Team F

9th January, 2009

IAIP Student Research

This report is published for educational purposes only by students competing in the Investment Research Challenge TM.

$n%ustr& ' "inancia Services

Housing Deve op ! e n t "inance #orporation

Recommendation: BUY Price Tar"et: INR 22#!
Jun. 23.78 18.8 0.00 Sept. 23.02 22.79 0.00 Dec. 27.02 24.68 0.00 Year 85.77 84.32 98.10 P/E Ratio 25.2 20.6 18.3

Ticker: NSE HDFC Price: INR 1628 1!

Earnings/Share Mar. 2007A 2008A 2009E 14.7 16.4 0.00

Hi"$%i"$t&
Sai%in" t$ro'"$ t$e %i('idit) &torm: HDFC appears to have ridden out the liquidity storm of ctober !""# $ith resilience% despite its theoretical vulnerability as a $holesale funded% non ban& lender. Most non ban& lenders have seen a severe crisis of resources% as ban&s have almost stopped lending to this category. HDFC has buc&ed that trend% $ith retail deposits% insurance companies and its status as a priority sector borro$er 'refinancing for its sub Rs!mln home loans is part of the ban&s( directed lending targets) serving it $ell. *&&et ('a%it) im+ro,e&- de&+ite c$a%%en"in" en,ironment: HDFC(s solid performance in each successive quarter &eeps us surprised positively% particularly given the deteriorating environment. The fact that they reported their lo$est *+, ratio this quarter for the last -" second quarter earnings seasons $hile maintaining gro$th and profitability is a revelation of their superior management and operations. Hi"$ Tier 1 Ratio& make .or a "ood c'&$ion: In the current environment characterised by a significant degree of ris& aversion% $ith access to capital mar&ets virtually fro.en due to fears of a potentially unprecedented level of capital calls% HDFC ,td(s strong Tier - ratio of -/0 affords a measure of protection. 1 sound Tier - position 2 111 credit rating provides capital leverage potential as $ell as the fle3ibility to tap Tier ! capital raising options in the event the company is obliged to shore up capital. PSB S+ecia% Packa"e / Tem+orar) ero&ion in market &$are 0't %imited 0ottom %ine im+act: The steep concession in housing loan rates offered by +45s 'for ne$ home up to 6une "7) $ill put HDFC at a disadvantage. ,oans up to Rs!" la&h forms more than 8"0 of HDFC(s advances boo& implying li&ely competition in this target customer segment. Despite the steep concession rates under the pac&age% $e believe the manner of e3ecution of the scheme by +45s $ill decide the e3tent of damage to HDFC.

Important disclosures appear at the back of this report

Indian 1ssociation of Investment +rofessionals TM Investment Research Challenge is a trademar& of the *e$ 9or& 4ociety of 4ecurity 1nalysts

IAIP

9th January 2009

1arket Pro.i%e
8! :ee& +rice Range 1verage Daily >olume 5eta Dividend 9ield '?stimated) 4hares utstanding Mar&et Capitali.ation Institutional Holdings Insider Holdings 5oo& >alue per 4hare '<-A"@A"#) Return on *e$ :orth I*R -!"! ; <!8= /77#7= -.8"0 I*R !#/ Mio I*R /@!<#."/ Mio #@.8<0 ; I*R /!".@ !"0

-."=

STERN RESEARCH

IAIP

9th January, 2008

In,e&tment S'mmar)
HDFC is the strongest and the most venerable play on Indian mortgages over the long term. :e e3pect the company% $ith its strong brand recall% superior real estate &no$ledge% and revamped distribution strategy% to attain !<0 C1BR in loan disbursement over F9"#;-"?. Consequently% $e e3pect HDFC to deliver gro$th of !80 C1BR in loan boo&. HDFC has differentiated itself from its peers $ith its diversified net$or& and revamped distribution strategy. f the total individual loans disbursed during F9"#% @80 $ere routed through third party channels vi..% HDFC 5an&% D41s% and distribution subsidiaries. The company has been highly proactive in passing on the cost and benefit to customers. :ith strong pricing po$er in the housing finance space% $e believe it $ill be able to pass on any increased funding cost to customers. Its recent de rating $as driven by fears of higher;than;e3pected loan losses resulting from e3posure to the commercial real estate segment% potential hi&es in home loan delinquencies% and a great degree of ris& aversion. Despite these head$inds% HDFC ,td has done $ell. It has an admirable under$riting trac&; record% $ith gross *+1 of -."/0 '".@!0 on a -#";day scale)% bestCin;class cost;income ratios 'around -"0)% and high capital adequacy levels 'Tier - of -/0).. :e do not anticipate a surge in credit costs but $e are raising our loan loss provision estimate% from "."80 to -0% to factor in the effect on valuations. Considering the adverse operating environment and its lo$ valuations from an historical perspective% HDFC ,td is a bargain% in our opinion% and $e initiate a buy rating on the stoc&. Standin" amid t$e r'00%e 2 de%i,erin" con&i&tent%) HDFC ,td. has an e3cellent trac& record of achieving its gro$th rate $ithout compromising its asset quality. The Company(s core e3pertise in mortgage lending% coupled $ith three decades of e3perience% has helped it in maintaining the position of mar&et leader in its domain. Ho$ever% the domestic economy is presently $itnessing several macroeconomic disturbances in the shape of slo$ing do$n BD+ gro$th% tightening liquidity% and high inflation. Thus% $e e3pect gro$th in advances to fall belo$ the management(s guidance of !80 for a couple of years. 1t the same time% $e do not e3pect the Company to reduce its lending rate $ithout observing any fall in the cost of funds. This $ill help it to minimise the e3pected fall in its spreads. :e believe that HDFC had follo$ed sound ris&;management practices C $hen ban&s $ere gro$ing mortgages at /";8"0 9o9 bet$een !""! and !""=% HDFC gave up mar&et share and gre$ at around !"; !80. Moreover% its reliance on mortgage bro&ers $as very lo$ 'only <0 of loans originated by outside agents). This gives us the comfort that HDFC(s asset quality $ill behave much better than that of the other Indian ban&s in the coming slo$do$n. Fi"'re 1: HDFC 3td ,& Ni.t)

Source: NSE website and company sources

INVESTMENT RESEARCH CHALLENGE STUDENT RESEARCH

HDFC(s near;term stoc& performance may be hampered by adverse headlines from to its $holesale funding profile and developer e3posure to special loan pac&age by public sector ban&s. The actual balance sheet% ho$ever% remains in immaculate condition and $e thin& the valuations are more than Dustified by the high quality of the business.

