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“Low Adverse Risk to Earnings from Hereon”

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“Low Adverse Risk to Earnings from Hereon” “Low adverse risk to earnings from hereon” Banking Sector Q2 FY21 Post Earnings Review 11 Nov 2020 Table of Content 1 Q2FY21 Earnings Summary – Key Takeaways 3 2 Top Picks & Valuation 5 3 Competitor Benchmarking 7-8 4 Companies – Q2 FY21 Earnings & Con-call Highlights ICICI Bank 10-14 Axis Bank 15-19 State Bank of India 20-24 IndusInd Bank 25-29 Karur Vysya Bank 30-34 Kotak Mahindra Bank 35-39 HDFC Bank 40-44 Bandhan Bank 45-49 ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 Parvati Rai, [email protected], +91-22-6696 5413 is also available on Bloomberg KRCS<GO> www.krchoksey.com Thomson Reuters, Factset and Capital IQ Q2FY21 Earnings Summary – Key Takeaways Low upside risks to credit costs • Improvement in outlook for credit costs • The banks have front ended credit costs on higher anticipation of stress assets. • However collection efficiency for larger banks, especially, have fared well. Collections have been between 94%-97% across large banks, especially. There has been a month-on-month improvement in October too. • While it is not as pristine as pre Covid level of 99%, most of the stress book may be restructured. We expect lower credit costs for large banks, especially. • Though asset quality is expected to worsen, the ensuing credit costs have been factored in. • Large banks capturing market share in advances and deposit • The advance growth beat industry trend for select banks while other have been far lower than long term trend. • Large banks and well capitalized banks have fared well with reasonable resource cost even amidst caution. • Despite higher liquidity, banks have not paused on the deposit its acquisition franchise. Larger banks have gained market share at a reasonable cost. NIMs have improved but not secularly • NIMs have improved but this improvement in not secular across banks. • The liquidity drag, likely reversals and mix change is likely to impact NIMs. • Cost to Income ratio improvement unlikely any further • C/I rose sequentially as the previous quarter was an exception. • While some benefits have been structural, favorably impacting FY21. We expect costs to rise from hereon. • We like banks with sustainable fee incomes. ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 Parvati Rai, [email protected], +91-22-6696 5413 is also available on Bloomberg KRCS<GO> www.krchoksey.com Thomson Reuters, Factset and Capital IQ Table of Content 1 Q2FY21 Earnings Summary – Key Takeaways 3 2 Top Picks & Valuation 5 3 Competitor Benchmarking 7-8 4 Companies – Q2 FY21 Earnings & Con-call Highlights ICICI Bank 10-14 Axis Bank 15-19 State Bank of India 20-24 IndusInd Bank 25-29 Karur Vysya Bank 30-34 Kotak Mahindra Bank 35-39 HDFC Bank 40-44 Bandhan Bank 45-49 ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 Parvati Rai, [email protected], +91-22-6696 5413 is also available on Bloomberg KRCS<GO> www.krchoksey.com Thomson Reuters, Factset and Capital IQ Recommendation and Valuation Valuation Snapshot Stock CMP Target Reco. Upside RoA P/ABV New Old New Old FY21 FY22 FY21 FY22 ICICI bank 464 516 495 Acc. Buy 11.2% 1.0% 1.3% 2.41 2.16 Axis Bank 567 630 612 Acc. Buy 11.1% 0.5% 0.7% 1.96 1.80 State Bank of 220 300 262 Buy Buy 36.4% 0.5% 0.5% 0.89 0.82 India IndusInd Bank 775 850 659 Acc. Acc. 9.7% 1.0% 1.6% 1.49 1.37 Karur Vysya Bank 35 42 42 Buy Buy 20.0% 0.5% 0.6% 0.51 0.48 Kotak Mahindra 1,728 1,800 1,650 Hold Acc. 4.2% 1.9% 2.0% 6.27 5.48 Bank HDFC Bank 1,340 1,510 1,510 Buy Buy 12.7% 1.9% 1.9% 4.39 3.83 Bandhan Bank 340 431 431 Buy Buy 26.8% 3.1% 3.6% 3.00 2.50 Source: Company Reports, KRChoksey Research, Acc: Accumulate; Closing price as on 9th Nov 2020 ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 Parvati Rai, [email protected], +91-22-6696 5413 is also available on Bloomberg KRCS<GO> www.krchoksey.com Thomson