Banking Financial Services Edelweiss Dec 2007

7/31/2019 Banking Financial Services Edelweiss Dec 2007

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Financial services: The next wave of services-led growthFinancial services: The next wave of services-led growthFinancial services: The next wave of services-led growthFinancial services: The next wave of services-led growthFinancial services: The next wave of services-led growth

We, at Edelweiss, believe that banking, financial services and insurance (BFSI) is the third wave of

growth in India, after software (IT) and telecom services. The BFSI space is continuously evolving,

offering immense opportunities to financial intermediaries to create substantial value by constantlyredefining boundaries, entering into adjacent markets, and innovating.

Core to our hypothesis is our belief that over the next three years, nominal GDP (ex-agri) is expected to

grow at 14-15% and revenues from the financial services sector (which will lead this growth) are

expected to grow at 22% during FY08-11E. We believe that the current stage of economic growth in

India, where savings and capital formation are at ~32% of GDP, offers serious opportunities in financial

intermediation through banks, mutual funds, insurance companies, pension funds, brokers, and in-

vestment banks to create substantial value.

How to cash in on this opportunity?How to cash in on this opportunity?How to cash in on this opportunity?How to cash in on this opportunity?How to cash in on this opportunity?

In the past 12 months, specialty finance companies have returned 127%, private sector banks 76%,

and the Bankex 51%, compared to the Sensexs return of 37%. Both value (PSU banks) and growth

(private banks, brokerages, and NBFC) opportunities are available in the BFSI space, and we are

overweight on growth stocks considering the emergence of high growth sub-segments like insurance,

brokerage, debt capital market, and distribution.

We also believe that the consolidation theme among banks will play out over the following two years

and therefore, re-rating of small private banks offers serious return potentials. At current valuations, we

like Kotak Mahindra Bank, State Bank of India, Yes Bank, and SREI Infrastructure.

Lending: Momentum to continueLending: Momentum to continueLending: Momentum to continueLending: Momentum to continueLending: Momentum to continue

After a scorching pace of 30% plus in the past two years, credit growth has normalized to 23%

currently, which is still on the higher side. The competitive landscape amongst banks has changed inthe past two years with PSU banks upgrading their technology and product portfolio and giving private

peers stiff competition. We expect credit growth of 20-22% over the next two years with retail and

corporate lending leading the demand. Specialty finance companies have been able to post strong

disbursement growth with banks slowing down in selected segments like mortgages.

Equity brokerage: Strong pick up likelyEquity brokerage: Strong pick up likelyEquity brokerage: Strong pick up likelyEquity brokerage: Strong pick up likelyEquity brokerage: Strong pick up likely

Over the past four years, institutional volumes (FIIs and MFs) have outpaced retail volume growth,

registering 70% plus CAGR over FY04-07 (against industry-wide volume growth of 40%), now consti-

tuting roughly 35% (estimated) of the total trading volumes. We expect the institutional growth trajectory

to remain strong and pick up higher share of trading volumes, along with higher retail participation. We

expect market cap/GDP to improve further with more companies raising money.

Investment banking: Favourable outlook with healthy pipelineInvestment banking: Favourable outlook with healthy pipelineInvestment banking: Favourable outlook with healthy pipelineInvestment banking: Favourable outlook with healthy pipelineInvestment banking: Favourable outlook with healthy pipeline

The outlook for investment banking appears favourable, considering the robust M&A pipeline, healthy

issuance calendar, and conducive capital market environment. We believe investment banking activi-

ties will be supported by Indias long-term structural growth story, rapid scale up in capital goods/

infrastructure investments (clearing off historical backlog), and increased proportion of global savings

pool being directed towards emerging markets (particularly India).

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Asset management: Leveraging the platformAsset management: Leveraging the platformAsset management: Leveraging the platformAsset management: Leveraging the platformAsset management: Leveraging the platform

The mutual fund (MF) industry is one of the fastest-growing sectors in the Indian financial market. The

industry has recorded ~50% CAGR in the past three years, managing over INR 5.5 tn (USD 139 bn) of

assets as at October 2007. Despite this stupendous growth, household savings invested in MFs are

less than 1% of total financial assets. Industry-wide AUMs constitute ~10% of GDP, against 30-60%

in developed countries. We expect 29% CAGR over FY07-10E in domestic AUMs on the back of highsavings rate, per capita income growth, and favourable demographics.

Life insurance: Upside risks existLife insurance: Upside risks existLife insurance: Upside risks existLife insurance: Upside risks existLife insurance: Upside risks exist

Emergence of Unit Linked Plans (ULIPs), aggressive distribution strategies adopted by private players,

and buoyant capital markets attracted greater share of household savings in life insurance premiums

(penetration is relatively low at ~3% of GDP). Consequently, APE recorded 35% CAGR during FY03-

07 and 54% in H1FY08 over H1FY07. Going forward, we expect APE to grow at 28% CAGR over

FY07-10E. This growth will be driven by ballooning ticket size, innovative product launches, expansion

in distribution network, and deeper insurance penetration.

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Profile of participating companiesProfile of participating companiesProfile of participating companiesProfile of participating companiesProfile of participating companies


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CONTENTSCONTENTSCONTENTSCONTENTSCONTENTS

PrefacePrefacePrefacePrefacePreface .............................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................. 11111

COMPANIESCOMPANIESCOMPANIESCOMPANIESCOMPANIES

Axis Bank .................................................................................................................................................................... 5

Bank of India ............................................................................................................................................................... 9

City Union Bank ........................................................................................................................................................ 13

Cholamandalam DBS Finance ................................................................................................................................... 17

Dewan Housing Finance ............................................................................................................................................ 21

Geojit Financial Service .............................................................................................................................................. 25

HDFC........................................................................................................................................................................ 29

IDBI ........................................................................................................................................................................... 33

ING Vysya Bank ........................................................................................................................................................ 37

IndusInd Bank ........................................................................................................................................................... 41

Indian Overseas Bank ............................................................................................................................................... 45

Kotak Mahindra Bank ................................................................................................................................................ 49

Mahindra & Mahindra Financial Services .................................................................................................................... 53

Reliance Capital ......................................................................................................................................................... 57

Religare Enterprise. ................................................................................................................................................... 61

Shriram City Union Finance ........................................................................................................................................ 65

SREI Infrastructure Finance ....................................................................................................................................... 69

Shriram Transport Finance ......................................................................................................................................... 73

State Bank of India .................................................................................................................................................... 77

Union Bank of India ................................................................................................................................................... 81

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ContentsContentsContentsContentsContents


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Loan growth ahead of industryLoan growth ahead of industryLoan growth ahead of industryLoan growth ahead of industryLoan growth ahead of industry

Axis Bank has registered buoyant loan growth on a balanced portfolio, skewed towards

corporate advances than retail (compared to private peers). Retail advances contributed 24%

to the total loan portfolio in FY07. Thus, the bank has relatively better scope for aggressively

expanding across segments where it has a low presence. It is also spreading across geographies,

targeting presence in more than 75% of Indias districts in the next f ive years. Its loan book is

expected to grow at a brisk pace of 40% plus in FY08E with SME, agri, housing, and personal

loan segments likely to be the key growth engines. Axis Bank continues to target opportunities

emerging in corporate banking, especially in SME and agri business. Also, expanding its

international presence is a high priority.

Improving margins to boost bottom lineImproving margins to boost bottom lineImproving margins to boost bottom lineImproving margins to boost bottom lineImproving margins to boost bottom line

Axis Banks margin is relatively low compared to peers. It is, however, making efforts to narrow

the gap by improving the CD ratio and developing high-yield assets. The bank has a healthy

deposit franchise with 45% (Q2FY08) being low-cost deposits. On a conservative basis, we

expect the bank to improve its interest margins from the current level of 2.6%.

Strong non-interest income growthStrong non-interest income growthStrong non-interest income growthStrong non-interest income growthStrong non-interest income growth

Rapidly growing franchise and new product offerings, specifically credit cards, are likely to

drive growth in retail fee income. The bank is also intensifying efforts to penetrate the remit-

tance business by aggressively spreading its international operations. Among other key con-

tributors to fee income will be project advisory, debt syndication, and third party distribution of

insurance. New ventures for the bank include launching an infrastructure private equity fund

and an asset management business. We expect the banks overall fee income to grow at~35% CAGR in the next two years.

Best-in-class asset qualityBest-in-class asset qualityBest-in-class asset qualityBest-in-class asset qualityBest-in-class asset quality

Axis Bank continued to maintain extremely low gross NPA ratio of 0.95% and net NPA ratio of

0.55% in Q2FY08. We expect asset quality to remain in this range for the next two years.

