1_IIFL Holdings, October 22, 2014

8/10/2019 1_IIFL Holdings, October 22, 2014

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For Priv ate Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.

Kotak Institutional Equities [email protected]: +91-22-4336-0000

IIFL Holdings PAT up 65% yoy

IIFL Holdings reported PAT of`1.09 bn, up 65% yoy and 24% ahead of our estimate. Overall

income (including net interest income) was up 36% yoy at`5.4 bn on the back of 34% yoy

growth in NII, 33% yoy growth in capital market-related income and 136% yoy growth in

wealth-management income. Insurance-distribution income was down 45% yoy, the only weak

segment in the results.

Improvement in operating leverage boosted earnings growth; operating cost to NII ratio

reduced to 65% from 66% in 1QFY15 and 70% in 2QFY14.

Segmental PBT increased by 72% to`1.7 bn, primarily driven by disproportionate growth in

broking and dis tribution. The share of NBFC business was down to 64% of segmental PBT from

74% in 2QFY14.

Revis ion in estimates, retain BUY

We are raising our earnings estimates for IIFL Holdings by 8% in FY2015 and 1-2% for FY2016-

17E. Key changes - (1) we are raising our estimates for the wealth-management business, (2)

tweaking down our broking yields estimates, (3) reducing our loan-book forecasts by 2-4% and(4) factoring higher operating leverage. We retain our SOTP-based price target of`175 for IIFL

Holdings. At our price target, the stock will trade at 12X PER on a fully diluted basis. Strong

earnings momentum will drive further rerating of the stock. The business is vulnerable to

volatility in capital markets.

High growth in the broking business

IIFL reported a 21% qoq rise in broking volumes compared to 17% qoq growth in equity

market volumes on the BSE and NSE. Consequently, calculated market share increased to 3%

from 2.9% qoq. However, the company seems to have made a shift to the low-yielding F&O

segment from cash as indicated by a reduction in commission rates to 2.3 bps in 2QFY15 from

2.6 bps in 1QFY15.

IIFL Holdings (IIFL)Banks/Financial Institutions

Company in a sweet spot, retain BUY.IIFL Holdings reported higher-than-expectedearnings due to a strong performance across all three segments. Strong commissions

and stable market share in the broking business, high (136% yoy and 45% qoq)growth in the wealth-management business and steady loan book growth and NIMexpansion in the NBFC business were the main drivers. Insurance distribution was theonly weak segment in 2QFY15. We raise estimates by 2-8% and retain BUY with a

target price of`175.

UY

OCTOBER 22, 2014

RESULT

Coverage view: Attractive

Price (`): 149

Target price (`): 175

BSE-30: 26,576

QUICK NUMBERS

IIFL Holdings PAT

grew 65% yoy;revenue grew 36%

yoy

Capital market-

related income

grew 33% yoy

Retain BUY; target

price:`175

(unchanged)

Nischint [email protected]

Mum bai: +91-22-4336-0887

M.B. Mahesh, CFAm b.ma [email protected]

Mumbai: +91-22-4336-0886

Geetika [email protected]

Mumbai: +91-22-4336-0888

India Infoline

Stock data Forecasts/Valuations 2014 2015E 2016E

52-week range (Rs) (high,low) EPS (Rs) 9.4 14.0 16.5

Market Cap. (Rs bn) EPS growth (%) 1.6 49.3 17.5

Shareholding pattern (%) P/E (X) 15.9 10.7 9.1

Promoters 30.7 NII (Rs bn) 8.7 9.8 11.9

FIIs 44.4 Net profits (Rs bn) 2.8 4.1 4.9

MFs 0.1 BVPS 73.9 83.6 95.2

Price performance (%) 1M 3M 12M P/B (X) 2.0 1.8 1.6

Absolute (4.3) 16.3 166.0 ROE (%) 14.0 18.5 19.1

Rel. to BSE-30 (2.5) 12.6 109.1 Div. Yield (%) 2.0 2.4 2.8

Company d ata an d va luat ion summary

161-52

45.1


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Banks/Financial Institutions IIFL Holdings

2 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Overall income from capital markets was up`1.11 bn from`1bn in 1QFY15 and our

estimate of`871 mn. Strong broking and investment banking income was the key driver

even as the commodity broking business was weak. Broking income (estimated) was up 64%

yoy and 7% qoq to`1.04 bn. We expect IIFLs broking revenues to grow by about 48% yoy

in FY2015 and 20% CAGR over FY2015-17. IIFLs overall earnings will remain sensitive to

volatility in cash market volumes.