4a%'ation
:e have valued HDFC ,td. using 4um of the parts approach. The main HDFC mortgage 5usiness has been valued using +riceA5oo& >alue Multiple. *&&'m+tion&: :e calculated Cost of ?quity as -/.@#0 using C1+M model. Bro$th Rate is dependent on India(s BD+ gro$th. Return on *e$ equity has been assumed based on past records 2 e3pected returns. +resent values have been calculated by considering Income 2 Change in ?quity >alue ',iability 2 1ssets). The no. of outstanding shares is !#/."/ Cr. For further details please refer Appendix for calculations. B'&ine&& Unit 1ort"a"e 0'&ine&& HDFC Bank *&&et 1ana"ement 4ent're Ca+ita% 3i.e In&'rance ;r'$ Finance ;enera% in&'rance Tota% 1et$od !.@73 +A5> !.!-3 +A5> =.<@ 0 1GM -8 0 1GM -@3*51+F?mbed !.!=3 +A5> !.!/3 +A5> 4a%'e INR Mn /!<%@-@ //-%87< /@%7-7 =%#-" -8/%/7< 88-/ !%<78 Stake % -""0 -70 @"0 -""0 =/0 @!0 =/0 HDFC Intere&t INR Mn /!<%@-@ #<%7"< !#%-8=%#-" --/%<!8 <<7-%==! @@!%7@= S$are 4a%'e INR -%/7-.@ !78./ 77.!=.8 /"!.@ --.7 @.! !%<</ Ho%din" Di&co'nt INR -%/7-.@ !@8.7 #7.! !/.= <@!.< -".= 8.@ !%!8"

Sen&iti,it) *na%)&i&:
127 187 197 1#7 167 1:7 187 167 -#!/ -7/!"8@ !-78 !!=! !/"" !8<# 2!7 -#<7 -78= !"=< !!-!!7/ !/-@ !8@217 -#8# -7=@ !"#7 !!<< !<-!/<7 !8== R5E 227 -#=" -7#7 !-"@ 2250 !<!# !/@!877 287 -##/ !""8 !-!< !!@= !<8" !/== !@!! 297 -#7@ !"-7 !-<7 !!#< !<@= !8"" !@// 2#7 -7-= !"<7 !-8@ !<"@ !<#7 !8-@ !@@"

C5E

The drivers for price for HDFC ,td. are R ? 2 Bro$th. HDFC has historically quoted at a premium over its peers because ofE R ? in the mid !"s 2 *+1s in -;-.80 band. Fall in R ? to sub !" levels% given the macro economic conditions can lead to a #;-"0 do$nside from the estimated target price of I*R !!8" per share.HDFC has consistently gro$n at -=;-#0F even in times of economic turmoil $ith its focus on maintaining credit quality% lo$ *+1s 2 high R ?. 1ny decline in the gro$th rate subDect to the global scenario can affect the target price to the tune of -!;-80.Cost of ?quity C Increase in interest rates% fiscal 2 monetary tightening% increased mar&et ris& can lead to higher cost of borro$ing 2 cost of equity. This along $ith decrease in gro$th 2 R ? can lead to do$nside of !" C !80 from the estimated target price. ;ro<t$ Rate 187 !877 !/@!<!# 2250 !-"@ !""@

C5E

127 187 197 1#7 167 1:7

1#7 !!!! !--!"-! -7/8 -#</ -=8=

167 !<<7 !!-= !--!"<7 -7!7 -#</

1:7 !/@@ !<<< !!-= !-<7 !"-! -7!7

167 !=// !87/ !/88 !<@= !!-!-"@

2!7 !#77 !=<# !8#< !/#7 !<!! !!"@

217 <"=!### !=!= !@!! !/// !<-=

187

-@7"

-=@!

-#/"

-7!7

!""@

!-""

!!"@

B'&ine&& De&cri+tion
Housing Development Finance Corporation ,td. 'HDFC)% established in -7==% is India(s largest provider of housing finance% primarily focusing on retail housing. HDFC has !8/ outlets in India including / regional offices and over 7" locations are covered through its outreach programme. The strong distribution net$or& has helped the corporation disburse housing loans in more than !%/"" to$ns and cities in India. HDFC has a customer base of <.! million. It has a stable and e3perienced management $ith an average tenor of senior management of over -8 years. HDFC is among the better;diversified players in the Indian financial services space $ith leadership position in mortgage mar&et and strong presence in other financial services 'life insurance% asset management and ban&ing). perationally% HDFC(s fund mobilisation abilities and operational efficiency should help maintain healthy earnings momentum in a tough operating environment.

Ind'&tr) 5,er,ie<: HDFC &tand& o't in t$e cro<d=

1dditional demand for housing forecasted by the --th +lanning Commission for !"-!;-< is around @.=7Mn. 5y using scenarios depending upon various loan gro$th rates '!.<80% !.8"0 2 <.<"0) proDected housing demand for !"-!;-< vi.. 8.7=% @.<8 and =.@! million respectively 'HReport on Trends and +rogress of Housing in India(% !""8 by *ational Housing 5an& ) Demo"ra+$ic Dri,er& .or Ho'&in" Demand 1 typical borro$er $ould most li&ely to be a male in the age group of /" to 8" having an average monthly income of Rs.-"%""" $ho prefers to buy a house of the si.e of -"" square meters. Though most of the borro$ers are in the age group of /";8"% a significant !80 are belo$ <8 years of age. There is a falling trend in average age profile of the housing demand. It is also found that income and price elasticity of demand is less than unity. 1n increase in house price by -"0 results in a /.@0 decrease in housing demand as affordability comes do$n% $hile a -"0 increase in the monthly income of the borro$er leads to increase in housing demand area by 8.7@0. Breater number of dependents also reduce housing demand as serving more number of dependents in a family reduces the affordability and hence the si.e of the house. The demand for bigger