ValuationsValuationsValuationsValuationsValuations

The bank completed its capital raising plans in the previous quarter (raised INR 45 bn) and we

expect it to deliver 13-15% RoE and 20% EPS CAGR during FY07-09E.The stock is currently

trading at 3.4x FY09E book and 28x FY09E earnings.

AAAAAXISXISXISXISXIS BBBBBANKANKANKANKANK INR 919INR 919INR 919INR 919INR 919

Future perfect

Reuters : UTBK.BO

Bloomberg : AXSB IN

Market DataMarket DataMarket DataMarket DataMarket Data

52-week range (INR) : 1,025 / 399

Share in issue (mn) : 356.5

M cap (INR bn/USD mn) :327.5 / 8,231.6

Avg. Daily Vol. BSE/NSE (000) : 1,046.8

Share Holding Pattern (%)Share Holding Pattern (%)Share Holding Pattern (%)Share Holding Pattern (%)Share Holding Pattern (%)

Promoters : 43.3

MFs, FIs & Banks : 8.8

FIIs : 32.7

Others : 15.2

November 29, 2007

India Equity Research | Banking and Financial Services

Edelweiss Research is also available on Bloomberg EDEL , Thomson First Call, Reuters and Factset.Edelweiss Research is also available on Bloomberg EDEL , Thomson First Call, Reuters and Factset.Edelweiss Research is also available on Bloomberg EDEL , Thomson First Call, Reuters and Factset.Edelweiss Research is also available on Bloomberg EDEL , Thomson First Call, Reuters and Factset.Edelweiss Research is also available on Bloomberg EDEL , Thomson First Call, Reuters and Factset.

FinancialsFinancialsFinancialsFinancialsFinancials

Year to MarchYear to MarchYear to MarchYear to MarchYear to March FY06FY06FY06FY06FY06 FY07FY07FY07FY07FY07 FY08EFY08EFY08EFY08EFY08E FY09EFY09EFY09EFY09EFY09ERevenues (INR mn) 17,169 24,115 36,055 47,115

Rev growth (%) 49.7 40.5 49.5 30.7

Net interest income (INR mn) 10,782 15,671 22,527 31,273

Net profit (INR mn) 4,851 6,590 9,675 11,623

Shares outstanding (mn) 292.1 290.6 356.0 356.0

EPS (INR) 16.6 22.7 27.2 32.7

EPS growth (%) 35.9 36.6 19.9 20.1

P/E (x) 55.0 40.3 33.6 28.0

Price to book (x) 9.3 7.8 3.7 3.4

Price to PPOP (x) 30.8 20.3 18.1 13.0

ROE (%) 18.3 21.0 16.0 12.6

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Company descriptionCompany descriptionCompany descriptionCompany descriptionCompany description

Axis Bank is the third-largest private sector bank in terms of asset size, with a balance sheet size of INR

732 bn. It has a network of 574 branches and extension counters across India. The bank earns

substantial fee income from transaction and merchant banking activities. The key promoter UTI-I

(special undertaking) holds 27.5% in the bank, followed by LIC at 10.4%; the remaining equity is largely

held by FIIs and public.

Key risksKey risksKey risksKey risksKey risks

Change in management may affect the pace of growth and profitability. Any modification in the

shareholding pattern could also affect the banks management structure.

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Growth ratios (%)Growth ratios (%)Growth ratios (%)Growth ratios (%)Growth ratios (%)

Year to MarchYear to MarchYear to MarchYear to MarchYear to March FY05FY05FY05FY05FY05 FY06FY06FY06FY06FY06 FY07FY07FY07FY07FY07 FY08EFY08EFY08EFY08EFY08E FY09EFY09EFY09EFY09EFY09E

NII growth 26.7 47.5 45.3 43.7 38.8

Fees growth 79.6 74.7 56.6 39.3 32.3

Opex growth 38.7 40.0 49.2 46.6 33.1

PPOP growth 50.4 63.9 50.7 37.5 39.4

PPP growth (19.0) 59.6 32.6 52.4 28.3

Provisions growth (77.0) 177.3 16.9 80.3 61.4

PAT growth 20.2 45.0 35.9 46.8 20.1

Operating ratios (%)Operating ratios (%)Operating ratios (%)Operating ratios (%)Operating ratios (%)


Yield on advances 7.8 8.1 9.1 10.1 10.3Yield on investments 7.1 7.2 7.2 7.3 7.4

Yield on assets 6.6 7.1 7.8 8.2 8.6

Net interest margins 2.5 2.6 2.7 2.8 3.0

Cost of funds 4.1 4.4 5.1 5.7 5.9

Cost of deposits 4.1 4.3 5.0 5.5 5.7

Cost of borrowings 6.6 7.4 7.8 8.1 8.5

Spread 2.5 2.7 2.7 2.5 2.7

Cost-income 50.7 47.4 50.4 49.4 50.3

Tax rate 33.6 33.7 33.9 33.9 33.9

Financial StatementsFinancial StatementsFinancial StatementsFinancial StatementsFinancial Statements

Income staIncome staIncome staIncome staIncome statementtementtementtementtement (INR mn)(INR mn)(INR mn)(INR mn)(INR mn)


Interest income 19,242 28,888 45,604 66,668 88,269

Interest expenses 11,930 18,106 29,933 44,141 56,996Net Interest income 7,312 10,782 15,671 22,527 31,273

Non interest income 4,158 6,386 8,444 13,528 15,842

- Fee & forex income 3,316 5,792 9,073 12,640 16,726

- Misc. income 468 223 449 588 716

- Investment profits 374 372 -1,078 300 -1,600

Net revenues 11,470 17,169 24,115 36,055 47,115

Operating expense 5,814 8,141 12,146 17,812 23,707

- Employee exp 1,769 2,402 3,813 5,963 8,801

- Other opex 4,045 5,738 8,333 11,850 14,906

Preprovision profit 5,656 9,028 11,969 18,243 23,408

Provisions 618 1,714 2,004 3,614 5,834

- Loan loss provisions 162 1,718 1,979 3,614 5,834

- Investment depreciation (37) 0 0 0 0

- Other provisions 493 (4) 25 0 0

PBT 5,038 7,314 9,965 14,629 17,574

Taxes 1,692 2,464 3,375 4,954 5,951

PAT 3,346 4,851 6,590 9,675 11,623

Reported PAT 3,346 4,851 6,590 9,675 11,623

EPS 12.2 16.6 22.7 27.2 32.7

DPS 2.8 3.5 4.5 5.0 5.0

Payout ratio (%) 22.9 21.1 19.8 18.4 15.3

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Axis BankAxis BankAxis BankAxis BankAxis Bank


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Balance sheetBalance sheetBalance sheetBalance sheetBalance sheet (INR mn)(INR mn)(INR mn)(INR mn)(INR mn)

As an 31st MarchAs an 31st MarchAs an 31st MarchAs an 31st MarchAs an 31st March FY05FY05FY05FY05FY05 FY06FY06FY06FY06FY06 FY07FY07FY07FY07FY07 FY08EFY08EFY08EFY08EFY08E FY09EFY09EFY09EFY09EFY09E

LiabilitiesLiabilitiesLiabilitiesLiabilitiesLiabilities

Equity capital 2,738 2,921 2,906 3,560 3,560

Reserves 21,478 25,935 31,116 83,578 93,239

Net worth 24,216 28,722 33,932 87,137 96,799

Sub bonds/pref cap 7,886 17,886 35,014 43,514 43,514Deposits 317,120 401,135 587,856 729,283 944,035

Borrowings 17,814 26,809 51,956 56,900 62,591

Other liabilities 10,401 22,624 23,724 19,377 25,083

Tota lTota lTota lTota lTota l 377,437377,437377,437377,437377,437 497,311497,311497,311497,311497,311 732,572732,572732,572732,572732,572 936,210936,210936,210936,210936,210 1,172,0221,172,0221,172,0221,172,0221,172,022

Asse tsAsse tsAsse tsAsse tsAsse ts

Loans 156,029 223,142 368,765 531,021 716,879

InvestmentsInvestmentsInvestmentsInvestmentsInvestments

Gilts 75,384 117,898 164,308 182,321 188,807

Others 67,366 97,376 104,663 119,959 134,802

Cash & equi 52,762 36,418 69,183 79,967 103,515

Fixed Assets 5,184 5,677 6,732 7,489 8,015

Other Assets 20,712 16,800 18,921 15,454 20,004

Tota lTota lTota lTota lTota l 377,437377,437377,437377,437377,437 497,311497,311497,311497,311497,311 732,572732,572732,572732,572732,572 936,210936,210936,210936,210936,210 1,172,0221,172,0221,172,0221,172,0221,172,022

