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Asia Pacific Equity Research

19 November 2015

Overweight

HDFC Bank

HDBK.BO, HDFCB IN
Price: Rs1,068.90

Management meeting - Growth with focus on quality


remains the mantra

Price Target: Rs1,300.00

We met Paresh Sukthankar, Deputy MD. The core strength of the bank
remains the ability to grow at 4-5% above system with its quality
indicators intact asset quality, margins and ROAs. The medium-term
trend for cost improvement remains intact as well we think. We see no risk
to the EPS compounding trend, which has been the key driver of stock
performance. The stock stays one of our top picks - the elevated multiples
are supported by a quality balance sheet and asset quality resilience.
Growth. Management warned that the long-term gap between HDFCB
and market growth remains at ~5% - the 18% gap in Sep-15 was driven
by some short-term opportunities. The risk is that system growth could
stay in the sub-teens in a low-inflation environment. In terms of
competitive intensity, most PSU banks are still very cautious, so the
market share opportunity remains fairly attractive we believe.
Margins. Management reiterated that most of these pressure points are
transient, and there is no long-term risk to margins, which should stay
within historical bands. Specifically, the key drivers in 1H were: a) leadlag on ALM, b) the extra layer of growth which is, at the margin, lowspread low yield and funded by TDs, c) some mix change toward lowyield segments.
Asset quality. On the credit risk from the large unsecured portfolio,
management sees no significant worries. a) the portfolio is monitored
intensely, shows no sign of stress and has held up through the cycle, b)
the share of internal customers is rising so quality is improving, and c)
growth has been steady rather than sporadic with no compromises on
credit standards.
Cost-income. In the near term, some cost pressures could build up from
the variable cost of higher growth, especially in non-mortgage retail.
However, the bank is seeing a structural decline in cost of originating
retail loans, with the lowest payouts to distributors and a higher share of
in-house origination. In the medium term, cost-income improvement
trend from digitization remains undisturbed.
HDFC Bank (Reuters: HDBK.BO, Bloomberg: HDFCB IN)
Rs in mn, year-end Mar
FY14A
FY15A
FY16E
Operating Profit (Rs mn)
142,463
168,117
206,940
Net Profit (Rs mn)
84,784
102,159
123,622
Cash EPS (Rs)
35.34
40.76
49.32
DPS (Rs)
6.85
6.85
9.60
EPS growth (%)
25.0%
15.3%
21.0%
ROE
21.0%
18.2%
17.6%
P/E (x)
30.2
26.2
21.7
BVPS (Rs)
181.23
247.39
285.48
P/BV (x)
5.9
4.3
3.7
Dividend Yield
0.6%
0.6%
0.9%
Fully Diluted EPS (Rs)
34.87
38.39
46.77
Source: Company data, Bloomberg, J.P. Morgan estimates.

FY17E
251,580
152,067
60.67
11.80
23.0%
19.1%
17.6
332.35
3.2
1.1%
59.07

FY18E
303,633
185,311
73.93
14.40
21.9%
20.1%
14.5
389.43
2.7
1.3%
72.54

India
Financials
Seshadri K Sen, CFA

AC

(91-22) 6157-3575
seshadri.k.sen@jpmorgan.com
Bloomberg JPMA SEN <GO>

Dhiren C Shah
(91-22) 6157 3576
dhiren.c.shah@jpmorgan.com
J.P. Morgan India Private Limited
Price Performance
1,100
Rs

1,000
900
800
Nov-14

Feb-15 May-15

Aug-15

Nov-15

HDBK.BO share price (Rs)


NIFTY (rebased)

Abs
Rel

YTD
12.3%
17.6%

1m
-2.6%
2.6%

Company Data
Market Cap (Rs mn)
Market Cap ($ mn)
Shares O/S (mn)
Fiscal Year End
Price (Rs)
Date Of Price
3M - Avg daily val (Rs mn)
3M - Avg daily val ($ mn)
3M - Avg daily vol (mn)
NIFTY
Exchange Rate
Price Target End Date
Price Target (Rs)

3m
-1.2%
6.5%

12m
15.4%
21.8%

2,508,375
37,834
2,347
Mar
1,068.90
19 Nov 15
1,617.55
24.4
1.54
7842.75
66.30
30-Sep-16
1,300.00

See page 10 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that
the firm 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.
www.jpmorganmarkets.com

This document is being provided for the exclusive use of vijaykerba.walke@jpmorgan.com & clients of J.P. Morgan.