Exhibit 1: IIFL Holdings - quarterly financial statementMarch fiscal year-ends, 2QFY14-2QFY15 (` mn)

2 Q FY 1 5 2 Q FY 1 5 E 2 Q FY 1 4 1 Q FY 1 5 2 Q FY 1 5 E 2 Q FY 1 4 1 Q FY 1 5 1 H FY 1 5 1 H FY 1 4 ( c h g . ) F Y 2 0 15 E

Q u a r t e r ly f in a n c ia l s

T o t a l in c o m e 8 , 9 3 7 7 , 7 4 4 6 ,8 3 4 7 , 9 1 1 1 5 3 1 1 3 16 , 8 4 8 1 3 ,5 9 8 2 4 3 4 , 0 9 6

Broking and related income 1,097 871 825 1,073 26 33 2 2,170 1,861 17 4,538

Equity brokerage 1,047 781 638 98 3 34 64 7 2,030 1,371 48 4,035

Distribution of MFs 30 50 50 50 (40) (40) (40) 80 150 (47) 188

Commodities brokerag e 20 40 137 40 (50) (85) (50) 60 340 (82) 315

Distribution (insurance etc) 1,313 1,070 912 99 2 23 44 32 2,305 1,595 45 5,802

Insurance distribution 253 320 462 261 (21) (45) (3) 514 763 (33) 2,052

Loan distribution/ wealth

management 1,060 750 450 731 41 136 45 1,791 832 115 3,750

Financing income 6,491 5,787 5,069 5,830 12 28 11 12,321 9,843 25 23,457

Merchant banking income 20 20 240 (92) 200

Other income 16 15 28 16 7 (42) (2) 32 59 (45) 100

Operating expenses 3,559 3,050 2,814 3,056 17 26 16 6,615 5,816 14 13,488

Direct expenses 930 750 732 768 24 27 21 1,698 1,628 4 2,161

Employees expenses 1,611 1,400 1,225 1,356 15 32 19 2,967 2,468 20 5,833

Administration expneses 1,018 90 0 85 7 932 13 19 9 1,950 1,720 13 5,494

EBDITA 5,378 4,694 4,020 4,855 15 34 11 10,233 7,782 31 20,608

Depreciation 148 150 180 148 (1) (18) - 296 355 (17) 779

EBITA 5,230 4,544 3,840 4,707 15 36 11 9,937 7,427 34 19,829

Interest 3,491 3,200 2,830 3,261 9 23 7 6,752 5,491 23 13,642

PBT 1,739 1,344 1,011 1,446 29 72 20 3,185 1,936 65 6,188

Taxation 577 430 320 471 34 80 22 1,048 59 7 76 1,869

PAT b ef. minority interest 1,162 914 69 1 975 27 68 19 2,137 1,339 60 4,319

Minority interest 66 30 26 36 120 159 85 102 41 146 172PAT 1,096 88 4 66 5 939 24 65 17 2,035 1,298 57 4,147

EPS (Rs) 4 2 3 61 16 7 4 53 14

O t h e r d e t a i l s

IIFL avg. daily vol. (Rs bn) 73 60 60 21 21 76

Market share (reported) 3.0 3.4 2.9 3.3

Overall margins (bps) 2.3 1.7 2.6 2.1

S e g m e n t a l r e s u l t s (R s m n )

PBT 1,739 1,010 1,445 72 20 3,184 2,168 47

Broking and related income 378 109 350 246 8 728 548 33

Finance 1,118 754 99 6 48 12 2,114 1,353 56

Distribution and marketing 242 119 96 103 153 338 210 61

( c h g . )

Source: Company, Kotak Institutional Equities estimates

Wealth management drives distribution income

IIFL Wealth reported income of`1bn compared to`554 mn in 2QFY14 and`732 in

1QFY15. While this business has been in high-growth mode, the sharp rise is a surprise. PAT

margin (in this segment) increased to 25% from 21% in 2QFY14 and 20% in 1QFY15. The

company has active assets under advice of`280 bn (in addition to mutual fund assets) of

`200 bn. PAT margin was about 24 bps of assets under advice (on an annualized basis,

excluding assets under custody).