Balance sheet ratiosBalance sheet ratiosBalance sheet ratiosBalance sheet ratiosBalance sheet ratiosCredit growth 86.0 32.2 50.0 40.5 32.6

Deposit growth 51.3 26.5 46.5 24.1 29.4

EA growth 54.1 35.1 48.9 29.2 25.3

SLR ratio 22.5 27.5 25.7 25.0 20.0

C-D ratio 69.7 72.9 74.6 84.5 86.5

Low-cost deposits 38.0 40.0 39.9 42.4 42.6

Gross NPA ratio 1.4 1.3 0.9 1.1 1.4

Net NPA ratio 1.4 1.0 0.7 0.8 0.9

Provision coverage 57.4 41.9 45.7 41.9 47.1

Capital adequacy 12.7 11.1 11.6 16.9 14.1

- Tier 1 8.9 7.3 6.4 10.7 9.2

Valuation parametersValuation parametersValuation parametersValuation parametersValuation parameters


EPS 12.2 16.6 22.7 27.2 32.7

EPS growth (%) 1.7 35.9 36.6 19.9 20.1

Book value per share 88.4 98.3 116.8 244.8 271.9

Adjusted book value/share 82.9 93.1 110.3 236.8 259.9

Price/Earnings 74.7 55.0 40.3 33.6 28.0

Price/ BV 10.3 9.3 7.8 3.7 3.4

Price/ ABV 11.0 9.8 8.3 3.9 3.5

Dividend yield (%) 0.3 0.4 0.5 0.5 0.5

ROA decomposition (%)ROA decomposition (%)ROA decomposition (%)ROA decomposition (%)ROA decomposition (%)


Net interest income/Assets 2.5 2.6 2.7 2.8 3.0

Fees/Assets 1.3 1.5 1.6 1.6 1.7

Investment profits/Assets 0.1 0.1 (0.2) 0.0 (0.2)

Net revenues/Assets 4.0 4.2 4.1 4.5 4.6

Operating expense/Assets (2.0) (2.0) (2.1) (2.2) (2.3)

Provisions/Assets (0.2) (0.4) (0.3) (0.4) (0.6)

Taxes/Assets (0.6) (0.6) (0.6) (0.6) (0.6)

Total costs/Assets (2.8) (3.0) (3.0) (3.3) (3.5)

ROA 1.2 1.2 1.1 1.2 1.1

Equity/Assets 6.1 6.5 5.4 7.5 8.9

ROE 18.8 18.3 21.0 16.0 12.6

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Business growth sustained on a consistent basisBusiness growth sustained on a consistent basisBusiness growth sustained on a consistent basisBusiness growth sustained on a consistent basisBusiness growth sustained on a consistent basis

Bank of India (BoI) has grown its balance sheet by 19% CAGR from FY04-07 to INR 1.414 bn

(INR 1,500 bn for Q2FY08) to become the fifth largest PSU bank in India. Loan growth has

been impressive at 23% to ~INR 850 bn (INR 960 bn for Q2FY08), while total deposit growth

has been lower at 19% to INR 1,200 bn (INR 1,295 bn for Q2FY08) in this period. International

business contributes 20% to the balance sheet. While contribution of international deposits to

the deposit book has been increasing from 16% in FY04 to 20% in FY07, international credit

books contribution to total loan book has decreased from 24% in FY04 to 20% in FY07,

thereby helping improve the margins.

Consistent improvement in operating parametersConsistent improvement in operating parametersConsistent improvement in operating parametersConsistent improvement in operating parametersConsistent improvement in operating parameters

Despite CASA ratio declining by 230bps to 32% in the past two years, BoI has been able to

improve its margins by ~40bps to 2.9%. After providing for higher provisions for investments in

FY05 and aided by lower provisioning requirements, the banks RoA has improved from 0.4%

in FY05 to 0.9% in FY07. With the current high leverage, the bank posted RoE of 21% for

FY07. Significantly, gross NPA has declined in absolute value from INR 37 bn (5.5%) in FY05

to INR 20 bn (2.0%) in Q2FY08. Slippages have declined from ~3% in FY05 to 1.5% in FY07.

As of Q2FY08, net NPA was at 0.75% giving comfort in provision coverage at 74%. Active

recoveries during the past few years led to lower provisioning requirements as it has declined

by 7% in this period despite strong growth in balance sheet.

Equity capital raising plans in placeEquity capital raising plans in placeEquity capital raising plans in placeEquity capital raising plans in placeEquity capital raising plans in place

BoI had announced Tier 1 equity capital (7.1% for Q2FY08) raising plans, which will dilute ~5%of governments holding. This dilution will help in raising ~INR 6 bn of capital, but given the

recent appreciation of the stock, we believe the dilution will be much lower than expected.


The bank is currently trading at 2.8x FY07 book and 14.0x FY07 earnings. It has posted

H1FY08 profits of INR 7.4 bn compared to INR 11 bn in FY07. Given the higher equity leverage,

the bank posted RoE 21% for FY07 which will reduce post dilution. We like the bank for its

current business model which focuses on India as well as abroad, strong balance sheet which

we believe can support larger transaction critical for cross border deals, its extensive branch

network, and clean asset quality.

BBBBBANKANKANKANKANKOFOFOFOFOF IIIIINDIANDIANDIANDIANDIA INR 330INR 330INR 330INR 330INR 330

Consistent performer

Reuters : BOI.BO

Bloomberg : BOI IN


52-week range (INR) : 415 / 132


M cap (INR bn/USD mn) : 161.0 / 4,0484

Avg. Daily Vol. BSE : 2,481.0


Promoters : 69.5


FIIs : 16.4

Others : 8.7

November 29, 2007



FinancialsFinancialsFinancialsFinancialsFinancialsYear to MarchYear to MarchYear to MarchYear to MarchYear to March FY05FY05FY05FY05FY05 FY06FY06FY06FY06FY06 FY07FY07FY07FY07FY07

Revenues (INR mn) 33,927 38,164 50,034

Rev growth (%) (15.0) 12.5 31.1

Net profit (INR mn) 3,400 7,014 11,232

Shares outstanding (mn) 488.1 488.1 488.1

EPS (INR) 7.0 14.4 23.0

EPS growth (%) (66.3) 106.3 60.1

Book value (INR) 88.1 98.9 117.7

P/E (x) 47.3 22.9 14.3

Price to book (x) 3.7 3.3 2.8

ROE (%) 8.4 15.4 21.2

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BoI is one of the leading public sector banks with a pan-India presence and higher concentration in

western and eastern India. Its branch network exceeds 2,600 in India and it also has 25 overseas

branches. It is one of the pioneers in building an international business model which contributes ~20%

to the total business. It has made rapid progress on the technology front with 2,618 branches fully

computerized and 85% of total business covered under the Core Banking System.


With asset quality reaching its peak, we believe provisioning requirement for the bank will rise from

current levels.

Focus on building a balanced sheet could result in margin compression given the competitive environ-

ment outside India.


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Year to MarchYear to MarchYear to MarchYear to MarchYear to March FY04FY04FY04FY04FY04 FY05FY05FY05FY05FY05 FY06FY06FY06FY06FY06 FY07FY07FY07FY07FY07

NII growth 8.1 1.6 17.7 30.7

Fees growth 7.2 14.5 4.1 17.0

Operating profit growth 6.2 10.3 9.5 23.3

PPP growth 7.9 (34.9) 16.5 40.8

Opex growth 2.4 12.2 (21.4) 9.7

PAT growth 12.2 (66.3) 106.3 60.1



Yield on advances 7.5 7.1 7.5 8.5

Yield on investments 8.4 8.0 7.5 7.6

Yield on assets 7.4 7.0 7.0 7.5

Cost of funds 4.7 4.4 4.4 4.7

Cost of deposits 4.6 4.2 4.0 4.3

Cost of borrowings 7.5 9.0 10.2 11.0

Spread 2.8 2.5 2.6 2.7

Cost-Income 43.9 57.0 55.4 52.1

Tax rate 25.4 26.2 23.4 26.7




Interest income 57,959 60,315 70,287 91,803

Interest expenses 35,945 37,946 43,967 57,399Net interest income 22,014 22,369 26,320 34,405