Asia Pacific Equity Research


19 November 2015

Seshadri K Sen, CFA


(91-22) 6157-3575
seshadri.k.sen@jpmorgan.com

Key catalysts for the stock price:


1) Strong rural push- likely to deepen the
liability franchise further and will be a
major advantage with significantly lower
COF.
2) Quick macro turnaround=Higher
growth opportunities on retail front &
thereby better profitability.

Upside risks to our view:


1) Lower competition from PSU banks in retail space, with the
recovery in capex can accelerate loan growth further for the
bank.
2) Benign interest rate environment can lead to higher b/sheet
growth for the bank.

Key financial metrics


NII
Non Interest Income
Operating expense
PPOP
Provisions
Net income
NII growth (%)
Net income growth (%)
NIMs (%)
Fees/Assets (%)
Net revenues/Assets (%)
Costs/Assets (%)
LLP/Loans (%)
ROA (%)
ROE (%)
Tier 1 capital (%)
Gross NPL ratio (%)
NPL coverage (%)
Key model assumptions
Loan growth
NIM
Gross NPL

FY16E
275,975
106,353
168,988
213,340
27,162
123,622
23.2
21.0
4.40
1.60
6.1
2.7
0.67
2.0
18.5
12.6
0.93
76
FY16E
22
4.40
0.93

FY15A
223,957
89,963
139,875
174,045
20,750
102,159
21.2
20.5
4.34
1.63
6.1
2.7
0.60
2.0
19.4
13.7
0.93
74
FY15A
20
4.34
0.93

FY17E
336,072
120,864
201,356
255,580
26,562
152,067
21.8
23.0
4.41
1.53
6.0
2.6
0.54
2.0
19.6
12.1
0.97
77
FY17E
22
4.41
0.97

FY18E
407,856
139,235
239,959
307,133
28,051
185,311
21.4
21.9
4.38
1.46
5.9
2.6
0.46
2.0
20.5
11.6
1.00
77
FY18E
22
4.38
1.00

Source: Bloomberg, Company data and J.P. Morgan estimates.

Sensitivity analysis
Sensitivity to
10bp impact in NIM
10bp impact in Prov/Assets
1% impact in C/Income

PPOP
FY16E
2.9%
2.9%
1.8%

FY17E
3.0%
3.0%
1.8%

Downside risks to our view:


1) The economic slowdown negatively
impacting retail loan demand.
2) Negative surprise from credit costs due to
product-specific shocks.

Valuation and price target basis


Our Sept-16 PT for HDFCB of Rs1,300 is based on a 3-stage Gordon
growth model implying 3.6x Sept 17E book. Our valuations factor in cost of
equity at 15.0%, normalised ROE of ~26% and terminal growth of 5%.

Table to support price target


Risk free rate
Equity Risk Premium
Beta
Cost of Equity
Terminal growth
Stage 2 growth
Normalised ROE
NIM/Assets
Costs/Assets
Provisions/Assets
Taxes/Assets
ROA
ROE

8.0%
7.0%
1.00
15.0%
5.0%
30.3%
4.7%
2.9%
0.7%
1.0%
2.1%
26.4%

Source: Bloomberg, Company data and J.P. Morgan estimates.

EPS
FY16E
2.6%
3.4%
2.0%

FY17E
2.5%
3.3%
2.0%

Source: Bloomberg, Company data and J.P. Morgan estimates.

JPMe vs. consensus, change in estimates


EPS
FY16E
JPMe old
49.3
JPMe new
49.3
% chg
0.0%
Consensus
49.6

FY17E
60.7
60.7
0.0%
61.6

Source: Bloomberg, Company data and J.P. Morgan estimates.

Comparative metrics
Price
ICICI Bank
Axis Bank
Punjab National Bank
State Bank of India
Bank of Baroda

266
463
139
244
168

Mkt Cap
$Mn
23,378
16,637
4,128
28,606
5,852

P/E
FY16E
7.7
11.9
8.6
9.4
11.7

FY17E
6.2
9.3
6.1
7.7
9.5

EPS growth
FY16E
30%
26%
-2%
3%
-6%

FY17E
25%
28%
41%
22%
23%

P/BV
FY16E
FY17E
1.43
1.22
2.10
1.76
0.65
0.59
1.03
0.93
0.90
0.84

YTD
Stock perf.
-24.6%
-7.8%
-36.5%
-21.8%
-22.5%

Source: Bloomberg, Company data and J.P. Morgan estimates. Prices are as of 19/11/15.

This document is being provided for the exclusive use of vijaykerba.walke@jpmorgan.com & clients of J.P. Morgan.

