COMPANY NOTE

Target Change

30 June 2015

India | Financials | Banks

BUY
Price target INR1,265.00
(from INR1,260.00)
Price INR1,067.15

On Track to Outperform
Key Takeaway
HDFC Bank continues to put greater thrust on cost control & productivity.
Sees opportunity in market share gain and has articulated it as key business
strategy. Employee & customer additions, branches and market share are key
parameters to track. Also see All About Execution - Pole Vaulting Higher. HDFCB
is our top pick in the sector. Retain Buy with PT of Rs1,265.
Profitability matrix and business thrust. In the last ten years, HDFC Bank has for
the third time changed its business strategy. During FY11, the banks had articulated its
strategy to "innovate on products to target and attract customers". This has now given way
to "increase in market share across businesses in the banking" (Ex 5). Meanwhile, HDFC
Bank continues to focus aggressively on improving the per-customer and per-employee
profitability (Ex 1-4).

Financial Summary
Net Debt (MM):

NA

Market Data
52 Week Range: INR1,109.30 - INR791.40
Market Cap. (MM):
INR2,674.8BN
Shares Out. (MM):
2,506.5
Float (MM):
1,987.6
Avg. Daily Vol.:
1,765,861

Fee trend down; improve with economic pick up. Fees' share as proportion of the
business undertaken have come off sharply from levels of 2%+ (Ex 7). Third party distribution
has improved in FY15 with 15% contribution to fee compared to 11% in FY14 (Ex 8, 9).
With increased branch presence, HDFC Bank is sourcing ~Rs11bn per month in home loans
compared to Rs10bn in FY13/FY14 - commission rate flat at 1.1% (Ex 10, 11)
Credit profile risk-weight mix marginally up. Risk-weight categorisation of the gross
exposure has shifted credit risk weight marginally higher. Such a shift is likely as the bank
is doing more non-schematic retail loans which havent received a formal credit scoring attracts risk-weight in excess of 100%. (Ex 12, 13).
Balance sheet granularity improves. While CASA ratio has come off, retail deposits
make up to 80% of total deposits (Ex 15). Better ALM resulted in Liquidity Coverage Ratio
of 100% and negative Structural Funding Gap suggests highly liquid balance sheet (Ex
16-18)
Asset quality under control. The gross slippage ratio has peaked out at 1.9% in FY14.
For FY15, slippage ratio was 1.6%, although it included a corporate asset slippage worth
Rs5.7bn. Provision coverage ratio has improved to 74%. HDFC Bank carries 84bps in general
provision. HDFC Bank is also actively doing recoveries from past written-off accounts with
recovery rate improving to 24% (Ex 24, 25).

Nilanjan Karfa *
Equity Analyst
+91 22 4224 6118 nkarfa@jefferies.com

Valuation/Risks
The stock trades at 4.2x book (Mar15) & 20.3x 12-month rolling earnings (to Mar16). PT of
Rs1,265 implies 4.3x P/B (Mar16) & 19.3x P/E (to Mar17) vs. last 8-yr averages of 3.9x and
19.8x. Key risks: Weak loan growth and asset quality.
INR

Prev.

2015A

Prev.

2016E

Prev.

2017E

Prev.

2018E

Operating Profit

174,046.0 174,045.0

218,741.0 218,742.0

267,747.0 267,750.0

319,938.0 319,943.0

Net Profit

102,161.0 102,159.0

130,423.0 130,424.0

162,466.0 162,467.0

201,205.0 201,208.0

BV/Share

237.60

P/B
Cons. EPS

237.20

278.30

4.5x

277.90

329.90

3.8x

329.50

393.50

3.2x

393.10
2.7x

--

41.96

--

51.74

--

63.42

--

--

--

41.70

--

52.50

--

65.40

--

81.00

EPS
FY Mar
FY P/E

25.6x

20.3x

16.3x

Anurag Mantry *
Equity Associate
+91 22 4224 6129 amantry@jefferies.com

* Jefferies India Private Limited

Price Performance
1,200
1,100
1,000

900

13.2x
800

700
JUL-14

OCT-14

FEB-15

JUN-15

Jefferies does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that Jefferies may have a
conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment
decision. Please see analyst certifications, important disclosure information, and information regarding the status of non-US analysts on pages 12 to 15
of this report.