Non interest income 17,920 11,558 11,844 15,630

- Fee & forex income 5,883 6,734 7,013 8,208

- Misc. income 2,469 3,019 3,687 5,213

- Investment profits 9,568 1,805 1,144 2,209

Net revenues 39,934 33,927 38,164 50,034

Operating expense 17,515 19,323 21,151 26,084

- Employee exp 11,724 12,632 13,281 16,140

- Other opex 5,791 6,691 7,870 9,944

Preprovision profit 22,419 14,604 17,012 23,950

Provisions 8,910 9,993 7,856 8,621

- Loan loss provisions 6,554 3,817 6,241 7,741

- Investment depreciation 421 4,942 913 133

- Other provisions 1,935 1,234 701 747

PBT 13,509 4,610 9,157 15,328

Taxes 3,426 1,210 2,142 4,097

PAT 10,083 3,400 7,014 11,232

Extraordinaries 0 0 0 0

Reported PAT 10,083 3,400 7,014 11,232

EPS 20.7 7.0 14.4 23.0

DPS 3.0 2.0 3.4 3.5

Payout ratio (%) 14.5 28.7 23.7 15.2

11

Bank of IndiaBank of IndiaBank of IndiaBank of IndiaBank of India


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As on 31st MarchAs on 31st MarchAs on 31st MarchAs on 31st MarchAs on 31st March FY04FY04FY04FY04FY04 FY05FY05FY05FY05FY05 FY06FY06FY06FY06FY06 FY07FY07FY07FY07FY07


Equity capital 4,881 4,881 4,881 4,881

Reserves 33,472 38,111 43,384 52,578

Net worth 38,353 42,993 48,265 57,459

Sub bonds/pref cap 22,082 24,467 32,967 47,589Deposits 714,824 788,214 939,320 1,198,817

Borrowings 40,415 59,620 58,939 66,208

Other liabilities 31,182 33,832 41,677 44,801

Tota lTota lTota lTota lTota l 846,857846,857846,857846,857846,857 949,126949,126949,126949,126949,126 1,121,1691,121,1691,121,1691,121,1691,121,169 1,414,8751,414,8751,414,8751,414,8751,414,875


Loans 458,559 560,126 651,737 849,359


Gilts 196,744 211,431 239,401 266,120

Others 74,885 70,595 78,417 88,807

Cash & equi 85,579 75,263 114,460 174,055

Fixed assets 6,243 6,486 6,526 6,398

Other assets 24,847 25,225 30,628 30,135

Tota lTota lTota lTota lTota l 846,857846,857846,857846,857846,857 949,126949,126949,126949,126949,126 1,121,1691,121,1691,121,1691,121,1691,121,169 1,414,8751,414,8751,414,8751,414,8751,414,875

Balance sheet ratiosBalance sheet ratiosBalance sheet ratiosBalance sheet ratiosBalance sheet ratios

Credit growth 9.4 20.5 16.1 29.3

Deposit growth 11.5 10.3 19.2 27.6

EA growth 10.1 12.5 18.2 27.2

SLR ratio 24.9 29.5 28.6 26.3

C-D ratio 68.0 74.4 72.6 73.6

Low-cost deposits 33.4 34.5 35.0 32.2

Gross NPA ratio 7.9 5.5 3.7 2.4

Net NPA ratio 4.5 2.8 1.5 0.7

Provision coverage 44.8 50.8 60.9 69.9

Capital adequacy 13.0 11.5 10.8 11.6

- Tier 1 7.5 7.1 6.8 6.5



EPS 20.7 7.0 14.4 23.0

EPS growth (%) 12.2 (66.3) 106.3 60.1

Book value per share 78.6 88.1 98.9 117.7

Adjusted Book Value/share 49.0 65.8 85.0 108.6

Price/Earnings 15.94 47.26 22.91 14.31

Price/ BV 4.19 3.74 3.33 2.80

Price/ ABV 6.72 5.00 3.87 3.03

Dividend yield (%) 0.9 0.6 1.0 1.1



Net interest income/Assets 2.83 2.58 2.63 2.79

Fees/Assets 1.07 1.13 1.07 1.09

Investment profits/Assets 1.23 0.21 0.11 0.18

Net revenues/Assets 5.13 3.91 3.81 4.06

Operating expense/Assets (2.25) (2.23) (2.11) (2.12)

Provisions/Assets (1.14) (1.15) (0.78) (0.70)

Taxes/Assets (0.44) (0.14) (0.21) (0.33)

Total costs/Assets (3.84) (3.52) (3.11) (3.15)

ROA 1.30 0.39 0.70 0.91

Equity/Assets 4.62 4.69 4.56 4.29

ROE 28.04 8.36 15.37 21.25

12



14/90

Robust business growthRobust business growthRobust business growthRobust business growthRobust business growth

City Union Bank (CUBK) has grown its balance sheet impressively by 19% CAGR from FY04-

07 to INR 53 bn (INR 61 bn for H1FY08). In this period, the bank grew its loan book by 29%

CAGR to INR 33 bn (INR 38 bn for H1FY08) and deposits by 18% to INR 47 bn (INR 54 bn for

H1FY08). Unlike most other banks that had a weak H1FY08, CUBKs YTD growth has been

impressive in the loan book as well as in the deposit book at ~15-16%.

Above average operating metricsAbove average operating metricsAbove average operating metricsAbove average operating metricsAbove average operating metrics

CUBK enjoys higher than peer margins which is maintained at ~3.6%, despite its balance

sheet growth. This is mainly due to the higher pricing power it enjoys in its asset book which is

focussed on SME segment. CASA ratio is in line with regional players at 24%. As of Q2FY08,

gross NPA of the bank was at 2%, declining from 10% in FY04, while net NPA is currently at

0.85% from 6.4% in FY04.

Capital raising gives adequate head room for growthCapital raising gives adequate head room for growthCapital raising gives adequate head room for growthCapital raising gives adequate head room for growthCapital raising gives adequate head room for growth

CUBK has had Tier 1 capital in of 10% for FY04-07 and in Q2FY08 the bank diluted ~26% of

pre-issue equity capital to fund balance sheet growth increasing its networth by INR 1.25 bn

through a mix of preferential allotment to L&T, LIC, and QIP. We do not expect any plans to

raise capital in the next two-three years.


The stock is currently trading at 1.7x FY07 book and 8.0x FY07 earnings. The bank reported

PAT of INR 718 mn in FY07, a CAGR of 24% for FY05-07. The bank has consistently delivered

RoEs in excess of 24% from FY05-07 despite having lower leverage of (7.5x FY07) than its

peers, making it one of the more attractive regional banks in the system.

CCCCCITYITYITYITYITY UUUUUNIONNIONNIONNIONNION BBBBBANKANKANKANKANK INR 234INR 234INR 234INR 234INR 234

On the growth path

Reuters : CTBK.BO

Bloomberg : CUBK IN


52-week range (INR) : 278 / 133


M cap (INR bn/USD mn) : 5.9 / 148.1

Avg. Daily Vol. BSE/NSE (000) : 46.8


Promoters : 0.0


FIIs : 7.6

Others : 87.3

November 29, 2007




Year to MarchYear to MarchYear to MarchYear to MarchYear to March FY05FY05FY05FY05FY05 FY06FY06FY06FY06FY06 FY07EFY07EFY07EFY07EFY07E FY08EFY08EFY08EFY08EFY08ERevenues (INR mn) 1,508 1,841 2,275 2,676

Rev growth (%) (7.3) 22.1 23.5 17.6

Net interesrt income(INR mn) 1,108 1,398 1,675 2,075

Net profit (INR mn) 463 564 718 859

Shares outstanding (mn) 24.0 24.0 25.2 32.0

EPS (INR) 19.3 23.5 28.5 26.9

EPS growth (%) (18.8) 21.7 21.3 (5.7)

P/E (x) 12.1 10.0 8.2 8.7

Price to book (x) 2.9 2.2 1.7 1.4

Price to PPOP (x) - - - -

ROE (%) 20.9 21.4 22.0 18.5

(INR)

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15/90

14



CUBK is one of the strong performing regional banks in India. As of FY07, the bank has over 160

branches, with ~90% being in South India (70% of the total branches in Tamilnadu). As of FY07, the

bank has a balance sheet of INR 53 bn. It has consistently generated one of the highest returns on

assets, which is ~1.6% for FY05-07, because of i ts higher pricing power to its borrowers.


Competition pressure can force the bank to grow at the cost of margins, which is one of the highest in

the industry.

Further rise in interest rates can lead to deterioration of asset quality from current levels and higher

provisioning requirements.

Operating costs/assets remain one of the highest in the industry.