house is greater in urban areas than suburban areas% $hich in turn is greater than demand in rural areas I access to housing loan% capacityAaffordability might be reasons driving the same. Factor& a..ectin" de.a'%t rate& on $ome %oan& 5igger the si.eAvalue of house% higher the monthly income% presence or more number of co borro$ers% lo$er the chance of default. This collateral margin is also a significant determinant of rate of recovery of defaulted loans. 1 -"0 increase in the ratio leads to ".<#0 increase in the recovery rate. Further% due to the presence of guarantee% ban&(s li&elihood of recovery is more. ?MI to Income ratio is positively associated $ith the estimated li&elihood of default. 1 -"0 increase in ?MI to Income ratio is estimated to increase the li&elihood of default by /.8!0 C'&tomer& in r'ra%- &emi 'r0an and 'r0an area& are not e('a%%) ri&k) Rural and semi urban people are ris&ier than the urban borro$ers. Ho$ever% borro$ers located in big cities are ris&ier than medium and smaller cities. This may be because $ith the activation of personal loan segment by commercial ban&s and easy access to such loans especially in the metro area prompted the e3isting home loan borro$ers to overstretch their financial commitments $ith a consequential deleterious effect on home loan default rate in this segment. Tremendo'& Potentia% in 1ort"a"e Sector The mortgage penetration continues to remain abysmally lo$ C in India the mortgage to BD+ ratio is at around @0 'in F9"#) against over 8-0 in the G41. ?ven if one $ere to benchmar& against more comparable counterparts% the ratio ranges bet$een -80 to !"0 for most 4outh ?ast 1sian nations. 1lso% mortgage credit accounted for merely -!0 of total non;food credit in F9"#% despite the meteoric rise in incremental lending to this segment. :ith changing demographics and fiscal incentives% the mortgage sector is envisaged to $itness a healthy gro$th 'at about !"0 ; !80 9o9) over the ne3t couple of fiscals. *evertheless% the spiralling property prices may prove to be a dampener. n similar lines% the ya$ning gap in infrastructure facilities calls for additional contribution from the private sector players. Cond'ci,e re"'%ator) mea&'re& *on;ban&ing finance companies '*5FCs) and housing finance companies 'HFCs) that $ere banned from accessing the overseas mar&et for resources by the Finance Ministry a fe$ years bac& $ill no$ be able to access lo$ cost funds through the FCC5 route. This $ill not only ease pressure on their fund mobilisation but also help improve their net interest margins '*IMs). Increasing the ris& $eight on the home loan portfolios of HFCs is e3pected to enforce a cautious stance on their part $ith respect to real estate lending and encourage better ris& appraisal. The same% ho$ever% also calls for higher capital adequacy for the housing finance companies from the current minimum requirement of -!0 C1R for *5FCs. nce the amendment to the 4olvency Capital Requirements for the inclusion of mortgage bac&ed securities 'M54) is passed% ban&s and housing finance companies 'HFCs) can sell M54 in the mar&et and raise additional funds at lo$er rates% $hich in turn $ould enable them to lo$er the home loan rates. Through M54% ban&s and HFCs can also reduce their reinvestment ris& besides shoring up their capital to meet the capital adequacy requirements and improve their balance sheets.

Com+etiti,e Po&itionin"
MaDor +layers in Housing Finance are Commercial ban&s follo$ed by Housing Finance Companies. The MaDor Broups are ICICI% HDFC% 45I 2 ,IC. They form more than half of the Housing finance mar&et. The share of public sector housing finance companies has dipped from -".-7 percent in !""-; "! to !.@< percent in !""8;"@% says India(s official auditor. the share of private housing finance companies registered a fall to !7.!< percent in !""8;"@% from 8-."@ per cent in !""-;"!.In the process% scheduled commercial ban&s

increased their share from <8.7"0 to @#.-/0; a factor that has come as a blo$ to traditional housing finance companies. *5FC(s amount to <80 of housing finance mar&et share. The housing finance mar&et% the largest retail finance segment% is estimated at around Rs 7@< billion in !""=;"# $ith average yield of --.80 and average *+M of -.!80. It is gro$ing at -<.<0 '< yr C1BR) and $ill continue to gro$ at -/0. Credit losses have been estimated at ".-0 $ith finance penetration of <80. The average tic&et si.e is ".@= Mn. 7";780 of loans are floating rate. HDFC is the mar&et leader among *5FC(s accounting for -/0 of total mar&et. +lease refer to 1ppendi3 for +eer 1nalysis of HFCs 2 Competitor 4corecard 1nalysis.

Com+etiti,e Ed"e Pro&: HDFC is the strongest and most venerable play on Indian mortgages over the long term. The management of the ban& is termed to be one of the best in the country. HDFC has differentiated itself from its peers $ith its diversified net$or& and revamped distribution strategy and has been highly proactive in passing on the cost and benefit to customers. Due to strong credit appraisal 2 recovery system% HDFC has the lo$est *+, ratio of -."/0. 5esides the core business% HDFC(s insurance% 1MC% ban&ing% 5+ % and real estate private equity businesses are also gro$ing at a rapid pace and the estimated value of its investmentsAsubsidiaries e3plains J<"0 of HDFC(s mar&et capitali.ation. Con&: There is a high dependence on individual loans portfolio. 1 maDor sta&e is held by 1merican financial groups $hich are under stress due to economic slo$do$n. 5++ort'nitie& .or Sector: Fast gro$ing insurance business in the country and untapped rural mar&ets. +ossible merger $ith HDFC ban& may reduce cost of funds. T$reat& .or Sector: ,oss of mar&et share to commercial ban&s 2 HFCs and higher than e3pected increase in funding cost could affect long term profits. Ris& of fraud and *+1 accretion due to increasing interest rates and fall in property prices is inherent to the mortgage business.

5't%ook
P'0%ic Sector Bank& S+ecia% Home 3oan Packa"e > 3imited Im+act +ublic sector ban&s '+45s) have announced a special pac&age for home loan borro$ers% as part of the stimulus pac&age% to spur demand for residential property. Importantly% the special pac&age $ill be available only for ne$ home purchases and not for refinancing e3isting borro$ers. :hile there e3ists a significant gap bet$een the current rates% $e believe that HDFC(s cost of funds is li&ely to ease off going for$ard as -";year g;sec yields have come off sharply. The potential decline in HDFC(s cost of funds $ill allo$ it to bridge the interest rate gap. In addition% Reserve 5an& of India(s announcement to treat refinancing to housing finance companies by ban&s as priority sector advances 'for loans up to Rs!" la&h) should result in lo$er cost of funds for HFCs including those for HDFC. 1dditionally% benefits from the release of capital after revision in capital adequacy norms by *ational Housing 5oard $ill partially mitigate the pressure. Increa&ed .oc'& on retai% de+o&it& to .'nd "ro<t$ Deposits gre$ -<0 KoK 'after rising -80 in the previous quarter) and the proportion in total interest; bearing liabilities increased by around <""bp in the past t$o quarters to -7.!0. :e thin& this is commendable in the current liquidity environment and given that HDFC does not have an e3tensive branch net$or& li&e ban&s. 1lmost /80 of incremental borro$ing $as through deposits. Biven that it is primarily $holesale funded% this shift to$ards deposits $ill help HDFC to manage funding costs and margins. Moreover% HDFC is gro$ing deposits at competitive rates relative to ban&s% highlighting HDFC(s strength as a deposit franchisee. Its borro$ing cost is -".=0 'including distribution e3penses). In comparison% ban&s are borro$ing at -".80. Ho$ever% ban&s have to maintain a @.80 cash reserve ratio and !80 in bonds C HDFC does not have any CRR and has to &eep only -!.80 of retail deposits in bonds. Therefore% the incremental funding cost for HDFC is still lo$er than at most ban&s. Concern& on commercia% rea% e&tate re%ated %oan %o&&e& o,erdone: HDFC ,td has the highest gearing to non;mortgage loans% at <<0 of total loans% $hich could result in earnings disappointment. That said% $ith a third of these loans lin&ed to pure proDect related loans% the ris& to earnings is lo$ in our vie$. -!0 of HDFC(s loan boo& 'Rs#-!bn) comprises loans to property developers. These are collateralised by land $ith very comfortable margins% and there has been no stress on this portfolio yet% despite the difficult situation that many developers find themselves in. HDFC is confident of this portfolio behaving $ell% having managed this business through the Hcrisis of the early -77"s. Potentia% %endin" rate c't& and a %ike%) ea&in" o. +ro+ert) rate& ma) .ore&ta%% mort"a"e de%in('encie&: :ith the central ban& cutting the repo rate by -8"bp% to =.80% and the cash reserve ratio by <8"bp% to 8.80% and no$ hinting at cutting policy rates% it $ould be reasonable to conclude the ban& is in a rate cutting mode. 4hould this turn out to be the case% there may soon be some alleviation of the pressures on $holesale funding% $e believe. In this event% $e $ould e3pect HDFC ,td to pass on some of the benefits of funding cost savings to customers through lending rate reductions% a move that $ould go a long $ay to bringing do$n average loan durations% $hile also preventing incremental delinquencies.

