: Company, ICICIdirect.com Research Avg. Cost of Deposits 8.0 7.6 7.5 7.4 Quality and Efficiency (%) Cost to income ratio 43.7 39.9 40.8 40.8 Credit/Deposit ratio 74.6 77.5 75.1 76.4 GNPA 1.9 2.4 2.8 2.6 NNPA 1.3 1.5 1.7 1.3 ROE 15.9 15.6 14.9 15.5 ROA 1.4 1.5 1.5 1.5

Source: Company, ICICIdirect.com Research

Balance sheet | Crore Growth (%) (Year-end March) FY15 FY16 FY17E FY18E (Year-end March) FY15 FY16 FY17E FY18E Sources of Funds Total assets 11.5 12.2 13.0 14.2 Capital 59.7 59.8 59.8 59.8 Advances 11.6 17.2 9.6 16.3 Reserves and Surplus 2635.9 3011.2 3425.2 3928.2 Deposit 9.3 12.8 13.2 14.4 Networth 2695.5 3071.0 3485.1 3988.1 Total Income 9.8 8.2 11.3 12.5 Deposits 24075.0 27156.5 30742.0 35154.5 Net interest income 6.3 21.5 11.1 13.4 Borrowings 168.8 112.4 130.3 151.2 Operating expenses 15.6 5.2 13.6 12.8

Other Liabilities & Provisions 931.8 929.6 991.6 1059.0 Operating profit 17.4 22.4 9.1 12.9 Total 27871.1 31269.6 35349.0 40352.7 Net profit 10.7 15.9 8.7 18.4 Net worth 33.2 13.9 13.5 14.4 Applications of Funds EPS 0.7 15.6 8.7 18.4

Fixed Assets 210.4 217.9 237.4 257.3 Source: Company, ICICIdirect.com Research Investments 6365.3 6320.7 7578.3 8698.7 Advances 17965.5 21058.4 23084.2 26843.6 Other Assets 793.2 1067.9 1567.1 1359.0 Cash with RBI & call money 2536.8 2604.7 2881.9 3194.1 Total 27871.1 31269.6 35349.0 40352.7

Source: Company, ICICIdirect.com Research

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ICICIdirect.com coverage universe (Banking)

CMP M Cap EPS (|) P/E (x) P/ABV (x) RoA (%) RoE (%) Sector / Company (|) TP(|) Rating (| Cr) FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E

Bank of Baroda (BANBAR) 183 180 Hold 42,207 -23 10 23 -7.8 18.1 8.1 2.1 1.9 1.4 -0.8 0.3 0.7 -13 6 12 (PUNBAN) 145 160 Buy 28,433 -20 8 12 -7.2 17.4 11.8 7.9 4.3 2.8 -0.6 0.3 0.3 -10 4 6 State (STABAN) 274 310 Buy 2,04,337 13 13 26 21.4 20.7 10.5 2.4 1.7 1.4 0.5 0.4 0.8 7 6 11 Indian Bank (INDIBA) 298 305 Buy 14,301 15 28 34 20.1 10.8 8.8 1.4 1.4 1.3 0.4 0.6 0.7 5 8 9 (AXIBAN) 489 460 Hold 1,16,077 35 14 28 14.2 35.2 17.7 2.3 2.6 2.1 1.7 0.6 1.1 17 6 11 City Union Bank (CITUNI) 149 166 Buy 8,979 7 8 10 20.2 17.7 14.9 3.3 2.9 2.4 1.5 1.5 1.6 16 16 16 DCB Bank (DCB) 134 120 Hold 3,477 7 7 9 19.7 18.0 15.0 2.3 2.1 1.9 1.1 1.0 1.0 12 12 13 Federal Bank (FEDBAN) 84 87 Buy 14,480 3 5 6 30.4 18.4 13.1 2.0 1.9 1.7 0.5 0.8 0.9 6 9 12 HDFC Bank (HDFBAN) 1,297 1,500 Buy 3,24,225 49 58 71 26.7 22.5 18.4 4.6 4.0 3.5 1.9 1.9 1.9 18 19 20 IndusInd Bank (INDBA) 1,299 1,350 Buy 77,264 38 48 58 33.8 26.9 22.4 4.4 3.8 3.4 1.9 1.9 1.8 16 15 16 Jammu & Kashmir Bk(JAMKAS) 69 80 Buy 3,330 9 -28 9 8.0 -2.4 7.4 0.8 1.5 1.4 0.5 -1.6 0.5 7 -23 8 (KOTMAH) 770 840 Hold 1,40,867 11 18 21 67.6 42.2 36.2 6.2 5.4 4.8 1.1 1.6 1.7 9 13 13 (YESBAN) 1,403 1,400 Hold 58,899 48 60 70 29.2 23.3 20.1 4.3 2.9 2.5 1.6 1.7 1.8 21 20 18 Source: Company, ICICIdirect.com Research

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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 [email protected]

ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093 [email protected]

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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 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.

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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.

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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.

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