EQUITY RESEARCH INDIA

HDFC Bank (HDFCB IN)

HDFCB IN
Target Change
30 June 2015

Profitability matrix and business thrust

HDFC Bank continues to focus aggressively on improving the per-customer and peremployee profitability. Stringent cost control in the past should provide additional
operating leverage as loan growth improves. Meanwhile, investment in the business has
picked up with chunky customer additions that contributes heavily to the profitability.
Exhibit 1: Customer selection (wallet share/cross-sell) and cost control has pushed the trend on a higher trajectory
120

Downturn

110

Up cycle

3,250

Downturn

2,900

100

2,550

90

2,200

80

1,850

70

1,500

60

1,150

50

40

800
FY01A

FY02A

FY03A

FY04A

FY05A

FY06A

FY07A

FY08A

FY09A

Business per employee (Rs mn)

Source: Jefferies estimates, company data

80

32.7

65
60

50

35

3.40

33

21.9
19.0

29

3.00

27

2.80

23

2.60

21

2.40

19

45
40

2.00

15
FY10A

FY11A

Employees

FY12A

FY13A

FY15A

2.20

17
FY09A

FY14A

FY14A

CBoP merger and

subsequent rationalisation

3.20

25

18.0

FY13A

Profit per customer (Rs) - RHS

31

28.9

26.0

55

FY12A

Exhibit 3: Bring greater efficiency (employee per customer)

75
28.7

FY11A

Business refers to aggregate of loans and deposits

Exhibit 2: No. of employees and net customer base

70

FY10A

FY07A FY08A FY09A FY10A FY11A FY12A FY13A FY14A FY15A

FY15A

No. of employee per customer

Customers (mn) - RHS

Source: Jefferies, company data

Source: Jefferies, company data

Exhibit 4: Larger contribution to profit from new customer additions

100%

3%

17%
80%

22%

49%

53%

60%

40%

123%

122%

83%

97%
47%

0%

68%

78%

51%

20%

41%
66%

59%
34%

32%

-22%

-23%
-20%

FY06A

FY07A

FY08A

FY09A

FY10A

Profit per customer

FY11A

FY12A

FY13A

FY14A

FY15A

Customer

Source: Jefferies, company data

page 2 of 15

Please see important disclosure information on pages 12 - 15 of this report.

Nilanjan Karfa, Equity Analyst, +91 22 4224 6118, nkarfa@jefferies.com

HDFCB IN
Target Change
30 June 2015
Getting aggressive on growth strategy
In the last ten years, HDFC Bank has for the third time changed its business strategy.
During FY11, the banks had articulated its strategy to innovate on products to target and
attract customers. This has now given way to a raw ask of increase in market share across
businesses in the banking domain.
Exhibit 5: Another change in Mission, Business Strategy and Approach to business
FY03 - 10

FY11 - 14

FY15 onwards

Increase its market share in Indias expanding banking and financial services
industry by following a disciplined growth strategy focusing on balancing
quality and volume growth while delivering high quality customer service;

Develop innovative products and services that attract its targeted

customers and address inefficiencies in the Indian financial sector

Increase our market share of Indias expanding banking and financial

services industry
Increase our geographical reach

Leverage its technology platform and open scaleable systems to deliver

more products to more customers and to control operating costs

Increase its market share in Indias expanding banking and financial services
industry by following a disciplined growth strategy focusing on balancing
quality and volume growth while delivering high quality customer service

Cross-sell our broad financial product portfolio across our customer base

Maintain high standards for asset quality through disciplined credit risk
management
Develop innovative products and services that attract its targeted
customers and address inefficiencies in the Indian financial sector
Continue to develop products and services that reduce its cost of funds

Leverage its technology platform and open scaleable systems to deliver

more products to more customers and to control operating costs
Maintain high standards for asset quality through disciplined credit risk
management
Continue to develop products and services that reduce its cost of funds

Focus on healthy earnings growth with low volatility

Focus on healthy earnings growth with low volatility

Continue our investments in technology to support our digital strategy

Maintain strong asset quality through disciplined credit risk management
Maintain a low cost of funds
Integrate our activities in community development, social responsibility
and enviromental responsibility with our business practices and operations

Source: Jefferies, company data

Fee trend down; improve with economic pick up

While fee income is the dominant contributor non-interest income, its share as proportion
of the business undertaken e.g. lending, non-funded lines like guarantees and
acceptances, have come off sharply from levels of 2%+. (Exhibit 5)
Exhibit 6: Split of Non-interest Income Fee, FX/derive. big contributions
100%
80%
60%
40%
20%
0%
-20%

FY08A

FY09A

FY10A
Fee

FY11A

Trading

FY12A

FX and derivative

FY13A

FY14A

FY15A

Others

Source: Jefferies, company data

Exhibit 7: Fee* from all businesses have come off sharply

2.2%

2.1%
2.0%

1.9%
1.8%

1.7%

FY15A

FY14A

FY13A

FY12A

FY11A

FY10A

1.6%

CEB as % of avg. loans, guarantees & acceptances

Source: Jefferies, company data

page 3 of 15

Please see important disclosure information on pages 12 - 15 of this report.