16/90



NII growth 44.9 15.2 26.1 19.8

Fees growth 8.3 32.1 (31.0) 3.6

Opex growth 12.6 24.7 25.2 28.4

PPP growth 46.5 (19.6) 20.3 20.5

Provisions growth 49.6 1.5 7.3 (13.5)

PAT growth 70.9 (18.8) 21.7 27.4



Yield on advances 11.5 10.4 10.7 10.5Yield on investments 9.8 8.5 7.1 7.3

Yield on assets 9.9 9.1 9.0 8.9

Net interest margins 3.5 3.5 3.9 3.7

Cost of funds 6.6 5.8 5.3 5.3

Cost of deposits 6.9 6.0 5.6 5.5

Cost of borrowings 4.2 2.4 4.8 9.8

Spread 3.3 3.3 3.8 3.6

Cost-income 27.6 37.2 38.1 39.6

Tax rate 25.9 13.1 18.9 27.4




Interest income 2,762 2,907 3,264 4,001

Interest expenses 1,799 1,798 1,866 2,326Net interest income 962 1,108 1,398 1,675

Non interest income 665 400 444 600

- Fee & forex income 194 257 177 183

- Misc. income 123 209 185 382

- Investment profits 348 -65 81 35

Net revenues 1,628 1,508 1,841 2,275

Operating expense 449 561 702 901

- Employee exp 250 309 363 444

- Other opex 200 251 338 457

Preprovision profit 1,178 948 1,140 1,374

Provisions 408 415 445 385

- Loan loss provisions 365 225 330 200

- Investment depreciation 24 29 11 48

- Other provisions 19 161 104 137

PBT 770 533 695 989

Taxes 200 70 131 271

PAT 570 463 564 718

Extraordinaries 0 0 0 0

Reported PAT 570 463 564 718

EPS 23.8 19.3 23.5 28.5

DPS 7.0 4.0 4.0 4.0

Payout ratio (%) 29.5 20.7 17.0 14.0

15

City Union BankCity Union BankCity Union BankCity Union BankCity Union Bank


17/90




Equity capital 240 240 240 252

Reserves 1,587 1,965 2,420 3,020

Net worth 2,029 2,407 2,862 3,657

Sub bonds/pref cap 0 0 0 0Deposits 28,467 30,952 35,177 46,993

Borrowings 296 222 752 199

Other liabilities 1,123 1,373 2,480 2,781

Tota lTota lTota lTota lTota l 31,91431,91431,91431,91431,914 34,95434,95434,95434,95434,954 41,27141,27141,27141,27141,271 53,63053,63053,63053,63053,630


Loans 15,470 20,130 25,495 33,292


Gilts 11,828 10,108 9,015 11,498

Others 962 915 1,560 1,572

Cash & equi 2,395 2,268 2,664 4,839

Fixed assets 241 314 360 392

Other assets 1,019 1,220 2,176 2,037


Balance sheet ratiosBalance sheet ratiosBalance sheet ratiosBalance sheet ratiosBalance sheet ratios

Credit growth 25.3 28.0 25.6 29.0

Deposit growth 22.8 8.7 13.6 33.6

EA growth 23.2 9.0 15.9 32.2

SLR ratio 40.4 32.4 25.1 24.4

C-D ratio 57.4 67.6 74.8 72.2

Low-cost deposits 20.5 21.9 22.9 24.3


Net NPA ratio 6.4 3.4 2.0 1.1

Provision coverage 41.2 52.2 55.3 79.0

Capital adequacy 13.4 12.2 12.3 12.6

- Tier 1 10.7 10.1 10.8 10.9


Year toYear toYear toYear toYear to MarchMarchMarchMarchMarch FY04FY04FY04FY04FY04 FY05FY05FY05FY05FY05 FY06FY06FY06FY06FY06 FY07FY07FY07FY07FY07

EPS 23.8 19.3 23.5 28.5

EPS growth (%) 70.9 (18.8) 21.7 21.3

Book value per share 84.5 100.3 119.2 145.1

Adjusted book value/share 55.8 80.5 104.7 135.1

Price/Earnings 9.8 12.1 10.0 8.2

Price/ BV 2.8 2.3 2.0 1.6

Price/ ABV 4.2 2.9 2.2 1.7

Dividend yield (%) 3.0 1.7 1.7 1.7


Year tYear tYear tYear tYear to Marcho Marcho Marcho Marcho March FY04FY04FY04FY04FY04 FY05FY05FY05FY05FY05 FY06FY06FY06FY06FY06 FY07FY07FY07FY07FY07


Fees/Assets 1.1 1.5 1.0 1.3

Investment profits/Assets 1.3 (0.2) 0.2 0.1


Operating expense/Assets (1.6) (1.7) (1.9) (2.0)

Provisions/Assets (1.5) (1.3) (1.2) (0.9)

Taxes/Assets (0.7) (0.2) (0.4) (0.6)

Total costs/Assets (3.8) (3.3) (3.5) (3.5)

ROA 2.1 1.4 1.6 1.6

Equity/Assets 6.6 6.9 7.3 7.2

ROE 31.0 20.9 21.4 22.0

16



18/90

Pact with DBS Bank of Singapore: A big leapPact with DBS Bank of Singapore: A big leapPact with DBS Bank of Singapore: A big leapPact with DBS Bank of Singapore: A big leapPact with DBS Bank of Singapore: A big leap

In the first full year of its operations after the Murugappa Group joined hands with DBS Bank of

Singapore, Cholamandalam DBS Finances disbursements grew 96% to INR 25.6 bn in FY07

and its AUMs grew 95% to INR 45 bn. Such a big leap in disbursements over FY02-06 was

buoyed by significant growth in consumer finance business (personal loans and business

finance) and pilot launch of home equity business in four metros. We believe the gained

traction will continue going forward with improved market share in used vehicle financing, and

further scale up in consumer finance and home equity loan businesses.

Product mix being managed prudently to improve spreadsProduct mix being managed prudently to improve spreadsProduct mix being managed prudently to improve spreadsProduct mix being managed prudently to improve spreadsProduct mix being managed prudently to improve spreads

In the vehicle finance business, the company is actively pursuing a strategy to improve the

share of used vehicles and mini light commercial vehicles in overall disbursements to benefit

from higher yields, while continuing to leverage market growth in the new vehicles market. In

FY07, new vehicle disbursements remained more or less flat at INR 7.5 bn, while used vehicles

and three-wheeler disbursements grew by 88% to INR 9.7 bn. The company is also focused

on increasing the proportion of personal loans, enterprise loans, and home equity loans

(incremental yield of 13-14%) in its loan portfolio.

Fee-based businesses to be new focus areaFee-based businesses to be new focus areaFee-based businesses to be new focus areaFee-based businesses to be new focus areaFee-based businesses to be new focus area

With strategies in place to set up its fund-based business on a new growth trajectory, the

company will now focus on improving growth and value contribution from its fee-based busi-

nessesasset management, distribution, and securities broking. Growth in the consumer

finance business and substantial increase in customer base will provide immense opportuni-

ties to cross-sell various fee based-products and services.


We believe the companys operating performance will improve going forward considering its

ability to leverage on the expertise of DBS, scale up in distribution network, improved produc-

tivity from recently launched branches, better asset growth in consumer financing and home

equity loans, and higher fee income providing significant kicker to its RoEs. In H1FY08, the

company grew its revenues and profits Y-o-Y by almost three fold to INR 2.4 bn and INR 208

mn, respectively. This compares with INR 2.6 bn of revenues and INR 274 mn of profits in

FY07. The stock is currently trading at 28.0x FY07 earnings and 2.5x FY07 book.

CCCCCHOLAMANDALAMHOLAMANDALAMHOLAMANDALAMHOLAMANDALAMHOLAMANDALAM DBS FDBS FDBS FDBS FDBS FINANCEINANCEINANCEINANCEINANCE INR 202INR 202INR 202INR 202INR 202

Aiming high

Reuters : CHLA.BO

Bloomberg : CDFL IN


52-week range (INR) : 239 / 101


M cap (INR bn/USD mn) : 10.5 / 265.1



Promoters : 75.0


FIIs : 1.7

Others : 23.2

November 29, 2007





Revenues (INR mn) 1,618 1,473 1,465 2,580

Rev growth (%) 6.1 (8.9) (0.6) 76.2

Net profit (INR mn) 310 308 356 274

EPS (INR) 12.2 8.1 9.4 7.2

EPS growth (%) (9.4) (33.6) 15.5 (23.0)

Book value per share (INR) 92.5 78.5 79.3 81.3

Price to book (x) 2.2 2.6 2.5 2.5

Price to earnings (x) 16.6 24.9 21.6 28.0

ROE (%) 14.2 11.6 11.9 9.0

(INR)

('000)

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19/90


Incorporated in 1978, Cholamandalam DBS began its operations as a non-banking finance company

(NBFC) offering equipment finance to small and medium sized companies in South India. The com-

pany today is one of Indias premier NBFCs with assets under management of more than INR 45 bn.