Financia% *na%)&i&
Income Statement *na%)&i&: Net Intere&t Income $ill form appro3 <<0 of Interest Income. *on Interest Income $ould not see gro$th due to added price based competition. ?fficiency $ould lead to reduction in operating e3penseAIncome ratio. +rofits $ould be ta3ed at appro3. !=0. Boing for$ard 4preads $ould drive +rofits

1 Du+ont 1nalysis using actual numbers for F9"# and proDected numbers for F9"7;-- sho$s that HDFC has consistently maintained its Return on 1ssets 'R 1) at above <0% $hich is significantly greater than the industry average of !.!0. The Return on ?quity 'R ?) is also quite high in the range of !"0;!-0. :ith the lo$ interest rate environment e3pected to remain for ne3t fe$ years to revive the economy% the average yield on assets and cost of assets% both $ill continue to fall and spread $ill remain constant at around !.<0.

4a%'e dri,er& are "ro<t$ in 3oan Book and S+read& Historically *IMs are stable bet$een !.-; !.!0. :e have assumed fall in *IM in !""7 due to current economic crisis follo$ed by *IMs stabilising again.:e have assumed ,oan boo& $ill continue to gro$ !!0 and above in follo$ing years. :e have ignored ?3ceptional ne off items as they do not drive value in long term. Remaining FCC5s $ill be bought bac& 2 !8 lac shares $ill be ne$ly issued.

Ba%ance S$eet: *on Convertible debentures form the highest portion of funds in !""#. =@0 FCC5s $ere redeemed in !""# and remaining may be done this year. Deposits have been steadily gro$ing and $ill continue to gro$ at -=0. Retail loans form maDority of loans and are e3pected to gro$ o$ing to demand in lo$er middle class.

Di&0'r&ement& in indi,id'a% %oan &e"ment <i%% contin'e to 0e &tron": HDFC seems to be focusing more on individual loan segment% $hich gre$ at a faster pace of <-0 9;o;9 in K!F9"7 compared to overall disbursement gro$th of !<0. The company is deliberately going slo$ in commercial and developer(s space% sensing the ris& in this segment. Real estate lending is becoming more challenging due to high interest rates bac&ground and $ea& property prices. Ho$ever% HDFC has a strong trac& record of consistent gro$th $ith relatively stable spreads and robust asset quality across business cycles. HDFC(s pricing po$er and mar&et share is improving% $hich $ill help it report gro$th of !"0 plus and spreads of !0 plus.

*&&et ('a%it) maintained > 4er) %o< NP3& Despite a scenario of increasing interest rates and a tight liquidity situation% asset quality of HDFC remained strong even in K!F9"7. *+, '7" dpd) declined -!bps 9o9 to -."/0 in K!F9"7 'compared to -."70 in K-F9"7) and loan spread decreased to !.!/0. HDFC(s *+, has been consistently maintained at -0 level across business cycles. 5ut an underperforming real estate sector might potentially hit the asset quality and increase *+,s.

In,e&tment Ri&k&
Increase in competition and sustained slac& in the mortgage mar&et can lead to lo$er gro$th than our estimates. Higher;than;e3pected increase in funding cost and inability to pass the cost to customers in the current tightening monetary environment $ill adversely affect margins and profitability. Ris& of fraud and *+1 accretion due to increase in interest rates and fall in property prices is inherent to the mortgage business. The &ey ris&s to our price target are ; Tem+orar) ero&ion in market &$are The steep concession in housing loan rates offered by +45s $ill put housing finance companies 'HFCs) including HDFC at a disadvantage% albeit up to 6une <"% !""7. ,oans up to Rs!" la&h form more than 8"0 of HDFC(s advances boo& $ith an average tic&et si.e of J-8 la&h% implying li&ely competition in this target customer segment. Consequently for the ne3t si3 months HDFC is li&ely to see erosion in its mar&et share. :e have already factored in a slo$er gro$th in our estimates for HDFC% but any further pac&age from the government 2 the +45s $ill lead to a further do$nside. 1oderation in Di&0'r&ement& :e e3pect disbursement gro$th to moderate initially as property prices correct% and then recover eventually as volumes pic&up driven by declining interest rates and property prices. :e are building in a !"0 disbursement gro$th over the ne3t @ quarters on a rolling basis. Failure to achieve this gro$th $ould hurt the valuations significantly *&&et ?'a%it) 2 Commercia% Rea% E&tate %oan& :hile HDFC has maintained its asset quality $ell so far% as reflected in its gross *+1s% $e cannot rule out slippages in asset quality in the future. HDFC ,td has the highest gearing to non;mortgage loans% at <<0 of total loans% $hich could result in earnings disappointment 'an erosion of ##0 of F9!""7 earnings% assuming a !80 $rite;off in real estate and lease rental loans of c. !"0 of aggregate loans. That said% $ith a third of these loans lin&ed to pure proDect related loans% the ris& to earnings is lo$ in our vie$. Unrea%i@ed "ain& do<n 2! 67 YoY HDFCLs unreali.ed gains on listed investments stood at Rs 7%"!!./ crore at the end of K!F9!""7% indicating a decrease of !".@0 9o9. Ho$ever the same $as !<.80 above the unreali.ed gains of Rs=%<"8.- crore at the end of K-F9!""7. The ongoing deterioration in the equity mar&ets may ma&e it difficult for the company to reali.e attractive gains from its investments. HDFC Bank Aarrant& Full subscription to HDFC 5an&(s $arrant at I*R -8<"Ashare $ould dilute our target price to the tune of #; -"0. :e have not factored this do$nside in our base case as the current prevailing mar&et price is in the band I*R -""" C I*R -"8".