* Commission, Exchange and Brokerage income

Nilanjan Karfa, Equity Analyst, +91 22 4224 6118, nkarfa@jefferies.com

HDFCB IN
Target Change
30 June 2015
Third party distribution contributes 15% to fee
While commission pools are down, the bank is aggressively chasing businesses where it
has the reach. Third party distribution has improved in FY15 with 15% contribution to
total fee income compared to 11% in FY15. Bulk of this is driven by sharp improvement in
equity market indices resulting is mutual fund cross-sell as well as a bottoming out in the
life insurance premium growth.
Exhibit 8: Fee from third party distribution (Rs bn)

Exhibit 9: Fee contribution from third party distribution

12.0
9.88

21%

10.0
7.48

8.0

17%

7.75

7.27

15%

6.31

15%
11%

6.0
4.0

2.0
0.0
FY11A

FY12A
Life

FY13A

General

FY14A

FY11A

FY15A

FY12A

FY13A

FY14A

FY15A

Third party distribution - contribution to total fee

Mutual fund etc.

Source: Jefferies, company data

Source: Jefferies, company data

Home loan sourcing small but profitable business

Apart from third party distribution, HDFC Bank also acts as sourcing agent of home loans
for HDFC Limited (HDFC IN, Hold). With increased branch presence, HDFC Bank is
currently sourcing roughly Rs11bn per month in home loans compared to Rs10bn in the
earlier two years.
Economically, this is a very business with sourcing commission flat at 1.1% for the last six
years, which contributes a mere 2% in over fee income. Of the business sourced and sold
to HDFC Limited, the bank can repurchase 55% of origination if the loans are classified as
priority sector loans or 70% of the origination for other loan categories. The bank pays a
fee for servicing of loans handled by HDFC Limited.
Exhibit 10: Home loan sourcing and repurchase (Rs bn)
132

140

120

120
84

80

66

62

54

48

82

2.5%
2.0%

66
49

44

50

52

56

40
20

3.5%

3.0%

96

100

60

120

Exhibit 11: Commission rate 1.1%; fee contribution 2.1%

1.5%
1.0%

16

0.5%

0.0%

FY07A FY08A FY09A FY10A FY11A FY12A FY13A FY14A FY15A

Home loan sourced

Loans repurchased

Source: Jefferies, company data

page 4 of 15

Please see important disclosure information on pages 12 - 15 of this report.

FY07A FY08A FY09A FY10A FY11A FY12A FY13A FY14A FY15A

Contribution to fee

Commission for sourcing

Source: Jefferies, company data

Nilanjan Karfa, Equity Analyst, +91 22 4224 6118, nkarfa@jefferies.com

HDFCB IN
Target Change
30 June 2015

Credit profile risk-weight mix marginally up

Risk-weight categorisation of the gross exposure (funded and non-funded) has shifted
credit risk weight marginally higher. According to the management, such a shift is likely as
the bank is doing more non-schematic retail loans including person, cards, loans against
shares and loans which havent received a formal credit scoring. Such loans attract a riskweight which is in excess of 100%.
Exhibit 12: Risk-weight increased share of non-rated* retail has increased
22.8%

23.1%

33.7%

36.0%

40.6%

43.5%

40.9%

FY13A

FY14A

FY15A

26.9%

24.7%

25.1%

26.1%

27.8%

36.0%

35.4%

33.7%

32.0%

31.6%

37.1%

39.9%

41.2%

41.9%

FY09A

FY10A

FY11A

FY12A

< 100% risk weight

= 100% risk weight

Source: Jefferies estimates, company data

> 100% risk weight

* personal/cards/commercial, wholesale

Exhibit 13: Movement in mix of loan book (Basel II classification)

Net advances
Wholesale
Retail
Housing
Personal
Business banking
Loan against shares
Credit card
Vehicle loan
CV/CE
Auto
2 wheeler
Gold loan
Kisan Gold Card
Others loan

FY15A
100%
53%
47%
7%
7%
5%
0%
4%
16%
3%
11%
1%
1%
4%
2%

FY14A
100%
51%
49%
6%
7%
8%
0%
4%
17%
5%
11%
1%
1%
3%
2%

FY12A
100%
44%
56%
7%
7%
10%
1%
4%
21%
7%
14%
1%
2%
0%
5%

FY10A
100%
50%
50%
7%
7%
9%
1%
3%
20%
5%
14%
1%
0%
0%
3%

FY08A
100%
38%
62%
0%
11%
14%
2%
5%
27%
9%
15%
2%
0%
0%
3%

Source: Jefferies, company data

Balance sheet granularity improves further

HDFC Bank continues to place greater thrust on achieving the lowest cost of funds and a
near match in the asset-liability profile. This automatically results in the bank improving
on the granularity of the deposit profile which is the best across the industry. While
CASA ratio has come off first with savings account rationalisation 2-3 years back, the
pronounced economic slowdown has seen a toll in the current accounts as well.
However, retail deposits including retail savings and term deposits make up to 80% of the
total deposits, which is the highest among banks in India.
The metric is pretty much similar on the asset side where the maturity mix has been nearly
flat across the years. This has resulted in Liquidity Coverage Ratio of 100% and a Structural
Funding Gap which is a negative number suggests highly liquid balance sheet.

page 5 of 15

Please see important disclosure information on pages 12 - 15 of this report.