Cholamandalam DBS, along with its subsidiaries, offers vehicle finance, personal loans, business

finance, home equity loans, loans against shares, mutual funds, securities trading, and distribution offinancial products.

Vehicle financing continues to dominate its loan portfolio with an asset deployment share of 52%. The

personal loans business has achieved significant growth in FY07 and now accounts for 17% of the loan

book. Business financing grew by over 150% in FY07, which currently accounts for 20%. The com-

pany operates from over 180 locations across India. It has built up a high quality portfolio and has an

unbroken dividend payment record of over 25 years. The company moved from being a deposit taking

NBFC to a non-deposit taking NBFC in FY07.

Its subsidiaries include DBS Cholamandalam Asset Management, the investment manager of DBS

Chola MF which manages AUMs of INR 52 bn. DBS Cholamandalam Distribution is the financial

products (in-house and third-party) distribution arm of the Group and mobilises more than INR 20 bn of

investments in a year. DBS Cholamandalam Securities offers stock broking and equity advisory serv-

ices to institutional investors and retail customers.


Increased focus on used vehicle financing and increase in interest rates may lead to higher rate of

defaults and higher NPAs.

Personal loan and home equity loan businesses are at a nascent stage and competition from leading

players may pressurise margins and growth.

Performance and growth will depend on how fruitfully the company is able to leverage on expertise and

risk management abilities of DBS.

Execution risk will be a key as the company is aiming a giant leap in its businesses and asset base post

joining hands with DBS.

18



20/90



NII growth 1.3 (9.2) (6.1) 94.8

Fees growth 37.2 (9.3) (80.6) 74.9

PPP growth 4.7 (4.2) 15.5 6.4

Opex growth 6.8 (11.2) (8.9) 121.9

PAT growth 33.0 1.0 12.4 (24.2)



Yield on advances 14.1 12.9 12.2 15.5

Yield on assets 15.9 13.5 12.1 15.3

Cost of funds 6.8 6.4 6.5 7.7

Spread 9.0 7.1 5.6 7.6

Cost-Income 67.6 65.9 60.4 76.1

Tax rate 34.3 36.8 25.5 39.9




Interest income 2,212 2,090 2,168 4,178

Interest expenses 833 839 993 1,890Net interest income 1,379 1,252 1,175 2,289

Non interest income 239 221 289 291

- Fee income 151 137 27 47

- Dividend income 37 28 55 106

- Investment profits 29 44 179 24

- Other income 21 12 29 115

Net revenues 1,618 1,473 1,465 2,580

Operating expense 1,093 971 885 1,963

- Employee exp 190 232 276 536

- Other opex 903 739 609 1,427

Preprovision profit 524 502 580 617

Provisions 53 15 103 162

PBT 471 487 477 456

Taxes 162 180 122 182

PAT 310 308 356 274

Extraordinaries 4 (1) 9 11

Reported PAT 305 309 347 263

EPS (INR) 12.2 8.1 9.4 7.2

DPS (INR) 5.0 5.0 5.0 4.0

Payout ratio (%) 41.4 61.5 54.7 57.7

19

Cholamandalam DBS FinanceCholamandalam DBS FinanceCholamandalam DBS FinanceCholamandalam DBS FinanceCholamandalam DBS Finance


21/90


As on 31st MarchAs on 31st MarchAs on 31st MarchAs on 31st MarchAs on 31st March FY04FY04FY04FY04FY04 FY05FY05FY05FY05FY05 FY06FY06FY06FY06FY06 FY07FY07FY07FY07FY07


Equity capital 254 380 380 380

Preference share capital 230 100 0 0

Reserves 1,862 2,505 2,634 2,709

Net worth 2,346 2,985 3,014 3,089

Deposits 1,896 1,632 1,201 698

Borrowings 10,982 11,723 15,761 31,491

Deferred tax liability 44 21 32 52



Investments 552 1,039 371 505

Current assets 17,622 16,647 21,198 37,565

- Loans and advances 16,743 15,622 19,862 34,104

Current liabilities 3,344 1,626 1,948 3,273

Net current assets 14,278 15,021 19,250 34,292

Fixed Assets 325 233 293 413

Other Assets 112 67 94 120Tota lTota lTota lTota lTota l 15,26715,26715,26715,26715,267 16,36016,36016,36016,36016,360 20,00820,00820,00820,00820,008 35,32935,32935,32935,32935,329

Balance sheet detailsBalance sheet detailsBalance sheet detailsBalance sheet detailsBalance sheet details

Disbursements (INR) 9,980 11,270 13,070 25,600

Disbursement growth (1.0) 12.9 16.0 95.9

Credit growth 14.0 (6.7) 27.1 71.7

Deposit growth 13.9 3.7 27.0 89.8

EA growth 15.8 7.9 22.2 77.1


Net NPA ratio 1.4 1.2 0.6 0.4



EPS (INR) 12.2 8.1 9.4 7.2

EPS growth (%) (9.4) (33.6) 15.5 (23.0)

Book value (INR) 92.5 78.5 79.3 81.3

DPS (%) 5.0 5.0 5.0 4.0

PE (x) 16.6 24.9 21.6 28.0

Price/ BV (x) 2.2 2.6 2.5 2.5

Dividend yield (%) 2.5 2.5 2.5 2.0




Fee income/Assets 1.5 1.1 0.6 1.0

Investment profits/Assets 0.2 0.3 1.0 0.1


Operating expense/Assets 7.9 6.2 4.9 7.2

Provisions/Assets 0.4 0.1 0.6 0.6

Taxes/Assets 1.2 1.2 0.7 0.7

Total costs/Assets 9.4 7.5 6.2 8.4

ROA 2.2 2.0 2.0 1.0

Equity/Assets 15.2 16.9 16.5 11.0

ROE 14.2 11.6 11.9 9.0

20



22/90

Retail focus; concentrating on low and middle income householdsRetail focus; concentrating on low and middle income householdsRetail focus; concentrating on low and middle income householdsRetail focus; concentrating on low and middle income householdsRetail focus; concentrating on low and middle income households

Dewan Housing Finance (DHFL) distinguishes its business model from other leading housing

financiers by providing housing loans to primarily low and middle income households in tier II

and III cities. Its disbursements grew by 37% over FY03-07 (higher than industry average of

32%) to INR 14.7 bn and outstanding loan book in FY07 was at INR 33 bn. To achieve scale

in a short span of time, it has targeted potential customers belonging to low income groups like

municipal and union workers.

Loan funds: Dominated by bank loansLoan funds: Dominated by bank loansLoan funds: Dominated by bank loansLoan funds: Dominated by bank loansLoan funds: Dominated by bank loans

The company maintained NIMs at 2.8% in FY07 as yield on advances improved ~60bps to

10.5%; but this was partially offset by equivalent rise in cost of funds. Its average funding cost

was 8.5% in FY07 as term loans from banks and financial institutions is the major source,

constituting more than 67% of its borrowings at the end of FY07. The loans availed from banks

qualify for priority sector lending and are drawn at spreads below prime lending rates.

Investments explain more than 50% of its market capInvestments explain more than 50% of its market capInvestments explain more than 50% of its market capInvestments explain more than 50% of its market capInvestments explain more than 50% of its market cap

DHFL recently picked up 19.9% stake in Wadhawan Food Retail (WFRPL), a promoter group

company which currently operates 91 convenience retail stores across the country under the

Spinachbrand. WFRPL plans to aggressively increase its retail stores to 1,500 over the next

four-five years and tap the capital market in the next 12-18 months. Our first-cut valuation for

WFRPL at INR 11.3 bn translates the value of this investment into INR 37 per share for DHFL.

It also holds 1.26% stake in HDIL valued at INR 2 bn(INR 32 per share)at current market price.

Market value of other quoted investments and book value of unquoted and MF/VC invest-ments is INR 957 mn (INR 16 per share).


The company has grown its revenues and PAT by 24% and 30% CAGR, respectively, for FY04-

07 and reported revenue of INR 651 mn and profit of INR 303 mn in H1FY08. The companys net

worth stands at INR 4 bn and it generates RoE in the 17-19% range. After adjusting the value of

its investments, the stock is currently trading at 1.0x FY07 book and 8.8x FY07 EPS.