HDFC Bank
?ven as the redemption of investments helped the ban& to raise resource during the quarter% the term deposits still gre$ by =80 9o9 and <.=0 KoK. In coming quarter% the gro$th in advances $ill be difficult to achieve $ithout raising more of term deposits $hich $ill entail higher funding cost. The costAasset ratio for the ban& has not come do$n. 1s compared to an average !.#0 bet$een 4eptember !""8 and 4eptember !""=% the ratio has shot up to <.<0 on account of C5 + merger and as ban& continues to invest in branch net$or&. Higher costAasset ratio has eaten up <";<!bps from Ro1. :e believe that the ratio $ill continue to remain high for at least ne3t t$o quarters. 1lthough the ban& has been able to contain provisioning for the quarter due some $rite bac&s% going for$ard the provisioning requirement may go up to prop up provision coverage.

HDFC 3i.e In&'rance 3td

,o$er than e3pected gro$th rates in ne$ business life insurance premium $ill adversely impact the valuation of HDFC 4tandard ,ife and consequently the parentLs stoc& price. The fundamental drivers deciding the ris& for investing in HDFC ,ife Insurance are policyholders guarantee% operational leverage% interest rate% asset bac&ing regulatory issues and demographics. ?3plosive gro$th going for$ard is reinforced by the macro variables of a lo$ social security cover% untapped and rising household savings as also an encouraging demographic profile. :hile believe the sector $ill deliver about <-0 C1BR over F9"=;-" '/80 for private sector)% the gro$th could come at the e3pense of margins and believe that the *51+ '*e$ 5usiness achieved profit) margins $ill moderate by -8";!""bps over the ne3t three years. 1 strong brand% deep poc&ets and an aggressive posture on distribution $ill be the &ey differentiators.

HDFC Er"o ;enera% In&'rance

S%o< re.orm: Much of this gro$th prediction is based upon the liberali.ation agenda set out by the government and the regulator% the IRD1. Due to a number of competing interests% it should be noted that there is significant potential for delay in this liberali.ation program. Poor c'&tomer +erce+tion: Due to the poor levels of customer service provided by +4G insurers and their failure to pay claims promptly% Indian assureds tend to perceive insurance to be a ta3 'i.e. $ith no returns) rather than a product of genuine economic value.

HDFC 1't'a% F'nd

Mutual funds have been facing a lot of redemption pressure in the last fe$ months. Gnli&e ban&s $hich have a provision $here they can ta&e losses on the asset side% the only resort that mutual funds have in such situation is to repay the unit holders by selling assets. Mutual funds cannot even borro$ in such a case% a borro$ing for redemption $ill e3pose the remaining unit holders to leveraged losses. Though equity mar&ets have started rising again% the volatility is still there and uncertainty in the near term continues to dominate. Though a significant portion of HDFC mutual fund is under debt schemes% the yield in debt mar&ets have fallen to all time lo$s and hence reduced ne$ profitable investment opportunities.

Ta0%e 1: Income Statement B*%% 4a%'e& in INRC Source: Company Documents, Student Estimates

INR Cr Interest Income Interest ?3pense Net Intere&t Income Non Intere&t Income ;Fee ;Investment ; thers Net Re,en'e 5+eratin" ED+en&e ;?mployee ?3pense ;Depreciation ; ther +re +rovision profit +rovisions PBT Ta3es P*T 5asic *o. f shares Ba&ic EPS Diluted *o. f shares Di%'ted EPS D+4 Dividend +ayout
Fi"'re 1: S$are$o%din" Pattern Source: Company Documents

2!!: 8%<-/ <%@@= 1-69: #82 @7 -7" <!/ 2-226 28: 7-= -!# -%77< !8 1-668 <7= 1-#:! !8." 62 8 !@.7 #8 9 !!."" <80

2!!8 =%=#/ 8%-/< 2-691 1-!98 @< #-= -@# 8-686 289 --# -= -8" <%/"@ <! 8-8:9 7<= 2-986 !=.6! 1 !#.8 8# # !8."" !70

2!!6E -"%/8< =%-=! 8-28! 886 87 -#/ @/= 9-1:! 81: -!8 -= -=8 <%#8! <8 8-81: -%"<2-:86 !#.8 6: : !7.= 68 : !#.!" !70

2!1!E --%@!< =%@#= 8-686 668 88 -7= =-= 9-6!9 8#9 -<< -= !"/ /%88" /< 9-#!: -%!-= 8-26! !#.= 119 8 !7.@ 111 1 <<.<" !70

2!11E -<%@<< #%#!< 9-81! 1-!66 8!"# #<# #-6!6 868 -/-= !<8 8%8-/ 8< #-96! -%/=/ 8-686 !#.= 186 1 !7.@ 189 6 /".</ !70

Ta0%e 2: Ba%ance S$eet B*%% 4a%'e& in INRC Source: Company Documents, Student Estimates

INR Cr ?quity Capital R24 *et :orth Total Deposits 4ecured loans Gnsecured ,oans Tota% 3ia0i%itie& ,oans Investments *et Current 1ssets ; Current 1ssets ; Current ,iabilities *et Fi3ed 1ssets ther 1ssets Tota% *&&et&

2!!: !8< 8%!7# 8%88-"%<@7 <7%@@7 =%-88 62-:96 8@%8-! <%@@8 !%!<8 8%"@! !%#!= !-< -!< 62-:96

2!!8 !#/ --%@@< --%7/= --%!=# 8-%=<= @%-<@ 81-!66 =!%77# @%7-8 #<" /%-8! <%<!! !"# -/= 81-!66

2!!6E !#= -/%!8/ -/%8/-<%-<7 @-%"!=%<=! 66-!:8 #=%=#! @%<7! -%8-@ 8%!8@ <%=/" !"# -=8 66-!:8

2!1!E !#= -@%/8# -@%=/8 -8%=@= =/%<78 #%8"" 11#-9!8 -"=%-@@ @%=@! -%"@8 8%-#/ /%--7 !"@ !"# 11#-9!8

2!11E !#= -7%-!! -7%/"# -#%7!" 7!%!<7 -"%=-" 191-2:8 -<!%=@@ @%77= -%"@< 8%@7! /%@<" !"/ !/= 191-2:8

Ta0%e 8: D'Pont *na%)&i& B*%% 4a%'e& in Percenta"e Term&C Source: Company Documents