Nilanjan Karfa, Equity Analyst, +91 22 4224 6118, nkarfa@jefferies.com

HDFCB IN
Target Change
30 June 2015

80%

44.0%

44.8%

47.4%

48.4%

85%
75%

27.7%

65%
60%

55%
50%

FY15A 16.3%

45%

Share of Retail deposit (%)

Saving (%)

Share of CASA (%)

Source: Jefferies, company data

Source: Jefferies, company data

Exhibit 16: Maturity profile of deposits

Exhibit 17: Maturity profile of domestic loans

3%

6%

10%

10%
26%

62%

68%

8%

24%

4%

8%

9%

9%

8%

8%

7%

8%

56%

47%

51%

48%

53%

54%

55%

55%

11%

11%

10%

10%

26%

61%

45%

44%

48%

47%
18%

8%

8%

4%

4%

6%

5%

7%

19%

21%

26%

26%

24%

23%

20%

22%

2009

2010

2011

2012

2013

2014

2015

2008

27%
2008

60%

26%

<6m

6 m - 1 yr

1 - 3 yr

FY15A

FY14A

FY13A

FY11A

FY10A

FY09A

FY12A

40%
FY08A

FY14A

FY13A

16.7%

17.7%

28.1%

29.8%

30.0%

70%

18.4%

22.3%
FY11A

Demand (%)

Exhibit 15: Retail makes up ~80% of deposits granular

FY12A

51.0%
30.4%

50.0%
29.8%
22.2%

FY10A

FY09A

FY08A

19.9%

28.5%

24.4%

26.0% 44.4%

45.0%

Exhibit 14: CASA ratio largely flat

14%
31%

28%

31%

28%

28%

28%

27%

2009

2010

2011

2012

2013

2014

2015

<6m

> 5 yrs

Source: Jefferies estimates, company data

12%

12%

6 m - 1 yr

1 - 3 yr

> 5 yrs

Source: Jefferies estimates, company data

Exhibit 18: Structural funding gap highly liquid balance sheet

2013

-15.3%

2014

2015

-16.5%
-19.8%

Structural Funding gap

Source: Jefferies estimates, company data

*SFG = ((Deposits and Borrowings maturing in 1 year Loans and Investments
maturing in 1 year Cash Interbank assets) / Total assets

page 6 of 15

Please see important disclosure information on pages 12 - 15 of this report.

Nilanjan Karfa, Equity Analyst, +91 22 4224 6118, nkarfa@jefferies.com

HDFCB IN
Target Change
30 June 2015

Asset quality under control

We believe the asset quality at the bank is largely under control. FY15 saw a large
corporate account declared as NPA, it didnt cause much dent in the profitability.
Slippage ratio peaked, coverage ratio improved
The gross slippage ratio for the bank has peaked out with 1.9% slippage ratio in FY14. For
FY15, slippage ratio was 1.6%, although it included a corporate asset slippage worth
Rs5.7bn the domestic exposure of Rs4.5bn was sold to an ARC. Likewise, the provision
coverage ratio has improved to 74% versus 71% three quarters back.
Exhibit 19: Slippage ratio has come off

Exhibit 20: Credit costs remain low, coverage improves

6%

85%

300

83%

5%

250

81%

4%

79%
77%

200

3%

75%

150

2%

71%

73%

100

69%
1%

50

67%
65%

Slippage ratio (%)

Provision coverage

Source: Jefferies estimates, company data

FY15A

FY14A

FY13A

FY12A

FY11A

FY10A

FY09A

FY08A

FY05A FY06A FY07A FY08A FY09A FY10A FY11A FY12A FY13A FY14A FY15A

FY07A

FY06A

0%

Total credit cost (RHS)

Source: Jefferies estimates, company data

The following exhibit shows the gross NPA mix by sub-standard, doubtful categories and
loss categories. Both the Doubtful-3 and Loss category needs to be 100% provisioned.
Accordingly we have shown the two different measures of provision coverage ratio the
adjusted one nets of both the D-3 and Loss category from provisions and gross NPA.
Exhibit 21: Gross NPA (consolidated) split

Exhibit 22: Prov. Coverage (consol) too have ticked up

85.0%

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

80.0%
75.0%

70.0%
65.0%
60.0%

Substandard

Doubtful 1

Doubtful 2

Doubtful 3

Loss

Source: Jefferies, company data

PCR

PCR adj.

Source: Jefferies estimates, company data

Further HDFC Bank carries 84bps in general provision (almost half of that in standard asset
provision and balance is floating provision).

page 7 of 15

Please see important disclosure information on pages 12 - 15 of this report.