DDDDDEWANEWANEWANEWANEWAN HHHHHOUSINGOUSINGOUSINGOUSINGOUSING FFFFFINANCEINANCEINANCEINANCEINANCE INR 155INR 155INR 155INR 155INR 155

Niche player

Reuters : DWNH BO

Bloomberg : DEWH IN


52-week range (INR) : 164 / 57





Promoters : 53.9


FIIs : 16.2

Others : 28.9

November 29, 2007




Year to MarchYear to MarchYear to MarchYear to MarchYear to March FY05FY05FY05FY05FY05 FY06FY06FY06FY06FY06 FY07FY07FY07FY07FY07

Revenues (INR mn) 663 896 1,084

Rev growth (%) 16.1 35.1 21.0 Net profit (INR mn) 295 403 517

Shares outstanding (mn) 50.1 50.1 50.1

Diluted EPS (INR) 6.2 6.7 7.9

Book value (INR) 39.0 51.2 69.1

EPS growth (%) (10.9) 7.7 18.1

P/E (x) 24.7 23.0 19.5

Price to book (x) 4.0 3.0 2.2

Adj price to book (x)* 1.8 1.4 1.0

Adjusted P/E (x) * 11.2 10.4 8.8

ROE (%) 19.3 20.2 17.9

*Adj for value of investments

(INR)

('000)

0Dec-06 May-07 Nov-07

40

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1,600

2,400

3,200

4,000


23/90

22



DHFL, incorporated in 1984, is a private sector housing finance company offering housing loans, lease

rental financing, and reverse mortgage loans to retail customers. Its main focus is on providing loans to

the lower and middle income households in tier II and III cities for acquisition or construction of residen-

tial properties. The company has introduced Indias first reverse mortgage scheme called Saksham

mainly targeted at senior citizens who want to supplement their income without selling their home. It hasalso ventured into international markets by opening representative offices in Dubai and UAE to cater to

the needs of non-resident Indians there. The company also offers property insurance, free accident risk

cover, and earthquake protection cover to its customer.

As of FY07, DHFL operates in 155 locations comprising 53 main branches, 67 service centres, and 35

camps. Its distribution network is primarily concentrated in western and southern India and it has

entered in to an agreement with the Punjab & Sind Bank to increase its presence in North India.


DHFL provides loans to low and middle income households where competition is less intense due to

absence of large private banks. Entry of large players in these segments may lead to loss in market

share and impact the companys revenue growth and margins.

The risk of default is relatively high for the company due to its focus on low and middle income groups,

which can be significantly impacted by slowdown in the economy or decline in income levels.

The company relies on term loans from banks and financial institutions for funding taken at floating

rates and therefore, higher-than-expected rise in interest rates can affect the companys margins.


24/90

23

Dewan Housing FinanceDewan Housing FinanceDewan Housing FinanceDewan Housing FinanceDewan Housing Finance



NII growth 20.4 19.0 41.2

Fees growth 13.7 (36.3) 107.2

PPP growth 16.0 38.1 24.2

Opex growth 16.3 30.0 15.0

PAT growth 24.0 36.9 28.1



Yield on advances 11.5 10.8 11.2

Yield on assets 10.5 9.9 10.5

Cost of funds 7.8 7.7 8.4

Spread 2.7 2.2 2.1

NIMs 3.4 2.8 2.8

Cost-Income 36.7 35.3 33.5

Tax rate 20.3 17.2 18.8




Interest income 1,686 2,246 3,393

Interest expenses 1,147 1,605 2,488Net interest income 539 641 905

Non interest income 124 255 179

- Fee income 89 57 118

- Dividend income 0 2 27

- Investment profits 11 125 4

- Other income 24 71 30

Net revenues 663 896 1,084

Operating expense 243 316 364

- Employee exp 97 108 132

- Other opex 146 209 231

Preprovision profit 420 580 720

Provisions 27 29 57

PBT 393 551 663

Taxes 80 95 125

PAT 313 456 538

Extraordinaries 18 53 22

Reported PAT 295 403 517

EPS (INR) 6.2 6.7 7.9

DPS (INR) 2.3 2.7 2.6

Payout ratio (%) 38.9 33.4 25.7


25/90

24



As on 31st MarchAs on 31st MarchAs on 31st MarchAs on 31st MarchAs on 31st March FY05FY05FY05FY05FY05 FY06FY06FY06FY06FY06 FY07FY07FY07FY07FY07


Equity capital 501 501 501

Preference share capital 0 177 242

Reserves 1,452 2,063 2,963

Networth 1,954 2,564 3,464

Deposits 1,123 1,009 697

Borrowings 15,566 23,363 33,706

Current liabilities 552 646 805

Tota lTota lTota lTota lTota l 19,19519,19519,19519,19519,195 27,75927,75927,75927,75927,759 38,91438,91438,91438,91438,914


Loans 16,701 24,868 35,532

Investments 1,070 833 823

Current assets 1,120 1,630 2,142

Fixed assets 306 448 453

Other assets (2) (21) (35)

Tota lTota lTota lTota lTota l 19,19519,19519,19519,19519,195 27,75927,75927,75927,75927,759 38,91438,91438,91438,91438,914

Balance sheet ratios (%)Balance sheet ratios (%)Balance sheet ratios (%)Balance sheet ratios (%)Balance sheet ratios (%)Credit growth 32.8 48.9 42.9

Borrowings growth 35.5 46.0 41.2

EA growth 35.5 45.3 41.0

Net NPA ratio 1.5 1.3 1.2

RoE decomposition (%)RoE decomposition (%)RoE decomposition (%)RoE decomposition (%)RoE decomposition (%)


Net interest income/Assets 3.4 2.8 2.8

Fee income/Assets 0.7 0.6 0.5

Investment profits/Assets 0.1 0.6 0.0

Net revenues/Assets 4.1 4.0 3.3

Operating expense/Assets 1.5 1.4 1.1

Provisions/Assets 0.2 0.1 0.2

Taxes/Assets 0.5 0.4 0.4

Total costs/Assets 2.2 1.9 1.7

ROA 1.9 2.0 1.7

Equity/Assets 10.1 10.0 9.3

ROE 19.3 20.2 17.9

Valuation parameters (%)Valuation parameters (%)Valuation parameters (%)Valuation parameters (%)Valuation parameters (%)


EPS (INR) 6.2 6.7 7.9

EPS Y-o-Y growth (%) (10.9) 7.7 18.1

Book value per share (INR) 39.0 51.2 69.1

P/E (x) 24.7 23.0 19.5

P/BV (x) 4.0 3.0 2.2

Adjusted P/BV (x) * 1.8 1.4 1.0

Adjusted P/E (x) * 11.2 10.4 8.8

*Adj for value of investments


26/90

Strong retail presence in South India; scaling up international operationsStrong retail presence in South India; scaling up international operationsStrong retail presence in South India; scaling up international operationsStrong retail presence in South India; scaling up international operationsStrong retail presence in South India; scaling up international operations

Geojit Financial Service (Geojit) offers equity, commodity broking services, PMS, and third

party distribution of financial products to retail investors and has strong presence in South

India. It had a network of 392 offices and a client base of 0.45 mn in FY07 and is planning to

grow in North and West India. To facilitate greater participation from women, Geojit launched

Indias first women-only branches in 2005. It caters to international clients in UAE (primarily

NRIs) looking to invest in the Indian market through its joint venture with the Al Saud Group

(Barjeel Geojit Securities) in which it has 30% stake. It recently entered into a joint venture with

Bank of Bahrain and Kuwait (BBK) for providing investment services to NRIs.

Strategic partnership with BNP ParibasStrategic partnership with BNP ParibasStrategic partnership with BNP ParibasStrategic partnership with BNP ParibasStrategic partnership with BNP Paribas

Geojit entered into a strategic partnership with BNP Paribas in March 2007 with the latter

acquiring 27% stake in Geojit through preferential allotment (which will eventually increase to

34% after warrant conversion). The company will utilize the money raised to expand its

operations in India and the Middle East and expects to leverage the international expertise,

brand name, superior technology, and management capabilities to attract institutional and

foreign investors.

Venturing in institutional brokerage business and international marketsVenturing in institutional brokerage business and international marketsVenturing in institutional brokerage business and international marketsVenturing in institutional brokerage business and international marketsVenturing in institutional brokerage business and international markets

The company is planning to enter the institutional brokerage business through its joint venture

with BNP Paribas, in which it has 50% stake. Its partnership with BNP will help it get empan-

elment from domestic as well as institutional investors. It has recently formed a 30:70 JV with

the Al Johar Group of Saudi Arabia to offer retail broking services for capital markets in Saudi

Arabia. Geojit will manage the operations of this joint venture and expects to corner 7-10%

share in this market.