Wealth management business tends to be seasonal; it is typically weak in the first half and

picks up towards the end of a financial year. As such, the activity in this segment will behigh. However, given the strong performance in 1HFY15, we expect 10% increase in wealth

management income between 1HFY15 and 2HFY15. On a high base, we expect 12-15%

growth in income from this segment over FY2016-17.


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IIFL Holdings Banks/Financial Institutions

KOTAK INSTITUTION AL EQUITIES RESEARCH 3

IIFLs insurance distribution business remains weak

This segment seems to be ignored due to focus on wealth/investment management at IIFL

and challenges in selling traditional policies. Our discussion with insurance companies

sugges t that the company will like to focus on agency and banking channels; low

persistence in the third-party channels discouraged the company from getting more assertive

in this segment. IIFL reported income of`240 mn, down from`462 mn in 2QFY14, stableqoq. We expect volumes in this segment to increase sharply in 2H, in line with seasonal

trends.

Loan growth moderates

IIFL Finance reported a loan book of`137 bn, up 33% yoy and 6% qoq. Mortgage loans

(home loans and LAP) were up 6% qoq while gold loans were stable qoq. We expect

mortgage business to grow by 23% CAGR between FY2014 and FY2017E and largely drive

22% loan growth for IIFL Finance. Share of mortgages will likely remain stable at 48% of

total loans. IIFLs gold loan book has been stable qoq, we expect business momentum in

gold loans to pick up in FY2016E. Recent guidelines on loans against shares will put pressure

on this segment (14% of total) in the medium term, in our view; this segment increased to`19 bn in 2QFY15 from`17 bn in 1QFY15.

NIM (calculated) expanded to 7.8% in 2QFY15 from 7.5% in 1QFY15. RoA was stable qoq

at 2.3%, higher leverage has driven 16.7% annualized RoE.

IIFL Finance reported leverage (loan book/ equity) of 7.4X in 2HFY15 and may need to raise

capital if growth momentum remains high. The company has set up a hous ing finance

subsidiary; incremental housing business is booked in this subsidiary. The housing finance

company can operate at a higher leverage as the risk of the underlying assets is lower as well.


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Exhibit 2: IIFL Finance- quarterly dataMarch fiscal year-ends, 2QFY14-2QFY15 (` mn)

2Q FY14 3QFY14 4 QFY14 1Q FY15 2QFY15 Yo Y ( )

Income statement (Rs mn)

Interest income 4,495 4,756 4,903 5,335 5,823 30

Interest expenses 2,706 2,894 2,889 3,165 3,382 25Net inte res t inco me 1,78 9 1,862 2,014 2,170 2,441 36

Other income 302 206 350 242 305 1

Provisions 240 118 230 169 253 5

Opera ting e xpens es 1,10 4 1,156 1,192 1,230 1,389 26

Employee expenses 409 40 5 441 49 1 550 34

Other operating expenses 589 659 662 64 8 739 25

Depreciation 106 92 89 91 100 (6)

PBT 74 7 79 4 9 4 2 1,013 1,104 4 8

Tax 254 234 332 331 351 38

PAT 4 9 3 56 0 6 10 6 8 2 75 3 53

Outs tanding lo an b o o k (Rs b n) 9 9 10 0 10 8 12 4 13 0 31

Mortgages (Rs bn) 49 52 51 60 63 29

Gold loan (Rs bn) 32 31 39 43 43 33Others (Rs bn) 18 17 18 22 24 34

Loans outside balance sheet (Rs bn) 5 4 7 6 7 64

Loans under management (Rs bn) 104 104 115 130 137 33

Key ra tios ( )

NIM - KS Estimate 7.4 7.5 7.7 7.5 7.8

Reported rat ios

NIM 7.1 7.0 7.5 7.3 7.7

Spread 6.5 6.3 6.7 6.7 6.8

Loan yield 18.3 18.3 18.4 18.3 18.0

Cost of funds 11.8 12.0 11.7 11.6 11.2

CAR 21.0 20.3 17.7 16.3 17.1

Asset qual i tyGross NPL (Rs mn) 659 835 939 98 8 1,250

Net NPL (Rs mn) 302 40 1 363 280 390

Gross NPL (%) 0.6 0.8 0.9 0.8 1.0

Net NPL (%) 0.2 0.4 0.3 0.2 0.3

Notes:

(a) Other operating expenses for 1QFY15 includes provisions for the quarter, the break-up for the same is not available.