Nilanjan Karfa, Equity Analyst, +91 22 4224 6118, nkarfa@jefferies.com

HDFCB IN
Target Change
30 June 2015
Exhibit 23: General provision at 84bps of loans
1.4%

1.2%

1.2%

1.2%
1.0%
0.8%

1.0%

0.9%

0.9%

0.8%

0.8%

0.8%

0.7%

0.6%
0.4%
0.2%
0.0%
FY07A

FY08A

FY09A

FY10A

Standard provision

FY11A

FY12A

FY13A

FY14A

FY15A

Floating provision

Source: Jefferies estimates, company data

Significant thrust of recovery from written-off accounts

An hitherto unexplored area, HDFC Bank seems to actively ensure recoveries from past
written-off accounts are diligently followed and recoveries made. As the following exhibits
reveal, the recoveries has increasingly increased, while we calculate the recovery rate to
have improved to 24%. We calculate recovery rate as the recovery in a years time from
the net written-off assets in the last 4 years (gross write-off less any recovery made).
Exhibit 24: Write-off and recovery across years (Rs bn)

Exhibit 25: Recovery in written-off assets improved (%)

25

25%

20

20%

15

15%

10

10%

5%

0%
FY09

FY10

FY11

FY12

Recovery

FY13

FY14

FY12

FY15

FY13

FY14

FY15

Recovery ratio (%)

Write-off

Source: Jefferies estimates, company data

Source: Jefferies estimates, company data

Valuation & estimate changes

We have made only cosmetic changes while updating our model for the full year numbers
retaining our Buy recommendation with a PT of Rs1,265.
Exhibit 26: Valuation PT of Rs1,265
Methodology
Adj. Book value per share (Q4FY16E)
P/BV multiple
Value per share

Weight

Valuation

295.1
3.6x
1,054

33%

351

Earnings per share (12m to Q4FY17E)

P/E multiple
Value per share

65.4
17.0x
1,112

33%

371

DCF

1,629

33%

Blended value per share (rounded)

543
1,265

Source: Jefferies estimates

page 8 of 15

Please see important disclosure information on pages 12 - 15 of this report.

Nilanjan Karfa, Equity Analyst, +91 22 4224 6118, nkarfa@jefferies.com

HDFCB IN
Target Change
30 June 2015

Exhibit 27: Price-to-adj. book ratio

Exhibit 28: Price-to-earnings ratio

1,200

1,400
5.0x

1,200

4.4x

1,000

3.7x

800

2.5x

600

19.8x

1,000

16.1x

800

12.1x

600

Min

Median

Median + 1 sd

Median - 1 sd

Source: Jefferies estimates, company data

Price

Min

Median

Median + 1 sd

Mar 14

Mar 08

Mar 06

Mar 14

Mar 12

Mar 08
Price

Mar 12

Mar 10

200

Mar 06

200

Mar 10

400

400

Median - 1 sd

Source: Jefferies estimates, company data

Exhibit 29: Summary of estimate changes

Profit & Loss (Rs mn)
Particulars
Net interest income
Non interest income
Fee income
Gross revenue
Operating expense
Pre provision profit
Core PPOP
Loan loss charges
Profit before tax
Tax
Net profit

FY16E
288,977
104,359
78,217
393,336
(174,594)
218,742
211,973
(21,130)
197,612
(67,188)
130,424

New
FY17E
350,320
131,511
100,560
481,832
(214,082)
267,750
257,346
(21,587)
246,163
(83,695)
162,467

FY18E
410,607
170,178
132,016
580,785
(260,842)
319,943
303,837
(15,082)
304,861
(103,653)
201,208

FY16E
288,976
104,359
78,217
393,335
(174,594)
218,741
211,972
(21,130)
197,611
(67,188)
130,423

Old
FY17E
350,318
131,511
100,560
481,829
(214,082)
267,747
257,343
(21,587)
246,160
(83,694)
162,466

FY18E
410,602
170,178
132,016
580,780
(260,842)
319,938
303,832
(15,082)
304,856
(103,651)
201,205

FY16E
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%

change
FY17E
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%

FY18E
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%

Source: Jefferies estimates

page 9 of 15

Please see important disclosure information on pages 12 - 15 of this report.