Seshadri K Sen, CFA


(91-22) 6157-3575
seshadri.k.sen@jpmorgan.com

Asia Pacific Equity Research


19 November 2015

Growth and margins


The system loan growth continues to be weak, the latest print at sub teen. PSUs
are still very cautious on loan growth with market share shifting toward Private
banks & the opportunity remains fairly attractive given low competition. The
system loan growth could remain weak in a low-inflation environment. The
long-term gap between HDFCB and market growth is expected to remain at ~5%.
Figure 1: The long-term gap between HDFCB & market growth should remain at ~5%
25

26

21

22

17

18

13

14

10

Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15

30

HDFC Bank loan growth (LHS)

System loan growth (RHS)

Source: Company data, Bloomberg. Note: % YoY loan growth.

The elevated growth in the corporate book in 1HFY15 was driven primarily by
short-term opportunities. These are incrementally positive-margin, though they
obviously drag the overall NIM of the bank down as it is largely funded by term
deposits and market borrowings. Given that HDFC Bank's CAR is very
comfortable, the accelerated growth creates value even with lower margins. The
key drivers of this growth have been: a) risk aversion from PSU banks, and b) the
base rate cut from HDFC Bank, which made it the most competitive in the
market.
Figure 2: Risk aversion from PSUs has created strong opportunities for Private Banks
35%
30%
25%
20%
15%
10%
5%
0%
-5%

28%

29%

31%

HDFCB

YES

IIB

23%

-3%
BOI

7%

8%

PNB

BOB

11%

SBIN

13%

ICICIBC

AXSB

Loan growth (YoY)


Source: Company data. Note: 2Q16 loan growth.

The bank will look to buyback ~70% of the mortgages it originates from parent
HDFC. This is a change in strategy as it earlier used to buy just the PSLcompliant portion - ~45%. The change in strategy has been driven by the relative
attractive pricing of mortgage loans, vs other corporate opportunities in the
market. Mortgages are also long term and stay on the balance sheet for 6-7 years,
improving the overall profitability. Two regulatory factors are also impacting this
3

This document is being provided for the exclusive use of vijaykerba.walke@jpmorgan.com & clients of J.P. Morgan.

Seshadri K Sen, CFA


(91-22) 6157-3575
seshadri.k.sen@jpmorgan.com

Asia Pacific Equity Research


19 November 2015

decision the recent cuts in risk weights and the eligibility of these loans for
reserve-free funding via long-term bonds.
Figure 3: Strong growth in low-yield segments in the recent quarters impacted overall margins
60%
50%
40%
30%
20%
10%
0%
3Q14

4Q14

1Q15

2Q15

Home loan growth

3Q15

4Q15

1Q16

2Q16

Wholesale loan growth

Source: Company data.

Overall mix. The bank is following a kind of barbell strategy (our words, not
theirs) on the loan mix. On the one hand, growth in some of the low-yield
segments like corporate and mortgages have been strong the sustainability
depends on market conditions. However, HDFCB is also focusing on some of the
high-yield segments line unsecured retail and business banking, offsetting any
potential margin pressure. Growth at the ends of the yield spectrum should
balance out over time.

Asset quality
On the credit risk from the large unsecured portfolio, management sees no significant
worries.
The portfolio has held up for a number of years now, and there is no incremental
sign of stress. The bank monitors this portfolio very closely, and credit risk
management is ongoing rather than binary i.e., it is segmented and tracked and
adjustments are made on an ongoing basis.
The share of internal customers is rising, at the expense of externally sourced
clients. This is driven by the expanded base of customers on the back of the
expanded distribution base over the last few years. The bank's digital and data
initiatives have also helped - the data mining to target customers is continuously
improving and the digital initiatives are helping improve conversion rates of
internal customers.

This document is being provided for the exclusive use of vijaykerba.walke@jpmorgan.com & clients of J.P. Morgan.

Seshadri K Sen, CFA


(91-22) 6157-3575
seshadri.k.sen@jpmorgan.com

Asia Pacific Equity Research


19 November 2015

Figure 4: Deepening distribution network has helped in higher growth to existing customers
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0

4,014

4,227

2015

2QFY16

3,403

3,062
2,544
1,412

1,986

1,779

761

2008

2009

2010

2011

2012

2013

2014

Branch network
Source: Company data.

Another factor behind the low NPLs in this category has been the steady growth.
The portfolio is large (Rs498bn, 12% of the loan book) but this has been build
steadily over time and not in fits and starts. Therefore: a) there has never been an
aggressive sales push in "mission mode" - initiatives that can compromise asset
quality, and b) the bank has never had to compromise on credit standards like
instalment-income to get more business. As a result, the large book has held up
through a weak economic cycle.
Figure 5: Asset quality has remained robust despite higher share of unsecured portfolio
13%
12%
11%
10%
9%

2Q16

1Q16

4Q15

3Q15

2Q15

1Q15

4Q14

3Q14

2Q14

1Q14

4Q13

3Q13

2Q13

1Q13

4Q12

3Q12

2Q12

1Q12

4Q11

3Q11

2Q11

8%

Share of unsecured loans to toal loans


Source: Company data.