Source: Company, Kotak Institutional Equities


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Exhibit 3: IIFL Wealth Managementquarterly dataMarch fiscal year-ends, 2QFY14-2QFY15 (` mn)

2QFY14 1QFY15 2QFY15 YoY ( ) QoQ ( )

Income statement

Income from operations 547 728 1,043 91 43

Other income 7 4 17 143Total income 554 732 1,060 91 45

Total expenses 348 524 620 78 18

Employee expenses 182 270 301 65 11

Other expenses 166 254 319 92 26

EBITDA 206 208 440 114 112

Interest 25 5 26 4 420

Depreciation 2 2 2

PBT 179 201 412 130 105

Tax 62 58 146 135 152

PAT before minority interest 117 143 266 127 86

Total assets under advice (Rs bn) 66 0 740 12

Source: Company, Kotak Institutional Equities

Exhibit 4: IIFL Holdings: NBFC drives highest valueSOTP-based valuation, March fisca l year-ends, 2016E

Valuat ion

(Rs mn) (Rs / s hare ) Comments

NBFC 31,803 107 1.4X PBR FY2016E

Broking 9,865 33 12X PER FY2016E

Wealth management (75% stake) 6,941 23 12X PER FY2016E

Insurance distribution 2,730 9 12X PER FY2016E

Total 51,338 173


Exhibit 5: Equity market volume growth moderated in 2QFY15Average daily volumes on BSE and NSE, March fiscal year-ends, 2008-2014,1Q FY15 and 2QFY15 (` bn)

BSE NSE To ta l Yo Y F&O- NSE YoY To ta l vo l . YoY

Pe riod (Rs bn) (Rs bn) (Rs b n) ( ) (Rs bn) ( ) (Rs b n) ( )

2008 62 144 205 78 530 77 735 77

2009 45 113 158 (23) 453 (15) 611 (17)

2010 56 168 224 41 717 58 941 54

2011 44 141 184 (18) 1,148 60 1,332 42

2012 26 113 139 (25) 1,269 11 1,408 6

2013 22 108 130 (6) 1,268 1,398 (1)

2014 21 112 133 2 1,530 21 1,663 19

1QFY15 37 188 226 79 1,851 20 2,077 25

2QFY15 33 169 202 50 2,230 35 2,432 37

Volumes in cas h market

Source: BSE, NSE, Kotak Institutional Equities


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Exhibit 6: Equity market volumes have been volatile over last 2 decadesVolumes on BSE and NSE, March fiscal year-ends, 1996-2014,1Q FY15 and 2QFY15 (` bn)

(100)

-

100

200

300

400

500

-

400

800

1,200

1,600

2,000

2,400

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

1QFY15

2QFY15

Volumes on BSE & NSE (CM) (LHS)

Volumes on NSE-F&O (LHS)

Volume growth on BSE & NSE (CM) (RHS)

Source: BSE, NSE, Kotak Institutional Equities

Exhibit 7: We expect strong growth in loan bookLoan book break-up, March fiscal year-ends, 2010-17E (` bn)

-

50

100

150

200

250

2010 2011 2012 2013 2014 2015E 2016E 2017E

Mortgage loans Gold loans Others



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Exhibit 8: IIFL Holdings is trading at 9X one-year forward EPSIIFL Holdings - Rolling PER and PBR (X)

-

5

10

15

20

25

Oct-08

Feb-09

Jun-09

Oct-09

Feb-10

Jun-10

Oct-10

Feb-11

Jun-11

Oct-11

Feb-12

Jun-12

Oct-12

Feb-13

Jun-13

Oct-13

Feb-14

Jun-14

Oct-14

Source: Company, Bloomberg, Kotak Institutional Equities estimates


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Exhibit 9: IIFL Financekey ratios, growth rates and financial statementsMarch fiscal year-ends, 2012-17E

20 12 20 13 20 14 20 15E 20 16 E 20 17E

Key ratios ( )

Interest yield (%) 17.7 20.3 18.1 17.2 15.9 15.8

Interest cost (%) 11.7 12.0 12.1 11.6 10.9 10.9Spread (%) 6.0 8.3 6.1 5.6 5.0 4.9