Feat're NI1E*,era"e *&&et& *on;IRA1verage 1ssets *on;Int RevARevenues Re,en'e&E*&&et& CostAIncome CostA1ssets Pre/Pro,i&ion R5* +rovisionsA1ssets ,oansA1ssets Pre/TaD R5* Ta3 Rate R5* ?quityA1ssets R5E

FY!8 8: -.8 !#./ #1 #.@ "./ 9: "." 7"." 9: != 89 -/.= 2! 9

FY!6E 8: -." !-.< 9: #.8 "./ 98 "." 7-./ 98 != 81 -8.16 2

FY1!E 8: ".7 -7.= 96 #."./ 98 "." 7!.7 98 != 81 -/.8 16 :

FY11E 8: ".7 -#.@ 96 =.8 ".< 98 "." 7/." 98 != 81 -<.= 2! #

Ta0%e 9: Ratio *na%)&i& B*%% 4a%'e& in INRC Source: Company Documents, Student Estimates

Ratio& ;ro<t$ 1etric& *II *on Interest Income p ?3 +rovisions +1T ,oans Deposits 3oan Sanction& 2 Di&0'r&ement& 1pprovals Disbursements DisbursementA1pproval Ratio 1pprovals Bro$th Disbursements Bro$th 4a%'ation ?+4 ?+4 gro$th 5> per 4hare R ? R 1 +A? +A5> 1dD +A? Dividend 9ield S+read *na%)&i& 1vg 9ield on 1ssets Cost of 1ssets 4pread *IM E..icienc) Cost Income Ratio ?3penseA1verage assets Tier - Ratio

81/1ar/!8 @"0 #".-0 !"0 !#0 880 !70 70 /!8%!"" <!#%=8" ==.<0 !=.@0 !8.@0 7"./<0 //! !"0 <."0 !@.8 8./ !=.7 -."0 -".=0 #.!0 !.8"0 !.<"0 #.@0 "./0 -/.=0

81/1ar/!6 !/0 ;-8.!0 -!0 -"0 -/0 !"0 -=0 8-#%=// <7/%8"" =@."0 !!."0 !"."0 7=.= #0 8-" -70 !.70 -#./ <.8 -7.! -.@0 --.70 7.=0 !.!/0 !."/0 #.80 "./0 -8.-0

81/1ar/1! !"0 #.70 --0 !!0 -#0 !!0 !"0 @/<%!/< /#-%!7" =/.#0 !/."0 !!."0 --/.# -#0 8#/ !"0 !.70 !".# /.!-.8 -./0 -".#0 #.80 !.<!0 !.-!0 #.-0 ".<0 -/.80

81/1ar/11 !!0 -<.!0 --0 !/0 !-0 !/0 !"0 #-"%/#@ 87@%#"" =<.@0 !@."0 !/0 -<7.!-0 @== !-0 !.#0 -=.! <.8 -=.= -.=0 -".<0 =.70 !.<<0 !.-<0 =.80 ".<0 -<.=0

Ta0%e #: Com+etitor *na%)&i& B*%% 4a%'e& in INR 1nC Source: Company Annual Reports

No ! < / 8 @ = # 7 -" --! -< -/ -8 -@ -= -# -7 !" !!! !< !/ !8 !@ !=

3IC De<an Ho'&in" ;enera% Start Year -7== -7#7 -7#/ No 5. 0ranc$e& !"< --< -=8 Fe) Stren"t$ 4eparate 4ales Team !nd ,argest *iche 4trategy 1arket S$are != *1 S$are$o%din" Forei"n B7C =8.7 <-.@ " In&tit'tiona% B7C -".= #.# !!.# Non/In&tit'tiona% B7C -<./ -#.= !<.< Promoter B7C " /#.# 8<.7 E..icienc) Non +er.ormin" B7C ".! ".@ -.@ IncomeEEm+%o)ee BG!!!C 88%8@/ !-%!-! 7%!/# Pro.itEEm+%o)ee BG!!!C -#%==/ <%7=/ -%/87 Net Pro.it 1ar"in B7C <<.# -#.= -8.# Financia% C*R B7C -@.# -<.< !".# Net Aort$ -!#%"-/ -#%8/! /%/8CreditEDe+o&it Ratio @8-.# *1 -/#." P*T !=%-!7 <%7-8 #!@ Ratio& PEE !/./ 8.# 8.!# EPS 78.8 /@.=./ R5E B7C !-.! !-.-<.# R5* B7C !.# -.= -.! Book 4a%'e /8".= !-#.< @".# 1arket Ca+ @@"%7@!!%=-7 /%78= S+read& *d,ance& =/=%=<8 !-7%<@/ -=%@-" De+o&it& --/%=-" --7 Yie%d on *d,ance B7C 7.7 7.< 7./ Co&t o. De+o&it& B7C #.7 *1 #.< NI1 B7C <.!.@ <." As on Marc !""#$ All %i&ures are in Rs$ Million

Feat're

HDFC

;r'$ Finance -7#@ !< Rural Finance *1 #.= /.< !8.8 @-.8 " @%!!8 -%</@ !-.@ -#.! -%7"! 7/#.# /!/ -/.# -!.! !!.< !.8/.7 @%!8/ -=%@7@ -%#@8 -".@ = /./

Ta0%e 6: Peer& *na%)&i& B*%% 4a%'e& in INRC Source: Stoc' E(c an&e 12t$ Dec !8 Housing Development Finance Corporation ,imited , I C Housing Finance ,imited 4hristi Infrastructure Development conrporation De$an Housing Finance Corporation ,imited Bruh Finance ,imited B I C Housing Finance ,imited Banesh Housing Corporation ,imited 4haryans Resources Can Fin Homes ,imited 1shiana Housing ,imited 4ahara Housingfina Corporation ,imited Coral India Finance 2 Housing 4aya Housing Finance Company ,imited 1sahi Infrastructure 2 +roDects ,imited +arsh$anath Housing Finance Corporation ,imited :arden Construction 2 Finance ,imited Gsha Housing Development Company ,imited 4 5 I Home Finance ,imited Residency +roDects 2 Infratech ,imited Mehta Housing Finance ,imited MF, Housing Finance ,imited 4ylph Technologies ,imited ManoD Housing Finance Company ,imited ManraD Housing Finance ,imited International Housing Finance Corporation ,imited Happy Home +rofin ,imited Indban& Housing *ot Traded PEE -7.!! <.7! -"<.=! 8.<< =.-@ <.<@ !.7" !!.!/ <."! -.7< <@./8 -.7" @@.@= 8.8= !.=/ BE4 /!".</ !-8.@8 -/."= =<.!# 8/.78#.=/ -!=.78 -"8.<" -"=.!# </.-!=."< !!.8" -"./! -.!7 7.@7 EPS #8.-! 8/.@= <.=@ -8.8! -<./8 -".@8 -=.8@ <.8! -8."# !"./7 !.-/ <.77 "."@ "."!./< 1arket Ca+ /@%/7-."" -%#!!.!< #@8.#" 8"".!! <<<.#< -7!.=7 -@@.8/ --@./< 7<.!=/.-" 8/.@" =.8@ /."" !.7" !.""