Management did point out that the unsecured portfolio continues to clock credit costs
well below expected loss levels - this is now a multi-year process. Some of the
factors have been structural - we believe the credit bureau have played a role. To
some extent, this is being seen in pricing in a selective manner.

Cost-income
Key cost factors:
Accelerated growth in non-mortgage retail should see some upward pressure in
costs as origination costs tend to be lumpy. This includes the processing costs and
the distributor payouts. Structurally, this is improving processing costs are
being cut by digitization and automation; a higher share of internal customers is
limiting payouts and the bank is leveraging its brand and distribution to keep
distributor payouts under control. Management believes that its payouts are the
lowest in the industry.
5

This document is being provided for the exclusive use of vijaykerba.walke@jpmorgan.com & clients of J.P. Morgan.

Seshadri K Sen, CFA


(91-22) 6157-3575
seshadri.k.sen@jpmorgan.com

Asia Pacific Equity Research


19 November 2015

Figure 6: Higher opex to be offset by strong revenues, resulting in lower C/income


35%

53%

30%

50%

25%
20%

47%

15%

44%

10%

41%

5%
0%

38%
2010

2011

2012

2013

2014

C/Income (RHS)

2015

2016E

2017E

2018E

Opex growth (LHS)

Source: J.P. Morgan estimates, Company data.

The benefits of digitization are slowly coming through. The growth in the retail
business is translating to some cost-income benefits as benefits of scale are
starting to kick in. Over time, there will be more facets- smaller branches, greater
employee efficiency and faster volume processing. Management clarified that the
tech expenses have not been lumpy in the past nor will they be so in the future the investments needed for the digital initiatives have been built over time.
Marketing expenses are expected to accelerate. The large retail base and the new
initiatives will enhance some costs, both in terms of push and advertising. Also,
promotional schemes will be more intense to help leverage the large customer
and card base - this will push up costs to some extent. These expenses pay for
themselves in terms of revenues, but will push up absolute cost growth.
Figure 7: Advertising expenses are expected to increase given large retail base & new initiatives
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
2007

2008

2009

2010

2011

2012

2013

2014

2015

Advt exp as % of non staff exp


Source: Company data.

This document is being provided for the exclusive use of vijaykerba.walke@jpmorgan.com & clients of J.P. Morgan.

Seshadri K Sen, CFA


(91-22) 6157-3575
seshadri.k.sen@jpmorgan.com

Asia Pacific Equity Research


19 November 2015

Investment Thesis, Valuation and Risks


HDFC Bank (Overweight; Price Target: Rs1,300.00)
Investment Thesis
We are OW on the stock, as:
1.

We believe HDFC Bank is the best defensive play in the current


environment, given what we believe are its stable margins, healthy asset
quality, consistent performance and superior management.

2.

The strong rural push is likely to deepen the liability franchise further and
could be a significant advantage in the longer term, with significantly lower
COF for the bank. The bank has a strong deposit base- 40%+ CASA ratio
with SA growth bouncing back last four quarters.

3.

The banks high share of retail loans - high-yield non-mortgage segments


will drive strong revenue income. The strong digital platform should drive
market share and cost efficiencies over the next 2-3 years and the strong
corporate underwriting will result in stable asset quality in the longer term.

4. We believe the premium valuations are supported by ~20% EPSg in prospects &
high return ratios.
Valuation
Our Sept-16 PT for HDFCB of Rs1,300 is based on 3-stage Gordon growth model
implying 3.6x Sept 17E book. Our valuation factors in a cost of equity of 15.0%,
normalized ROE of ~26%, and terminal growth of 5%.
Risks to Rating and Price Target
Key downside risks to our rating and price target include: 1) a slowdown in the retail
segment, given the weak economy, and intensifying competition could affect loan
growth for the bank in the medium term, and 2) product-specific shocks could result
in a negative surprise on credit costs.

This document is being provided for the exclusive use of vijaykerba.walke@jpmorgan.com & clients of J.P. Morgan.