NIM ( ) 8 .1 9 .5 7. 2 7. 0 6.4 6 .4

Loan growth (%) 105.2 40.7 14.6 25.7 26.8 14.8

Income on investments (%) 5.4 2.0 2.0 2.0 2.0 2.0

Other interest yield (%) 3.2 11.5 17.3 15.0 15.0 15.0

Opex/ loans (%) 5.9 6.4 4.6 4.0 3.8 3.8

Credit cost/ loans (%) 0.5 0.8 0.8 0.5 0.5 0.5

PAT / average loans (%) 2.1 2.3 2.1 2.4 2.1 2.1

Du Pont Ana lys i s ( of tota l ass et s )

NII/ assets 7.0 8.4 6.5 6.4 6.0 6.0

Other income/ assets 1.1 0.9 1.1 1.0 0.9 0.9

Provisions/ assets 0.5 0.7 0.7 0.5 0.5 0.5

Opex/ assets 5.1 5.6 4.1 3.7 3.5 3.5

PBT/ assets 2.6 3.0 2.7 3.3 3.0 2.9

(1-tax rate) 0.7 0.7 0.7 0.7 0.7 0.7

PAT / a s s e ts 1.8 2.0 1.8 2.2 2.0 2.0

Average assets/ average equity (X) 4.2 6.2 7.2 7.5 7.9 8.0

PAT / a ve rage equity 7.6 12.7 13.3 16 .5 15.8 15.8

Prof i t and loss s ta tement (Rs mn)

Interest income 8,878 16,534 18,491 21,149 24,685 29,414

Interest expenses 4,798 8,776 11,109 12,567 14,702 17,549

Net interest income 4,080 7,758 7,382 8,582 9,983 11,866

Other income 657 838 1,204 1,313 1,512 1,802

Profit on sa le of investments 170 100 119 90 60 60

Dividends 36 20

Other income 451 718 1,085 1,223 1,452 1,742

Processing fees 345 350 455 592 769 1,000

Admin charges 57 50 60 78 101 132Other interest income 49 318 570 554 581 610

Provis ions 263 630 768 615 776 932

Operating expenses 2,973 5,229 4,704 4,916 5,821 6,990

Employee expenses 1,093 1,795 1,668 1,743 2,064 2,479

Other opex 1,730 3,094 2,650 2,769 3,279 3,938

Depreciation 150 340 386 403 478 574

PBT 1,50 1 2,737 3,114 4,365 4, 897 5,745

Tax 447 850 1,005 1,409 1,580 1,854

PAT 1,054 1,887 2,109 2,956 3,317 3,891

Balance sheet (Rs mn)

Fixed assets 772 1,200 1,500 1,800 2,250 2,813

Investments 6,071 6,000 6,000 3,000 3,000 3,000

DTL 126 150 150 150 150 150

Cash and bank 2,537 3,000 3,600 3,780 3,969 4,167Loan book 67,500 95,000 108,900 136,900 173,575 199,244

Other assets 775 2,000 1,000 1,200 1,440 1,728

Total assets 77,798 107,350 121,150 146,830 184,384 211,102

Borrowings 59,384 86,515 97,831 118,837 150,926 171,067

Provisions 480 2,000 2,500 3,125 3,906 4,883

Other current liabilities 3,487 3,500 4,375 5,469 6,836 8,545

Total liabilities 63,350 92,015 104,706 127,430 161,668 184,494

Networth 14,448 15,335 16,444 19,400 22,716 26,607



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Exhibit 10: IIFL Holdingskey ratios and growth ratesMarch fiscal year-ends, 2012-17E (%)

20 12 2013 20 14 20 15E 20 16E 20 17E

Key parameters

Volume in equity markets (Rs bn) 344,336 347,991 411,902 576,663 691,995 830,394

IIFL's volumes (Rs bn) 13,131 12,555 13,903 19,104 22,925 27,510Per day (Rs bn) 57 55 60 82 99 119

Market share (%) 3.8 3.6 3.4 3.3 3.3 3.3

Commission yield (bps) 3.56 3.22 1.96 2.11 2.11 2.11

Key rat ios

Yield on loans (%) 17.7 20.3 18.1 17.2 15.9 15.8

Cost of borrowings (%) 11.7 12.0 12.1 11.6 10.9 10.9

Spread (%) 6.0 8.3 6.1 5.6 5.0 4.9

Total operating costs/ total income (%) 57.4 46.8 39.5 37.7 37.5 37.2

PBT margins (%) 10.3 15.0 14.8 18.1 18.2 18.2

YoY growth ( )