Ta0%e :: Pro+ert) 4ent're& 4a%'ation Source: News Reports

Sr No 1 2 8

Sc$emeEF'nd Name HDFC India Real ?state Fund HDFC IT Corridor Fund HDFC International Fund

F'nd T)+e Domestic% = year close ended fund Investments in IT infrastructure in India International% 7 year close ended fund Total >alue of HDFC +roperty FundsE 0 of 1GM >alue of HDFC +roperty Funds 'I*R Cr) *umber of 4hares 'Cr) >alue per 4hare

Cor+'& BINR CrC -%""" //@ <%=@" 8%!"@ -80 =#".7@ !#/ !.=8

Ta0%e 8: *&&et 1ana"ement Com+an) 4a%'ation Source: Stoc' E(c an&e

MF JM Financial Standard Chartered Reliance Canara Bank Sundaram SBI

Bidder Hedge Funds IDFC Eton Park Robeco Groep NV BNP Paribas Societe Generale

Stake 12.00% 100% 5.00% 49.00% 49.90% 37.00%

Deal (USD Mn) 28 205 127 27 25 43

AUM 2,791 3,256 20,000 512 695 1,535

Equity (USD mn) 216 205 2,540 55 50 116 Mean

% AUM 8.36% 6.30% 12.70% 10.76% 7.21% 7.57% 7.36%

Valuation using average of % of AUM of above 4 deals ignoring the overvalued deals AUM of HDFC MF as at the end of Dec-2008 (Rs in Cr) .AUM as at the end of Dec-2008 (Source: AMFI) .Portfolio management and advisory services (Source: Investor Presentation HDFC, Sep 08) Valuation: % of AUM Valuation of AUM (Rs in Cr) Value of 60% Holding of HDFC Ltd. Number of Shares (Cr.) Value per Share (Rs.)

63757.45 46757.45 17000 7.36% 4692 2815 28.4 99.12

Ta0%e 6: HDFC Bank 4a%'ation Source: Student Estimates

Net income March 2006 March 2007 March 2008 March 2009E March 2010E 8,816 11,510 15,951 21,580 29,499

EPS 27.62 34.93 45.5 50.55 60.72

P/E 39.4 31.2 23.9 21.5 17.9

BVPS 170 203 326 393 470

P/BV 6.4 5.4 3.3 2.8 2.2

Dividen d 5.5 7 8.94 9.72 11.86

Yield 0.50% 0.60% 0.80% 0.90% 1.10%

ROA 1.41% 1.40% 1.42% 1.27% 1.27%

ROE 17.90% 19.51% 17.72% 17.68% 17.94%

PBV based valuation B4PS 2!1!E PB4 m'%ti+%e Price tar"et BINRC S$are& o't&tandin" B1nC 1arket Ca+ BINR 1nC
Ta0%e 1!: ;r'$ Finance 4a%'ation Source: Student Estimates

/=" !.!1!88 /!8.-/ //-%87<

PB4 0a&ed ,a%'ation B4PS 2!1!E PB4 m'%ti+%e Price tar"et BINRC S$are& o't&tandin" B1nC 1arket Ca+ BINR 1nC

=" !.!= 1#6 <<.= 88-/

Ta0%e 11: HDFC Standard 3i.e In&'rance 4a%'ation Source: Student Estimates

4a%'ation BINR 1nC Premi'm Co%%ection NB*P mar"in NB*P 1'%ti+%e at 16D Ho%din" o. HDFC 3td S$are o. HDFC 3td No o. &$are& o. HDFC 3td B1nC Str'ct'ra% 4a%'e Em0edded 4a%'e T5T*3: BINRES$areC 4a%'e
Ta0%e 12: PEB4 Ca%c'%ation Form'%a Source: Aswat Damodaran, )ro%essor N*U

2!!8/!6E /-"/" !"0 #!"# -<-<!# =/0 7=-#< !#/ </!.@"./ 9!2 # -8//7<

Ta0%e 18: HDFC 1ort"a"e 0'&ine&& PEB4 4a%'ation Source: Student Estimates

R5E Pa)o't ;ro<t$ BeD+ectedC C5E PEB4 Ca%c'%ation Tota%

Ta0%e 19: HDFC Bank PEB4 4a%'ation Source: Student Estimates

Hi"$ ;ro<t$ B1! )ear&C !!."0 !#."0 -#."0 -/.=0 ".=! !.@7

Sta0%e -#."0 @=."0 @."0 -/.@80 -.7=

R5E Pa)o't ;ro<t$ BeD+ectedC C5E PEB4 Ca%c'%ation Tota%

Ta0%e 1#: ;r'$ Finance PEB4 4a%'ation Source: Student Estimates

Hi"$ ;ro<t$ B1! )ear&C -=."0 !#."0 !"."0 -8.80 ".87 !.!-

Sta0%e -8."0 @"."0 @."0 -/.@80 -.@!