Asia Pacific Equity Research


19 November 2015

Seshadri K Sen, CFA


(91-22) 6157-3575
seshadri.k.sen@jpmorgan.com

HDFC Bank: Summary of Financials


Income Statement
Rs in millions, year end Mar
NIM (as % of avg. assets)
Earning assets/assets
Margins (as % of Avg. Assets)

FY14
4.4%
94.4%
4.1%

FY15
4.3%
95.4%
4.1%

FY16E
4.4%
95.5%
4.2%

FY17E
4.4%
95.0%
4.2%

Net Interest Income


Total Non-Interest Income
Fee Income

184,826
78,059
71,360

223,957
84,036
76,121

275,975
99,953
90,851

336,072
116,864
106,033

Total operating revenues

262,885

307,993

375,928

452,935

Operating costs
Pre-Prov. Profits
Provisions
Other Inc (treasury Income)
Other Exp.
Exceptionals
Associate
Pre-tax
Tax
Minorities
Attributable Income

(120,422) (139,875) (168,988) (201,356)

Growth Rates
FY18E
4.4% Loans
95.0% Deposits
4.2% Assets
Equity
407,856 RWA
135,735 Net Interest Income
122,847 Non-Interest Income
of which Fee Grth
543,591 Revenues
Costs
(239,959) Pre-Provision Profits
Loan Loss Provisions
303,633 Pre-Tax
(28,051) Attributable Income
- EPS
- DPS
3,500
- Balance Sheet Gearing
279,082 Loan/deposit
(93,772) Investment/assets
0 Loan/Assets
185,311 Customer deposits/liab.
LT debt/liabilities

142,463
(15,873)
1,138
127,728
(42,944)
0
84,784

168,117
(20,750)
5,928
153,295
(51,136)
0
102,159

206,940
(27,162)
6,400
186,178
(62,556)
0
123,622

251,580
(26,562)
4,000
229,017
(76,950)
0
152,067

Per Share Data


EPS
DPS
Payout
Book value
Fully Diluted Shares
Key Balance sheet Rs in millions
Net Loans
LLR
Gross Loans
NPLs
Investments
Other earning assets
Avg. IEA
Goodwill
Assets

FY14
35.34
6.85
19.4%
181.23
2,399
FY14
3,030,003
(21,693)
3,051,695
29,893
263,111
251,246
4,210,747
4,915,995

FY15
40.76
6.85
16.8%
247.39
2,506
FY15
3,654,950
(25,421)
3,680,371
34,393
460,697
190,949
5,159,107
5,905,031

FY16E
49.32
9.60
19.5%
285.48
2,506
FY16E
4,459,039
(31,733)
4,490,772
41,754
555,643
334,161
6,265,431
7,215,194

FY17E
60.67
11.80
19.4%
332.35
2,506
FY17E
5,440,028
(40,795)
5,480,823
52,980
669,572
407,676
7,614,159
8,822,849

FY18E
73.93
14.40
19.5%
389.43
2,506
FY18E
6,636,834
(51,346)
6,688,180
66,683
808,280
497,365
9,315,290
10,784,297

Deposits
Long-term bond funding
Other Borrowings
Avg. IBL
Avg. Assets
Common Equity
RWA
Avg. RWA

3,673,375
394,390
166,431
3,680,150
4,459,657
434,786
3,453,009
3,255,899

4,507,957
452,136
162,549
4,513,928
5,410,513
620,094
4,226,699
3,839,854

5,602,578
500,742
162,549
5,531,706
6,560,112
715,563
5,325,641
4,776,170

6,981,041
525,283
162,549
6,804,822
8,019,021
833,026
6,550,538
5,938,090

8,672,466
545,856
162,549
8,362,323
9,803,573
976,107
8,057,162
7,303,850

Asset Quality/Capital
Loan loss reserves/loans
NPLs/loans
Specific loan loss reserves/NPLs
Growth in NPLs
Tier 1 Ratio
Total CAR
Du-Pont Analysis
NIM (as % of avg. assets)
Earning assets/assets
Margins (as % of Avg. Assets)
Non-Int. Rev./ Revenues
Non IR/Avg. Assets
Revenue/Assets
Cost/Income
Cost/Assets
Pre-Provision ROA
LLP/Loans
Loan/Assets
Other Prov, Income/ Assets
Operating ROA
Pre-Tax ROA
Tax rate
Minorities & Outside Distbn.
ROA
RORWA
Equity/Assets
ROE