Total revenues 28 42 6 20 17 17

Brokerage commis sion (22) (14) (32) 48 20 20

Life insurance distribution fees 3 2 4 2 (13) 24

Media income 76 67 12 16 19 18

Operating costs 27 16 (10) 15 17 16

EBIT 27 82 24 26 18 18

Interest and finance charges 114 72 33 18 18 19

Profit before tax (38) 106 5 48 17 18

Net profit (40) 115 2 49 18 17

Dividend (60) 119 2 18 18 17

EPS (41) 111 2 49 18 17

Growth in balance sheet l ine i tems

Total assets 54 38 11 20 23 11

Shareholders equity 5 12 12 13 14 14

Contr ibution to tota l revenues( )

Commission on equity broking 24.9 15.2 9.6 11.8 12.1 12.4

Brokerage in commodities 2.8 2.4 1.6 0.9 0.9 0.8

Fees earned on distribution (MF) 1.1 0.9 0.8 0.6 0.5 0.6

Life insurance commissions 4.8 3.5 3.4 2.9 2.1 2.3

Other mortgage and loan distribution 2.7 6.0 7.8 11.0 10.5 10.0

Interest earned on margin trading/ finance income 58.0 68.2 71.5 68.8 70.0 70.5

Merchant banking income 0.3 0.8 0.6 0.4 0.3

Media and other income 5.2 3.6 4.0 3.1 3.3 3.0

Du pont analys is ( of average ass ets)

Net brokerage revenue 3.3 1.2 0.9 1.4 1.3 1.4

Income from distribution 2.0 2.5 2.5 3.1 2.7 2.7

Other income 15.3 17.0 15.8 15.5 15.2 15.3

Operating costs 18.2 17.1 16.1 16.1 15.5 15.6

(1-tax rate) 67.3 69.8 69.4 69.8 69.8 69.0

Ro A ( ) 1.7 2. 5 2. 1 2. 7 2. 6 2. 6

Average assets/ average equity (X) 4.6 6.1 6.7 6.9 7.3 7.5

Ro E ( ) 7.6 15.1 14.0 18.5 19.1 19.6



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Exhibit 11: IIFL Holdingsincome statement and balance sheetMarch fiscal year-ends, 2012-17E (` mn)

20 12 2013 20 14 20 15E 20 16E 20 17E

Conso l idated income statement

Total revenues 18,812 26,653 28,369 34,096 39,976 46,955

Commission on equity broking 4,677 4,041 2,732 4,035 4,842 5,810Brokerage in commodities 530 635 450 315 346 381