The companys revenue and PAT growth was 50% and 41%, respectively, over FY04-FY07,

and it reported revenue of INR 510 mn and profit of INR 246 mn in H1 FY08. The stock is

currently trading at 28.7x FY07 EPS.

GGGGGEOJITEOJITEOJITEOJITEOJIT FFFFFINANCIALINANCIALINANCIALINANCIALINANCIAL SSSSSERVICEERVICEERVICEERVICEERVICE INR 46INR 46INR 46INR 46INR 46

Strategic partnership to add value

Reuters : GEOJ.BO

Bloomberg : GFSL IN


52-week range (INR) : 54 / 28





Promoters : 58.6


FIIs : 2.2

Others : 34.5

November 29, 2007





Revenues (INR mn) 544 1,020 1,361

Revenue growth (%) 35.5 87.4 33.5

PAT (INR mn) 101 227 252

PAT growth (%) 13.2 125.0 11.0

EPS (INR) 0.72 1.49 1.60

P/E (x) 64.1 30.9 28.7

P/B (x) 21.4 14.5 4.4

Price / Revenues (x) 12.9 6.9 7.1

RoE (%) 39.4 55.8 18.7

(INR)

('000)

20


30

40

50

60

0

400

800

1,200

1,600


27/90

26



Geojit, incorporated in 1987, offers a bouquet of financial products and services to retail investors

equity and commodity broking, portfolio management services, and third party distribution of mutual

funds and insurance. The company has established a strong network in South India and is planning to

increase its presence in West and North India. It caters to 0.45 mn customers through its network of

392 offices.

While brokerage income remains a major contributor to revenue and profitability, income from com-

modity and distribution business is gaining traction. The company also provides portfolio management

services and manages a corpus of more than INR 500 mn. It offers commodity broking through its

subsidiary Geojit Commodities. Value-added services like customized finance and structured credit

facilities in association with Geojit Credits Private had its impact in the volume building exercise.

Promoters hold 58% (including C J George and Shiny George at 22%), KSIDC 9%, and BNP Paribas

27%), while FIIs have 2.2% stake in the company.


The companys businesses are highly dependent on conditions of the capital market and any unfavorabledevelopments in the market affecting investor sentiments can significantly hamper revenue growth.

The Indian brokerage industry is highly competitive and competitive pressure can affect the companys

market share and margins.


28/90

27

Geojit Financial ServiceGeojit Financial ServiceGeojit Financial ServiceGeojit Financial ServiceGeojit Financial Service



Revenue growth 35.5 87.4 33.5

Expenses growth 52.7 80.0 43.1

EBITDA growth 11.1 101.8 16.7

PBT growth 8.3 109.4 14.1

PAT growth 13.2 125.0 11.0



Broking income / Total income 94.6 89.4 84.4

Operating expenses/ Total income 27.8 27.6 28.8

Employee cost / Total income 18.1 19.0 21.1

Other expenses / Total income 20.4 17.1 18.3

EBITDA margin 33.7 36.3 31.7

PBT margin 29.1 32.5 27.8

PAT margin 18.5 22.3 18.5




Operating income

- Brokerage related income 514.9 911.5 1,148.8- Financial product distribution 12.9 65.2 95.5

- Portfolio management services 3.5 16.0 20.8

- Others 2.4 17.6 47.3

Total operating income 533.7 1,010.2 1,312.4

Other income 10.6 9.4 48.6

Total revenues 544.2 1,019.6 1,361.1

Expenses

- Operating expenses 151.5 281.2 391.9

- Employee cost 98.4 194.1 287.7

- Administrative and other expenses 110.9 173.9 249.5

Total expenses 360.7 649.3 929.0

EBITDA 183.5 370.4 432.1

Interest and other financing charges 0.0 0.1 2.3

Depreciation 25.3 39.1 51.9

PBT 158.2 331.1 377.9

Taxes 54.1 106.9 133.8

PAT 104.1 224.3 244.1

Add : Share of profit from associates - 2.8 8.1

Dividend on preference share capital (net of tax) 3.1 - -

Adjusted PAT 100.9 227.1 252.1

EPS (INR) 0.7 1.5 1.6


29/90

28



As on 31st MarchAs on 31st MarchAs on 31st MarchAs on 31st MarchAs on 31st March FY05FY05FY05FY05FY05 FY06FY06FY06FY06FY06 FY07FY07FY07FY07FY07


Equity capital 152 152 209

Reserves 176 333 1,997

Networth 328 486 2,206

Secured loans - - -

Deferred tax liability 13 19 24

Tota lTota lTota lTota lTota l 341341341341341 504504504504504 2,2312,2312,2312,2312,231


Fixed assets 134 220 253

Investments 121 118 413

Current assetsCurrent assetsCurrent assetsCurrent assetsCurrent assets

- Sudry debtors 164 352 409

- Cash and bank balances 285 487 1,826

- Loans and advances 418 960 1,139

- Others 3 2 18

Current liabilitiesCurrent liabilitiesCurrent liabilitiesCurrent liabilitiesCurrent liabilities

- Current liabilities 697 1,448 1,561- Provisions 90 192 271

Net current assets 82 162 1,559

Goodwill 4.1 3.8 4.8

Miscellaneous expenses not written off 0 - -

Tota lTota lTota lTota lTota l 341341341341341 504504504504504 2,2312,2312,2312,2312,231



RoA (%) 37.6 53.7 18.4

RoE (%) 39.4 55.8 18.7

EPS (INR) 0.7 1.5 1.6

EPS growth (%) 10.1 107.6 7.5

Book value per share (INR) 2.2 3.2 10.6

P/E (x) 64.1 30.9 28.7

P/B (x) 21.4 14.5 4.4

Price/Revenues (x) 12.9 6.9 7.1


30/90

Most venerable play on Indian mortgagesMost venerable play on Indian mortgagesMost venerable play on Indian mortgagesMost venerable play on Indian mortgagesMost venerable play on Indian mortgages

HDFC has an unbeatable track record of steady, regular, and predictable growth in asset size,

earnings, and profitability. We expect the banks loan book, with its strong brand recall and

superior real estate knowledge, to grow by 25% CAGR in FY07-09E. Consequently, we

expect its revenue and PAT to grow by 26% and 21% CAGR, respectively, over FY07-09E.

Spreads likely to be maintained at 2.3-2.5% levelSpreads likely to be maintained at 2.3-2.5% levelSpreads likely to be maintained at 2.3-2.5% levelSpreads likely to be maintained at 2.3-2.5% levelSpreads likely to be maintained at 2.3-2.5% level

HDFC has been proactive in maintaining healthy margins, and with superior pricing power it

has been able to pass on the increased cost of funds. Its interest spreads improved to 3.0%

due to improvement in yields and decline in the cost of funds due to repaying of high cost

borrowings in Q2FY08. We expect its interest spreads to remain at the 2.3-2.5% level over

FY08-09E and margins to improve to 3.2-3.4%.

Investment in subsidiaries explains ~35% of market capInvestment in subsidiaries explains ~35% of market capInvestment in subsidiaries explains ~35% of market capInvestment in subsidiaries explains ~35% of market capInvestment in subsidiaries explains ~35% of market cap

Besides the core business, HDFCs life and general insurance, AMC, and banking businesses

are also growing at a rapid pace. We value HDFCs investments at INR 921 per share with

stake in HDFC Bank contributing INR 488 per share, life insurance INR 320 per share, asset

management INR 71 per share, general insurance INR 10 per share, and venture capital INR

18 per share. It has recently proposed a 74:26 tie up with a Munich Re Group companyErgo

International. The partnership will enable it to gain traction in its general insurance business,

which has remained muted over the past two-three years.


After adjusting for the value of the investments, the stock is trading at 5.3x FY09E book and

22.9x FY09E EPS. On SOTP basis the stock is valued at INR 2,763 per share in FY09E and

INR 3,217 per share in FY10E.

HDFCHDFCHDFCHDFCHDFC INR 2,688INR 2,688INR 2,688INR 2,688INR 2,688

Premium frenchise, premium valuation

Reuters : HDFC.BO

Bloomberg : HDFC IN


52-week range (INR) : 2,965 / 1,397


M cap (INR bn/USD mn) :749.7/18,840.6



Promoters : 0.0


FIIs : 79.9

Others : 13.4

November 29, 2007


Edelweiss Research is also available on Bloomberg EDEL , Thomson First Call, Reuters and Factset.Edelweiss Research is also available o

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