Nilanjan Karfa, Equity Analyst, +91 22 4224 6118, nkarfa@jefferies.com

HDFCB IN
Target Change
30 June 2015

Financial statements
Income statement
Year end 31 March (Rs mn)
Net interest income
Interest income
Interest expense
Non interest income
Fee income
Trading income
Gross revenue
Operating expense
Employee cost
Admin cost
Pre provision operating profit
Core PPOP (Pre provision operating profit)
Provisions and contingencies
Provision for NPA / restructuring
Depreciation on investment
Profit before tax
Tax
Profit before minorities/associate income
Net profit

FY11A
105,431
199,282
(93,851)
43,352
35,967
(527)
148,783
(71,529)
(28,360)
(43,169)
77,254
77,781
(19,061)
(7,586)
0
58,193
(18,929)
39,264
39,264

FY12A

FY13A

FY14A

FY15A

FY16E

FY17E

FY18E

128,846
158,111
184,826
223,957
288,977
350,320
410,607
278,742
350,649
411,355
484,699
574,753
694,400
864,048
(149,896) (192,538)
(226,529) (260,742) (285,776) (344,079) (453,442)
57,836
68,526
79,196
89,964
104,359
131,511
170,178
42,755
51,668
57,351
65,843
78,217
100,560
132,016
(1,959)
1,613
1,104
5,817
6,769
10,404
16,106
186,682
226,637
264,023
313,920
393,336
481,832
580,785
(92,776) (112,361) (120,422) (139,875) (174,594) (214,082) (260,842)
(33,999)
(39,654)
(41,790)
(47,510)
(62,854)
(77,069)
(93,903)
(58,777)
(72,707)
(78,632)
(92,366) (111,740) (137,012) (166,939)
93,906
114,276
143,601
174,045
218,742
267,750
319,943
95,865
112,663
142,497
168,228
211,973
257,346
303,837
(18,769) (16,764) (15,873) (20,750) (21,130) (21,587) (15,082)
(10,959)
(12,278)
(16,316)
(17,415)
(18,267)
(16,696)
(8,764)
(934)
(522)
41
38
0
0
0
75,137
97,512
127,728
153,295
197,612
246,163
304,861
(23,466)
(30,249)
(42,944)
(51,136)
(67,188)
(83,695) (103,653)
51,671
67,263
84,784
102,159
130,424
162,467
201,208
51,671
67,263
84,784
102,159
130,424
162,467
201,208

Source: Jefferies estimates, company data

Balance sheet
Year end 31 March (Rs bn)

FY11A

FY12A

FY13A

FY14A

FY15A

FY16E

FY17E

FY18E

Loans
Investments
Interest Earnings Assets
Total assets
Deposits
Domestic deposits
Current account (CA)
Savings account (SA)
CASA deposits
Borrowings
Common equity
Total equity (incl prefs, warrants etc.)
Risk-weighted assets (RWA)

1,600
709
2,606
2,774
2,086
2,086
465
634
1,099
144
254
254
1,940

1,954
975
3,138
3,379
2,467
2,467
454
740
1,194
238
299
299
2,419

2,397
1,116
3,786
4,003
2,962
2,962
523
882
1,405
330
362
362
3,059

3,030
1,210
4,635
4,916
3,673
3,673
615
1,031
1,646
394
435
435
3,450

3,655
1,665
5,683
5,905
4,508
4,508
736
1,249
1,985
452
620
620
4,230

4,432
2,070
6,929
7,160
5,304
5,304
896
1,540
2,436
739
722
722
5,027

5,654
2,711
8,895
9,136
6,572
6,572
1,118
2,026
3,144
1,203
851
851
6,338

7,234
3,545
11,437
11,688
8,172
8,172
1,397
2,668
4,064
1,847
1,012
1,012
8,011

Year end 31 March (Rs)

FY11A

FY12A

FY13A

FY14A

FY15A

FY16E

FY17E

FY18E

Shares (mn)
Diluted shares (mn)
EPS - reported
EPS - diluted
Book value
Book value - adjusted
Dividend

2326.1
2337.1
16.9
16.8
109.1
103.1
3.3

2346.7
2358.3
22.1
21.9
127.5
120.3
4.3

2379.4
2386.9
28.5
28.2
152.2
142.8
5.5

2399.1
2407.9
35.5
35.2
181.2
171.2
6.9

2506.5
2451.6
42.2
41.7
247.4
237.2
8.0

2506.5
2484.0
52.0
52.5
288.0
277.9
9.5

2506.5
2484.0
64.8
65.4
339.6
329.5
11.0

2506.5
2484.0
80.3
81.0
403.7
393.1
13.5

Source: Jefferies estimates, company data

Per share data

Source: Jefferies estimates, company data

page 10 of 15

Please see important disclosure information on pages 12 - 15 of this report.