FY14
26.3%
24.0%
22.8%
20.1%
12.9%
16.9%
16.6%
11.5%
16.8%
7.2%
26.4%
(5.3%)
31.0%
26.0%
25.0%
24.5%

FY15
20.6%
22.7%
20.1%
42.6%
22.4%
21.2%
7.7%
6.7%
17.2%
16.2%
18.0%
30.7%
20.0%
20.5%
15.3%
0.0%

FY16E
22.0%
24.3%
22.2%
15.4%
26.0%
23.2%
18.9%
19.4%
22.1%
20.8%
23.1%
30.9%
21.5%
21.0%
21.0%
40.1%

FY17E
22.0%
24.6%
22.3%
16.4%
23.0%
21.8%
16.9%
16.7%
20.5%
19.2%
21.6%
(2.2%)
23.0%
23.0%
23.0%
22.9%

FY18E
22.0%
24.2%
22.2%
17.2%
23.0%
21.4%
16.1%
15.9%
20.0%
19.2%
20.7%
5.6%
21.9%
21.9%
21.9%
22.0%

FY14
82.5%
5.9%
61.3%
82.0%
8.9%

FY15
81.1%
6.7%
62.2%
85.3%
8.7%

FY16E
79.6%
7.7%
62.3%
86.2%
8.1%

FY17E
77.9%
7.6%
62.2%
87.4%
7.1%

FY18E
76.5%
7.5%
62.1%
88.4%
6.0%

FY14
(0.7%)
1.0%
0.0%
28.0%
11.8%
16.1%
FY14
4.4%
94.4%
4.1%
29.7%
1.8%
5.9%
45.8%
2.7%
3.2%
(0.6%)
61.3%
0.0%
2.8%
2.9%
33.6%
0.0%
1.9%
2.6%
8.9%
21.0%

FY15
(0.7%)
1.0%
0.0%
15.1%
13.7%
16.8%
FY15
4.3%
95.4%
4.1%
27.3%
1.6%
5.7%
45.4%
2.6%
3.1%
(0.6%)
62.2%
0.1%
2.7%
2.8%
33.4%
0.0%
1.8%
2.5%
9.7%
18.2%

FY16E
(0.7%)
0.9%
0.0%
21.4%
12.6%
15.1%
FY16E
4.4%
95.5%
4.2%
26.6%
1.5%
5.7%
45.0%
2.6%
3.2%
(0.7%)
62.3%
0.1%
2.7%
2.8%
33.6%
0.0%
1.8%
2.5%
10.2%
17.6%

FY17E
(0.7%)
1.0%
0.0%
26.9%
12.1%
14.2%
FY17E
4.4%
95.0%
4.2%
25.8%
1.5%
5.6%
44.5%
2.5%
3.1%
(0.5%)
62.2%
0.0%
2.8%
2.9%
33.6%
0.0%
1.8%
2.5%
9.7%
19.1%

FY18E
(0.8%)
1.0%
0.0%
25.9%
11.6%
13.3%
FY18E
4.4%
95.0%
4.2%
25.0%
1.4%
5.5%
44.1%
2.4%
3.1%
(0.5%)
62.1%
0.0%
2.8%
2.8%
33.6%
0.0%
1.9%
2.5%
9.2%
20.1%

Source: Company reports and J.P. Morgan estimates.

This document is being provided for the exclusive use of vijaykerba.walke@jpmorgan.com & clients of J.P. Morgan.

Asia Pacific Equity Research


19 November 2015

Seshadri K Sen, CFA


(91-22) 6157-3575
seshadri.k.sen@jpmorgan.com

JPM Q-Profile
HDFC Bank Limited (INDIA / Financials)
As Of: 13-Nov-2015

Quant_Strategy@jpmorgan.com

Local Share Price

Current:

1050.65

12 Mth Forward EPS

Current:

56.84

70.00

1,200.00

60.00
1,000.00

50.00
40.00

800.00

30.00

600.00

20.00
10.00

400.00

0.00
-10.00

200.00

-20.00

PE (1Yr Forward)

Current:

18.5x

35.0x

P/E Relative to India Index

Oct/14

Current:

Jun/15

Feb/14

Oct/12

Jun/13

Feb/12

Oct/10

Jun/11

Feb/10

Oct/08

Jun/09

Feb/08

Oct/06

Jun/07

Feb/06

Oct/04

Jun/05

Feb/04

Oct/02

Jun/03

Feb/02

Oct/00

Jun/01

-30.00

Oct/15

Jan/15

Jul/13

Apr/14

Oct/12

Jan/12

Jul/10

Apr/11

Oct/09

Jan/09

Jul/07

Apr/08

Oct/06

Jan/06

Jul/04

Apr/05

Oct/03

Jan/03

Jul/01

Apr/02

Oct/00

0.00

1.09

2.00
1.80

30.0x

1.60

25.0x

1.40
1.20

20.0x

1.00

15.0x

0.80
0.60

10.0x

Earnings Yield (& Local Bond Yield)

5.41%

ROE (Trailing)

Current:

19.92

25.00

Current:

Jun/15

Oct/14

Feb/14

Jun/13

Oct/12

Feb/12

Jun/11

Oct/10

Jun/09

Feb/10

Oct/08

Feb/08

Oct/06

Jun/07

Feb/06

Oct/04

Jun/05

Feb/04

Oct/02

Price/Book (Value)

0.73

Current:

8.0x

P/B Trailing

Jun/15

Oct/14

Feb/14

Jun/13

Oct/12

Feb/12

Jun/11

Oct/10

Jun/09

Feb/10

Oct/08

Feb/08

Oct/06

Jun/07

Feb/06

Oct/04

Jun/05

Feb/04

Oct/02

Jun/03

Oct/00

Oct/14

Jun/15

Feb/14

Jun/13

Oct/12

Feb/12

Jun/11

Oct/10

Feb/10

Jun/09

Oct/08

Jun/07

Feb/08

Oct/06

Feb/06

0.0

Jun/05

0.2

0%
Oct/04

0.4

2%
Jun/03

0.6

4%

Feb/04

0.8

6%

Oct/02

1.0

8%

Feb/02

1.2

10%

Oct/00

Jun/03

Dividend Yield (Trailing)


1.4

Proxy

12%

Jun/01

Feb/02

Oct/00

Oct/14

Jun/15

Feb/14

Jun/13

Current:

India BY

Feb/02

12Mth fwd EY

Jun/01

14%

Oct/12

Feb/12

Jun/11

Oct/10

Feb/10

Oct/08

Jun/09

Jun/07

Feb/08

Oct/06

Feb/06

Jun/05

Oct/04

Jun/03

Feb/04

Oct/02

Feb/02

Oct/00

0.00
Jun/01

0.20

0.0x

Jun/01

0.40
5.0x

4.2x

P/B Forward

7.0x

20.00

6.0x
15.00

5.0x
4.0x

10.00

3.0x
2.0x

5.00

1.0x
Jun/15

Oct/14

Feb/14

Jun/13

Oct/12

Feb/12

Jun/11

Oct/10

Jun/09

Feb/10

Oct/08

Jun/07

Feb/08

Oct/06

Jun/05

Feb/06

Oct/04

Feb/04

Oct/02

Jun/03

Feb/02

Oct/00

0.0x
Jun/01

Oct/14

Jun/15

Feb/14

Jun/13

Oct/12

Feb/12

Jun/11

Oct/10

Feb/10

Oct/08

Jun/09

Jun/07

Feb/08

Oct/06

Feb/06

Jun/05

Oct/04

Jun/03

Feb/04

Oct/02

Feb/02

Oct/00

Jun/01

0.00

Summary
HDFC Bank Limited
INDIA
Financials
12mth Forward PE
P/BV (Trailing)
Dividend Yield (Trailing)
ROE (Trailing)

39992.30
1.81535 TICKER HDFCB IN
Banks
Latest
Min
10.44
18.48x
4.17x
2.52
0.73
0.40
19.92
16.36

Max
32.58
6.85
1.32
21.64

Median
18.87
4.32
0.73
18.81

Average
18.66
4.37
0.77
18.94

2 S.D.+
26.64
6.17
1.15
22.15

2 S.D. 10.69
2.56
0.40
15.73

% to Min
-44%
-40%
-44%
-18%

13-Nov-15
As Of:
Local Price:
1,050.65
EPS:
56.84
% to Max % to Med % to Avg
76%
2%
1%
65%
4%
5%
81%
1%
6%
9%
-6%
-5%

Source: Bloomberg, Reuters Global Fundamentals, IBES CONSENSUS, JPMorgan Quantitative & Derivative Strategy

This document is being provided for the exclusive use of vijaykerba.walke@jpmorgan.com & clients of J.P. Morgan.

Seshadri K Sen, CFA


(91-22) 6157-3575
seshadri.k.sen@jpmorgan.com

Asia Pacific Equity Research


19 November 2015

Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research
analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document
individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views
expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of
any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views
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KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or
intervention.

Important Disclosures

Market Maker/ Liquidity Provider: J.P. Morgan Securities plc and/or an affiliate is a market maker and/or liquidity provider in
HDFC Bank.

Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for HDFC Bank
within the past 12 months.

Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: HDFC Bank.

Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment
banking clients: HDFC Bank.

Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following
company(ies) as clients, and the services provided were non-investment-banking, securities-related: HDFC Bank.

Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients,
and the services provided were non-securities-related: HDFC Bank.

Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation for investment banking services
from HDFC Bank.

Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking
services in the next three months from HDFC Bank.

Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services
other than investment banking from HDFC Bank.

Other Significant Financial Interests: J.P. Morgan owns a position of 1 million USD or more in the debt securities of HDFC Bank.
Debt position: J.P. Morgan may own a position in the debt securities of HDFC Bank.

Company-Specific Disclosures: Important disclosures, including price charts and credit opinion history tables, are available for
compendium reports and all J.P. Morgancovered companies by visiting https://jpmm.com/research/disclosures, calling 1-800-477-0406,
or e-mailing research.disclosure.inquiries@jpmorgan.com with your request. J.P. Morgans Strategy, Technical, and Quantitative
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10

This document is being provided for the exclusive use of vijaykerba.walke@jpmorgan.com & clients of J.P. Morgan.

Asia Pacific Equity Research


19 November 2015

Seshadri K Sen, CFA


(91-22) 6157-3575
seshadri.k.sen@jpmorgan.com

HDFC Bank (HDBK.BO, HDFCB IN) Price Chart

1,836

1,530

N Rs190

N Rs249

OW Rs1,025

OW Rs460

OW Rs675

1,224 N Rs230OW Rs340


OW OW
Rs380
Rs430
OW Rs580
OW Rs520
OW Rs560
Price(Rs)

OW Rs925

OW Rs1,300

OW Rs625OW Rs750 OW Rs800


OW Rs1,100
OW Rs1,200

918

612

306

0
Jul
08

Jan
10

Jul
11

Jan
13

Jul
14

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
Initiated coverage Jul 30, 2008.

Date

Rating Share Price


(Rs)

Price Target
(Rs)

30-Jul-08

218.81

230.00

22-Nov-08 N

165.82

249.00

15-Jan-09

184.96

190.00

22-May-09 OW

274.20

340.00

06-Jan-10

OW

341.44

380.00

25-Apr-10

OW

390.36

430.00

19-Jun-10

OW

399.77

460.00

02-Oct-10

OW

500.15

580.00

06-Mar-11 OW

434.63

520.00

20-Jul-11

OW

510.85

560.00

14-Jul-12

OW

580.10

625.00

12-Oct-12

OW

624.85

675.00

24-Apr-13

OW

698.30

750.00

26-Feb-14 OW

671.00

800.00

27-May-14 OW

797.15

925.00

03-Jul-14

OW

839.90

1025.00

02-Nov-14 OW

910.70

1100.00

11-Jun-15

OW

1015.60

1200.00

22-Oct-15

OW

1095.00

1300.00

The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire
period.
J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated
Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe:
J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the
average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelve
months, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams)
coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of
the stocks in the analysts (or the analysts teams) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if
applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy
reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a
recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stocks expected total return is
compared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appear
in the Important Disclosures section of this report, the certifying analysts coverage universe can be found on J.P. Morgans research
website, www.jpmorganmarkets.com.
Coverage Universe: Sen, Seshadri K: Axis Bank Ltd (AXBK.BO), Bank of Baroda (BOB.BO), Bank of India (BOI.BO), HDFC
(Housing Development Finance Corporation) (HDFC.BO), HDFC Bank (HDBK.BO), ICICI Bank (ICBK.BO), IDFC (IDFC.BO),
IndusInd Bank (INBK.BO), Kotak Mahindra Bank (KTKM.BO), Punjab National Bank (PNBK.BO), State Bank of India (SBI.BO), Yes
Bank (YESB.BO)
J.P. Morgan Equity Research Ratings Distribution, as of September 30, 2015

J.P. Morgan Global Equity Research Coverage


IB clients*
JPMS Equity Research Coverage
IB clients*

Overweight
(buy)
45%
52%
45%
69%

Neutral
(hold)
43%
49%
47%
66%

Underweight
(sell)
12%
35%
8%
54%

*Percentage of investment banking clients in each rating category.


For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold
rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table
above.

Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered
companies, please see the most recent company-specific research report at http://www.jpmorganmarkets.com, contact the primary analyst
or your J.P. Morgan representative, or email research.disclosure.inquiries@jpmorgan.com.
11

This document is being provided for the exclusive use of vijaykerba.walke@jpmorgan.com & clients of J.P. Morgan.

Seshadri K Sen, CFA


(91-22) 6157-3575
seshadri.k.sen@jpmorgan.com

Asia Pacific Equity Research


19 November 2015

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12

This document is being provided for the exclusive use of vijaykerba.walke@jpmorgan.com & clients of J.P. Morgan.

Seshadri K Sen, CFA


(91-22) 6157-3575
seshadri.k.sen@jpmorgan.com

Asia Pacific Equity Research


19 November 2015

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