Fees earned on distribution (MF) 200 250 235 188 207 259

Life insurance commissions 906 926 96 2 979 851 1,057

Wealth management/ distribution 500 1,600 2,200 3,750 4,200 4,700

Interest income 10,903 18,167 20,272 23,457 27,965 33,080

Media income 975 963 1,125 1,073 1,316 1,418

Merchant banking income 50 240 200 150 150

Other income 72 71 154 100 100 100

Operating costs 10,795 12,486 11,207 12,870 15,006 17,449

Brokerage/ direct expenses 2,584 3,337 1,879 2,161 2,593 3,060

Business promotion and marketing 563 893 215 247 289 338

Staff expenses 4,917 5,335 4,943 5,833 6,708 7,714

Administrative expenses 2,731 2,921 4,170 4,629 5,416 6,337

Provisions 231 631 760 618 776 932

EBITDA 7,787 13,536 16,402 20,608 24,193 28,574

Depreciation/Amortization 803 84 0 677 779 857 942

EBIT 6,984 12,696 15,725 19,829 23,337 27,632

Interest and finance charges 5,044 8,691 11,533 13,642 16,078 19,075

Profit before tax 1,940 4,005 4,192 6,188 7,259 8,557

Taxation 635 1,211 1,284 1,869 2,193 2,653

Net profit 1,306 2,794 2,909 4,319 5,066 5,904

Minority interest in loss/profit 40 72 132 172 193 217

Net profit for appropriation 1,266 2,722 2,777 4,147 4,874 5,687

Dividend 405 885 90 3 1,064 1,251 1,459

Adjusted number of shares 289 295 296 296 296 296

EPS (Rs) 4.4 9.2 9.4 14.0 16.5 19.2

EPS -fully diluted (Rs) 4.4 9.2 9.4 12.8 15.0 17.5

DPS (Rs) 1.4 3.0 3.0 3.6 4.2 4.9

DPS -fully diluted (Rs) 1.4 3.0 3.0 3.3 3.9 4.5

Dividend payout ratio(%) 39 38 38 30 30 30

BVPS (Rs) 60.7 66.4 73.9 83.6 95.2 108.6

BVPS -fully diluted (Rs) 60.7 66.4 73.9 76.4 86.9 99.1

Consoidated balance sheet (Rs mn)

Goodwill (on consolidation) 332 332 327

Net owned assets 4,902 5,523 4,632 4,353 3,797 3,154

Current Assets 85,581 113,905 130,497 32,830 37,360 36,315

Cash and bank balance 8,205 13,571 13,593 26,951 31,305 30,078

Loans and advances 65,810 95,000 110,344 136,900 173,575 199,244

Total assets 94,992 131,045 145,570 174,083 214,732 238,713

Borrowings 59,816 95,750 105,201 130,000 165,000 185,000

Current liabilities & prov. 24,121 15,374 18,422 19,306 21,543 21,543

Total liabilities 83,937 111,124 123,623 149,306 186,543 206,543

Shareholders equity 17,541 19,586 21,874 24,777 28,189 32,170

Paid-up capital 578 590 592 592 592 592

Reserves and surplus 16,963 18,996 21,282 24,185 27,596 31,577



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Disclosures

"I, Nischint Chawathe, hereby certify that al l of the views expressed in this report accurately reflect my personal views about

the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be,

directly or indirectly, related to the specific recommendations or views expressed in this report."

Ratings and other definitions identifiers

Definitions of rating

BUY. We expect this stock to deliver more than 15% returns o ver the n ext 12 m onths.

ADD.We expect this stock to d eliver 5-15% returns over the next 12 m onths.

REDU CE. We expect this stock to deliver -5-+5% returns over the n ext 12 mo nths.

SELL. We expect this stock to deliver


12/12

Corporate Office Overseas Offices

Kotak Securities Ltd.

27 BKC, Plot No. C-27, G Block

Bandra Kurla Complex, Bandra (E)

Mumbai 400 051, India

Tel: +91-22-43360000

Kotak Mahindra (UK) Ltd

8th Floor, Portsoken House

155-157 Minories

London EC3N 1LS

Tel: +44-20 -7977-6900

Kotak Mahindra Inc

50 Main Street, Ste. 890

Westchester Financial Centre

White Plains , New York 10606

Tel:+1-914-997-6120

Copyr ight 2014 Kotak Insti tutional Equit ies (Kotak Securities Limited). All rights reserved.

1. No te that the research analysts contributing to this report may not be registered/qualified as research analysts with FINRA; an d

2. Such research analysts may not be associated persons o f Kotak Mahindra Inc and therefore, m ay not be subject to NASD Rule 2711 restrictions on

com m unications with a subject company, public appearances and trad ing securities held b y a research an alyst account.

3. Any U.S. recipients of the resea rch who wish to effect transactions in any security cove red by the report should do so with or th rough Kotak Mahindra Inc

and ( ii) any transactions in the securities covered by the research b y U.S. recipients m ust be effected only thro ugh Ko tak Mah indra Inc at

[email protected].

Kotak Securities Lim ited and its affiliates a re a full-service, integ rated investment bank ing, investment management, brokerage and financing group. We along with

our a ffiliates are leading und erwriter of s ecurities and participants in virtually all securities trading m arkets in India. We and our affiliates have investment bank ing

and other b usiness relationships with a significant percen tage o f the companies covered by o ur Investm ent Research Department . Our research pro fessionals

provid e im portan t input into our investment banking and other business selection processes. Inve stors should assum e tha t Kotak Securities Lim ited and/ or its

affiliates are seeking or will seek investm ent banking or o the r bus ine ss from the company or companies tha t are the subje ct o f this material and tha t the research

profess ionals who were involved in preparing this material may participate in the solicitation of such business. Our research professionals are paid in part based on

the profitability o f Kotak S ecurities Lim ited, wh ich include earnings from in vestment banking and o the r business. Kotak Securities Lim ited generally prohibits its