R5E Pa)o't ;ro<t$ BeD+ectedC C5E PEB4 Ca%c'%ation Tota%

Ta0%e 16: 1arket 4a%'e& B*%% 4a%'e& in INRC Source: Student Estimates Code H #!!!1! No 1ont$ C%o&e Price

Hi"$ ;ro<t$ B1! )ear&C !"."0 <<."0 -#."0 -8.80 ".=/ !.!=

Sta0%e -@."0 @<."0 @."0 -/.@80 -.8<

Com+an) H HDFC 7 Ret'rn BSE #!! 7 Ret'rn2

! < / 8 @ = # 7 -" --! -< -/ -8 -@ -= -# -7 !" !!! !< !/ !8 !@ != !# !7 <" <<! << </ <8 <@ <= <# <7 /" //! /< //

Dec;"< 6an;"/ Feb;"/ Mar;"/ 1pr;"/ May;"/ 6un;"/ 6ul;"/ 1ug;"/ 4ep;"/ ct;"/ *ov;"/ Dec;"/ 6an;"8 Feb;"8 Mar;"8 1pr;"8 May;"8 6un;"8 6ul;"8 1ug;"8 4ep;"8 ct;"8 *ov;"8 Dec;"8 6an;"@ Feb;"@ Mar;"@ 1pr;"@ May;"@ 6un;"@ 6ul;"@ 1ug;"@ 4ep;"@ ct;"@ *ov;"@ Dec;"@ 6an;"= Feb;"= Mar;"= 1pr;"= May;"= 6un;"= 6ul;"=

@//.<8 @/7.#" @"7.7" @//.-" 87/.#" 8=#.#8 8-=.-8 8=8."8 88@./8 @"7.#" @<7.8" #"".88 =@@.-" ===.#" ===.8" =!@.@" =<".#8 =@!.-8 ##<.78 7!8.=" 7"/.#8 -%"<7.@8 7@#.<" -%-!=.!" -%!"8.<8 -%</"."" -%<88.#8 -%<<@."8 -%<--.7" -%-!8.78 -%-<"."" -%-=/.#" -%<"#.<8 -%8</.<" -%/=".8" -%@/=.78 -%@!/.88 -%@=".=8 -%8"-.7" -%8!".<8 -%@87.=" -%#=".#" !%"<".!" !%"-@.8" ".#80 ;@.-/0 8.@-0 ;=.@80 ;!.@#0 ;-".@@0 --.!"0 ;<.!<0 7.870 /.#=0 !8.-#0 ;/.<"0 -.8<0 ;"."/0 ;@.880 ".8#0 /.!#0 -8.7#0 /.=!0 ;!.!80 -/.7"0 ;@.#@0 -@./-0 @.7<0 --.-=0 -.-#0 ;-./@0 ;-.#-0 ;-/.-=0 ".<@0 <.7@0 --.<=0 -=.!=0 ;/.-@0 -!."=0 ;-./!0 !.#/0 ;-".--0 -.!<0 7.-=0 -!.=!0 #.8!0 ;".@=0

!%<@@.<@ !%!/@.#< !%!!#./!%!/<.@" !%<!-.!8 -%#7-.=8 -%7!<.=# !%"#-.!@ !%-!8.@8 !%!=@.#= !%<-7.<" !%8/#.<@ !%==7.@8 !%=!@./7 !%#!8.@8 !%=</.@@ !%@-".8" !%#!7.!" !%7!#.<<%-!/.=# <%!=<."" <%8!-.#< <%-7#.@7 <%8@#.<= <%=78.7@ /%""/.7@ /%-<"."= /%8-@.=< /%#!7.=< /%-8=.7< /%"!7.7= /%"!7./< /%/!<.## /%=<7.@= /%78=.<= 8%!!=.=< 8%!=".=@ 8%/"#.=/%7<#."# /%788.<7 8%<--."< 8%@/@.7" 8%=#-.<= @%"@<.!" ;8."80 ;".#!0 ".@#0 <./@0 ;-#.8"0 -.@70 #.-70 !.-<0 =.--0 -.#@0 7.##0 7."#0 ;-.7-0 <.@/0 ;<.!!0 ;/.8/0 #.<#0 <.8"0 @.=-0 /.=/0 =.@"0 ;7.-#0 --.8@0 @.<#0 8.8-0 <.-!0 7.<@0 @.7<0 ;-<.7-0 ;<."#0 ;"."-0 7.=70 =.-/0 /.870 8./80 ".#!0 !.@!0 ;#.="0 ".<80 =.-#0 @.<!0 !.<#0 /.#=0

/8 /@ /= /# /7 8" 88! 8< 8/ 88 8@ 8= 8# 87 @"

1ug;"= 4ep;"= ct;"= *ov;"= Dec;"= 6an;"# Feb;"# Mar;"# 1pr;"# May;"# 6un;"# 6ul;"# 1ug;"# 4ep;"# ct;"# *ov;"#

-%7=@."" !%8!=.!8 !%==<.!" !%=#/./8 !%#=!./8 !%#/<.8" !%#"!.=" !%<#<.=8 !%#"/.#" !%8@7.-8 -%7@!./" !%!=@.=" !%</<.@8 !%-/-.-8 -%=@/.88 -%/@<.7"

;!."-0 !=.7"0 7.=<0 "./-0 <.-@0 ;-."-0 ;-./<0 ;-/.780 -=.@@0 ;#./"0 ;!<.@!0 -@."!0 !.7/0 ;#.@/0 ;-=.870 ;-=."/0

8%78".-@%==<.8/ =%=#8.!! =%#@8.7# #%87!./< =%-@"."< =%-"#.-! @%-8=.!= @%##8."< @%/=/.7= 8%!-8.<= 8%8!8.== 8%@<-.8/%#7=.87 <%8="."= <%!78.@"

;-.#=0 -<.#/0 -/.7/0 -."/0 7.!/0 ;-@.@=0 ;".=!0 ;-<.<#0 --.#!0 ;8.7@0 ;-7./80 8.780 -.7-0 ;-<."<0 ;!=.--0 ;=.@70

Di&c%o&'re&:
5<ner&$i+ and materia% con.%ict& o. intere&t: The authors or a member of their household% of this report does not hold a financial interest in the securities of this company. The authors or a member of their household% of this report does not &no$ of the e3istence of any conflicts of interest that might bias the content or publication of this report. Recei+t o. com+en&ation: Compensation of the authors of this report is not based on investment ban&ing revenue. Po&ition a& a o..icer or director: The authors or a member of their household% does not serves as an officer% director or advisory board member of the subDect company. 1arket makin": The authors do not act as a mar&et ma&er in the subDect company(s securities. Ratin"& "'ide: 5an&s rate companies as 5G9% H ,D or 4?,,. 1 5G9 rating is given $hen the security is e3pected to deliver absolute returns of -80 or greater over the ne3t t$elve month period% and recommends that investors ta&e a position above the security(s $eight in the 42+ 8""% or any other relevant inde3. 1 4?,, rating is given $hen the security is e3pected to deliver negative returns over the ne3t t$elve months% $hile a H ,D rating implies flat returns over the ne3t t$elve months. Di&c%aimer: The information set forth herein has been obtained or derived from sources generally available to the public and believed by the authors to be reliable% but the authors does not ma&e any representation or $arranty% e3press or implied% as to its accuracy or completeness. The information is not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute investment advice% nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by any individual affiliated $ith the Investment Research Challenge $ith regard to this company(s stoc&