Reuters, Factset and Capital IQ Table of Content 1 Q2FY21 Earnings Summary – Key Takeaways 3 2 Top Picks & Valuation 5 3 Competitor Benchmarking 7-8 4 Companies – Q2 FY21 Earnings & Con-call Highlights ICICI Bank 10-14 Axis Bank 15-19 State Bank of India 20-24 IndusInd Bank 25-29 Karur Vysya Bank 30-34 Kotak Mahindra Bank 35-39 HDFC Bank 40-44 Bandhan Bank 45-49 ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 Parvati Rai, [email protected], +91-22-6696 5413 is also available on Bloomberg KRCS<GO> www.krchoksey.com Thomson Reuters, Factset and Capital IQ Competitor Benchmarking Healthy sequential performance State Karur Kotak ICICI Axis IndusInd HDFC Bandhan INR Cr Bank Vysya Mahindra Bank Bank Bank Bank Bank of India Bank Bank Net interest income 9,366 7,326 28,181 3,278 601 3,913 15,776 1,923 Pre-provision profit 8,261 6,898 16,460 2,831 449 3,297 13,814 1,628 Provisions 2,995 4,581 10,118 1,964 285 369 3,704 395 Net profit 4,251 1,683 4,574 647 115 2,184 7,513 920 GNPA 5.2% 4.2% 5.3% 2.2% 7.9% 2.6% 1.1% 1.2% NNPA 1.0% 0.9% 1.6% 0.5% 3.0% 0.6% 0.2% 0.4% PCR 81.6% 77.0% 88.2% 76.6% 75.2% 74.9% 84.5% 70.0% GNPA (ex SC standstill) 5.4% 4.3% 5.9% 2.3% 8.0% 2.7% 1.4% 1.5% NNPA (ex SC standstill) 1.1% 1.0% 2.1% 0.6% 3.1% 0.7% 0.4% NA PCR (ex SC standstill) 79.1% 76.0% 64.6% 73.7% 62.6% 72.6% 74.5% NA NIM 3.6% 3.6% 3.1% 4.2% 3.5% 4.5% 4.1% 8.0% CASA 43.8% 44.2% 44.0% 40.2% 33.9% 57.1% 41.6% 38.2% C-D Ratio 78% 91% 66% 88% 78% 78% 85% 111% Capital adequacy ratio 18.5% 18.9% 14.7% 16.6% 18.4% 22.1% 19.1% 25.7% RoA (annualized) 1.5% 0.8% 0.4% 0.8% 0.6% 4.5% 4.1% 3.6% Source: Company Reports, Bloomberg, KRChoksey Research ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 Parvati Rai, [email protected], +91-22-6696 5413 is also available on Bloomberg KRCS<GO> www.krchoksey.com Thomson Reuters, Factset and Capital IQ Competitor Benchmarking Healthy sequential performance Kotak ICICI Axis State Bank IndusInd Karur Vysya Bandhan % Change Mahindra HDFC Bank Bank Bank of India Bank bank Bank Bank QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY Net interest 0.9% -4.0% 4.9% -2.3% 5.8% -0.1% -0.9% -10.0% 7.1% -2.2% 5.1% 16.8% 0.7% 16.7% 6.2% 25.8% income Pre-provision -23.3% 20.2% 18.0% 15.9% -0.4% 11.9% -1.1% 8.9% -5.3% 4.1% 25.7% 31.4% 7.7% 18.1% 2.7% 24.5% profit Provisions -60.6% 19.6% 3.7% 8.8% -19.1% 14.4% -13.0% 10.2% 8.9% -1.8% -61.7% -9.6% -4.8% 37.1% -53.5% 171.0% Net profit 63.6% 19.6% 51.3% 8.8% 9.2% 14.4% 40.5% 10.2% 8.9% -1.8% 75.5% 26.7% 12.8% 18.4% 67.3% -5.3% Deposits 3.9% 19.6% 1.2% 8.8% 1.5% 14.4% 8.1% 10.2% 1.8% -1.8% 0.0% 12.2% 28.8% 28.8% 9.1% 34.4% Advances 3.4% 6.4% 2.7% 10.5% -0.2% 6.9% 1.6% 2.1% 3.7% -3.2% 0.4% -4.0% 15.8% 3.5% 5.1% 22.6% Gross NPA -3.5% -14.6% -9.2% -7.7% -2.9% -22.1% -11.1% 3.7% -1.4% -9.0% -5.0% 6.0% -9.6% -17.9% -13.2% -17.9% Net NPA -17.1% -34.2% -18.0% -45.2% -14.6% -39.2% -37.8% -51.9% -9.9% -32.6% -26.6% -28.0% -53.7% -46.5% -21.8% -22.1% NIM (bps) -12bps -7bps 18bps 7bps 11bps 13bps -12bps 6bps 11bps -9bps 12bps -9bps -20bps -10bps -15bps -20bps Source: Company Reports, Bloomberg, KRChoksey Research ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 Parvati Rai, [email protected], +91-22-6696 5413 is also available on Bloomberg KRCS<GO> www.krchoksey.com Thomson Reuters, Factset and Capital IQ Table of Content 1 Q2FY21 Earnings Summary – Key Takeaways 3 2 Top Picks & Valuation 5 3 Competitor Benchmarking 7-8 4 Companies – Q2 FY21 Earnings & Con-call Highlights ICICI Bank 10-14 Axis Bank 15-19 State Bank of India 20-24 IndusInd Bank 25-29 Karur Vysya Bank 30-34 Kotak Mahindra Bank 35-39 HDFC Bank 40-44 Bandhan Bank 45-49 ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 Parvati Rai, [email protected], +91-22-6696 5413 is also available on Bloomberg KRCS<GO> www.krchoksey.com Thomson Reuters, Factset and Capital IQ ICICI Bank (Accumulate; TP: 516; Upside 11%) Investment Rationale: Advances growth is in line with industry.
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