analysts, persons reporting to analysts, and members of their ho useholds from m aintaining a financial inte rest in the s ecurities o r derivatives of any com panies that

the analysts co ver. Addition ally, Ko tak Securities Limited generally proh ibits its analysts and pe rsons reporting to analysts from serving as an officer, d irector, or

advisory boa rd member of any com pan ies tha t the analysts cover. Our salespeople, traders, and other professiona ls may provide oral or written marke t commentary

or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may

mak e investment decisions that are inconsistent with the recomm endations expressed herein. In reviewing these m aterials, you should be aware that any or all of

the foregoing, among other things, may give rise to real or potential conflicts of interest. Additiona lly, other importan t informa tion regarding our re lationsh ips with

the com pany o r companies that are the subject of th is m aterial is provided herein.

Th is m aterial should not be construed as an offer to sell or the solicitation o f an offe r to buy any security in an y jurisd iction whe re such an offer or solicitation would

be illegal. We are not soliciting any action based on this ma terial. It is for the general information of clien ts of Kotak Se curities Lim ited. It does not constitute a

personal recommendation or take into account the particular investmen t objectives, financial situations, or needs of ind ividual clien ts. Befo re acting on any advice

or recomm endation in th is mate rial, clients should cons ider whether it is suitable for their particular circums tances and, if necessa ry, seek profess ional advice. The

price and value of the in vestments referred to in this material and the income from them m ay go down as well as up, and inves tors ma y realize los ses on any

inves tments. Past perfo rmance is no t a guide for future perform ance, future returns are not guaranteed and a loss of original capital ma y occur. Kotak Securities

Limited d oes n ot provide tax advise to its clients, and all investors are strongly advised to co nsult with their tax ad visers regarding any potential investment.

Certain transactions -including thos e involving futures, options, and o ther derivatives as well as non-investm ent-grade s ecurities - give rise to substantial risk and are

not suitable for all investors. The m aterial is based on information that we consider reliable, but we do no t represent that it is accurate or com plete, and it should

not be relied on as such. Opinions expressed are our current opinions as of the date appearing on this material only. We endeavor to update on a reasonable basis

the information discussed in th is ma terial, but regulatory, compliance, or other reasons m ay prevent us from doing so. We and our affiliates, o fficers, directors, and

emplo yees, including persons involved in the prepa ration or issuance of this material, may from time to time have long or short pos itions in, act as prin cipal in,

and b uy or sell the securities or derivatives the reof o f com panies m entioned h erein. For the purpose of calculating whether Ko tak Securities Limited and its affiliates

holds beneficially owns or controls, including the right to vote for directors, 1% of more of the equity shares of the subject issuer of a research report, the holdings

doe s not includ e accounts managed by Kotak Mahind ra M utual Fund. Kotak Securities Limited and its non US affiliates may, to the extent permissible unde r

applicable laws, have a cted on o r used this research to the exten t that it relates to non U S issuers, prior to o r immedia tely following its pub lication. Fore ign currencydenominated securities are subject to fluctuations in exch ange rates that could have an adverse effect on the value or price of or income d erived from the

inves tment. In addition , investors in securities such as AD Rs, the value of which are influenced b y foreign cur rencies affectively assume currency risk. In a ddition

option s involve risks and are no t suitable for all investors. P lease ensure that you have read and unde rstood the current der ivatives risk disclosure document befo re

entering into an y derivative transactions.

Th is report has no t been prepared by Kotak Mah indra Inc. (KMInc). However KMInc has reviewed the report and, in so far as it includes current or historical

info rmation, it is be lieved to be reliable, although its accuracy and com pleteness cannot be guaranteed. Any reference to Ko tak Securities Lim ited sha ll also be

deem ed to mean and include Kotak Mahindra Inc.

Th is report is distributed in Singa pore by Kotak Mahindra (UK) Limited (S inga pore Branch) to institutional investors, accredi ted investors o r expert investors on ly as

de fined under the Securities and Futures Act. Recipients of this ana lysis / report are to contact Kotak Mah indra (UK) Lim ited ( Singapore Branch) (16 Raffles Quay,

#35-02/03, Hong Leong Building, Singapore 048581) in respect of any matters arising from, or in connection with, this analysis / report. Kotak Mahindra (UK)

Limited ( Singapore Branch) is regulated by the M onetary Authority of Singapore.

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