Nilanjan Karfa, Equity Analyst, +91 22 4224 6118, nkarfa@jefferies.com

HDFCB IN
Target Change
30 June 2015
Profitability and other metrics
Year end 31 March
ROA
ROE
NIM
CASA ratio
Non-interest income as % of revenues
Expense ratio
Expense ratio (core, ex treasury)
Credit cost (all inclusive) as % of average loans (bps)
Tax Rate - effective
Loan / Deposit ratio

FY11A

FY12A

FY13A

FY14A

FY15A

FY16E

FY17E

FY18E

1.58%
16.52%
4.23%
52.7%
29.1%
48.1%
47.9%
122
32.5%
76.7%

1.77%
18.12%
4.40%
48.4%
31.0%
49.7%
49.2%
100
31.2%
79.2%

1.90%
19.70%
4.50%
47.4%
30.2%
49.6%
49.9%
72
31.0%
80.9%

2.00%
20.52%
4.40%
44.8%
30.0%
45.6%
45.8%
56
33.6%
82.5%

2.02%
19.60%
4.43%
44.0%
28.7%
44.6%
45.4%
61
33.4%
81.1%

2.00%
18.87%
4.49%
45.9%
26.5%
44.4%
45.2%
52
34.0%
83.6%

1.99%
20.04%
4.47%
47.8%
27.3%
44.4%
45.4%
43
34.0%
86.0%

1.93%
20.90%
4.46%
49.7%
29.3%
44.9%
46.2%
23
34.0%
88.5%

Source: Jefferies estimates, company data

Asset quality
Year end 31 March (Rs mn)
Gross NPA
Net NPA
Loan loss reserve
Floating provision
Standard provision
Gross NPA (%)
Net NPA (%)
Provision coverage incl. written off accounts (%)
Provision coverage (%)
Addition to NPA
Slippage as % of 12m prior loans
Recovery and upgrade from NPAs
Recovery and upgrade as % of opening Gross NPA
Net standard restructured assets
as % of outstanding loans
Gross restructured assets

FY11A

FY12A

FY13A

FY14A

FY15A

FY16E

FY17E

FY18E

16,943
2,964
13,979
7,350
7,603
1.05%
0.19%
82.51%
82.51%
14,510
1.15%
4,049
22.3%
6,455
0.4%
6,455

19,994
3,523
16,471
14,350
9,108
1.01%
0.18%
82.38%
82.38%
15,749
0.98%
3,285
19.4%
7,883
0.4%
7,883

23,346
4,690
18,657
18,350
10,357
0.97%
0.20%
79.91%
79.91%
31,378
1.61%
16,506
82.6%
4,832
0.2%
4,832

29,893
8,200
21,693
18,350
12,605
0.98%
0.27%
72.57%
72.57%
46,218
1.93%
24,854
106.5%
6,103
0.2%
6,103

34,384
8,963
25,421
15,232
15,584
0.93%
0.25%
73.93%
73.93%
47,901
1.58%
24,897
83.3%
3,680
0.1%
3,680

34,763
8,691
26,072
15,232
18,448
0.78%
0.20%
75.00%
75.00%
45,910
1.26%
11,292
32.8%
8,915
0.2%
8,915

34,808
8,702
26,106
15,232
23,340
0.61%
0.15%
75.00%
75.00%
56,815
1.28%
14,080
40.5%
11,361
0.2%
11,361

42,385
10,596
31,788
15,232
29,658
0.58%
0.15%
75.00%
75.00%
73,764
1.30%
16,415
47.2%
14,532
0.2%
14,532

FY11A

FY12A

FY13A

FY14A

FY15A

FY16E

FY17E

FY18E

9.1%
NA
12.23%
16.22%

8.9%
NA
11.60%
16.52%

9.0%
NA
11.08%
16.80%

8.8%
11.77%
11.77%
16.07%

10.5%
13.66%
13.66%
16.79%

10.1%
13.52%
13.52%
16.37%

9.3%
12.77%
12.77%
15.21%

8.7%
12.10%
12.10%
14.20%

Source: Jefferies estimates, company data

Capital and leverage

Year end 31 March (%)
Total common equity as % of assets
CET 1
Tier 1
CRAR

Source: Jefferies estimates, company data

page 11 of 15

Please see important disclosure information on pages 12 - 15 of this report.

Nilanjan Karfa, Equity Analyst, +91 22 4224 6118, nkarfa@jefferies.com

HDFCB IN
Target Change
30 June 2015

Company Description
Promoted by HDFC LTD., HDFC Bank was incorporated in August 1994 and commenced operations as a Scheduled Commercial Bank in
January 1995. HDFC Bank's mission is to be a World Class Indian Bank. The objective is to build sound customer franchises across distinct
businesses so as to be the preferred provider of banking services for target retail and wholesale customer segments, and to achieve healthy
growth in profitability, consistent with the banks risk appetite.

Analyst Certification:
I, Nilanjan Karfa, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and
subject company(ies). 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 research report.
I, Anurag Mantry, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and
subject company(ies). 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 research report.
Registration of non-US analysts: Nilanjan Karfa is employed by Jefferies India Private Limited, a non-US affiliate of Jefferies LLC and is not registered/
qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore may
not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearances
and trading securities held by a research analyst.
Registration of non-US analysts: Anurag Mantry is employed by Jefferies India Private Limited, a non-US affiliate of Jefferies LLC and is not
registered/qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and
therefore may not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, public
appearances and trading securities held by a research analyst.
As is the case with all Jefferies employees, the analyst(s) responsible for the coverage of the financial instruments discussed in this report receives
compensation based in part on the overall performance of the firm, including investment banking income. We seek to update our research as
appropriate, but various regulations may prevent us from doing so. Aside from certain industry reports published on a periodic basis, the large majority
of reports are published at irregular intervals as appropriate in the analyst's judgement.

Explanation of Jefferies Ratings

Buy - Describes securities that we expect to provide a total return (price appreciation plus yield) of 15% or more within a 12-month period.
Hold - Describes securities that we expect to provide a total return (price appreciation plus yield) of plus 15% or minus 10% within a 12-month period.
Underperform - Describes securities that we expect to provide a total return (price appreciation plus yield) of minus 10% or less within a 12-month
period.
The expected total return (price appreciation plus yield) for Buy rated securities with an average security price consistently below $10 is 20% or more
within a 12-month period as these companies are typically more volatile than the overall stock market. For Hold rated securities with an average
security price consistently below $10, the expected total return (price appreciation plus yield) is plus or minus 20% within a 12-month period. For
Underperform rated securities with an average security price consistently below $10, the expected total return (price appreciation plus yield) is minus
20% or less within a 12-month period.
NR - The investment rating and price target have been temporarily suspended. Such suspensions are in compliance with applicable regulations and/
or Jefferies policies.
CS - Coverage Suspended. Jefferies has suspended coverage of this company.
NC - Not covered. Jefferies does not cover this company.
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on the investment merits of the company are provided.

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Jefferies' methodology for assigning ratings may include the following: market capitalization, maturity, growth/value, volatility and expected total
return over the next 12 months. The price targets are based on several methodologies, which may include, but are not restricted to, analyses of market
risk, growth rate, revenue stream, discounted cash flow (DCF), EBITDA, EPS, cash flow (CF), free cash flow (FCF), EV/EBITDA, P/E, PE/growth, P/CF,
P/FCF, premium (discount)/average group EV/EBITDA, premium (discount)/average group P/E, sum of the parts, net asset value, dividend returns,
and return on equity (ROE) over the next 12 months.
Jefferies Franchise Picks
Jefferies Franchise Picks include stock selections from among the best stock ideas from our equity analysts over a 12 month period. Stock selection
is based on fundamental analysis and may take into account other factors such as analyst conviction, differentiated analysis, a favorable risk/reward
ratio and investment themes that Jefferies analysts are recommending. Jefferies Franchise Picks will include only Buy rated stocks and the number
can vary depending on analyst recommendations for inclusion. Stocks will be added as new opportunities arise and removed when the reason for
inclusion changes, the stock has met its desired return, if it is no longer rated Buy and/or if it triggers a stop loss. Stocks having 120 day volatility in
the bottom quartile of S&P stocks will continue to have a 15% stop loss, and the remainder will have a 20% stop. Franchise Picks are not intended
to represent a recommended portfolio of stocks and is not sector based, but we may note where we believe a Pick falls within an investment style
such as growth or value.

Risks which may impede the achievement of our Price Target

page 12 of 15

Please see important disclosure information on pages 12 - 15 of this report.

Nilanjan Karfa, Equity Analyst, +91 22 4224 6118, nkarfa@jefferies.com

HDFCB IN
Target Change
30 June 2015
This report was prepared for general circulation and does not provide investment recommendations specific to individual investors. As such, the
financial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions based
upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Past performance of
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income from, any of the financial instruments mentioned in this report can rise as well as fall and may be affected by changes in economic, financial
and political factors. If a financial instrument is denominated in a currency other than the investor's home currency, a change in exchange rates may
adversely affect the price of, value of, or income derived from the financial instrument described in this report. In addition, investors in securities such
as ADRs, whose values are affected by the currency of the underlying security, effectively assume currency risk.

Other Companies Mentioned in This Report

Housing Development Finance Corp. Ltd. (HDFC IN: INR1,296.45, HOLD)

Distribution of Ratings
IB Serv./Past 12 Mos.
Rating
BUY
HOLD
UNDERPERFORM

page 13 of 15

Please see important disclosure information on pages 12 - 15 of this report.

Count

Percent

Count

Percent

1076
818
166

52.23%
39.71%
8.06%

300
161
13

27.88%
19.68%
7.83%

Nilanjan Karfa, Equity Analyst, +91 22 4224 6118, nkarfa@jefferies.com

HDFCB IN
Target Change
30 June 2015

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Nilanjan Karfa, Equity Analyst, +91 22 4224 6118, nkarfa@jefferies.com

HDFCB IN
Target Change
30 June 2015
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Nilanjan Karfa, Equity Analyst, +91 22 4224 6118, nkarfa@jefferies.com