ICICI Securities Limited

Result Update
April 19, 2011
Rating matrix
Rating : Buy HDFC Bank (HDFBAN)
Target : | 2560
Target Period : 12 months | 2310
Potential Upside : 11%
WHAT’S CHANGED…
Key Financials
PRICE TARGET ..............................................................Changed from | 2411 to | 2560
| crore FY09 FY10 FY11 FY12
EPS (FY11) ............................................................................................................ | 84.4
NII 7421 8386 10543 12855
EPS (FY12E) ................................................................Changed from | 110.8 to | 110.7
PPP 5179 6430 7725 9516
PAT 2245 2949 3926 5152
RATING.................................................................................. Changed from Hold to Buy

Going strong yet again…

Valuation summary
HDFC Bank delivered another quarter of 30+% YoY growth in PAT in
FY09 FY10 FY11E FY12E
Q4FY11. NII of | 2839 crore and PAT of | 1114 crore beat our and Street
Net Profit (| Cr) 2244.9 2948.7 3926.4 5151.8
estimates by a thin margin. Advances and deposits grew 27% and 25%
EPS (|) 52.8 64.4 84.4 110.7
YoY, to | 159983 crore and | 208586 crore, respectively. For FY12E, we
Growth (%) 17.6 22.1 31.0 31.2
expect the bank to grow its balance sheet by 19% and expect a YoY
ABV (|) 329.6 461.6 520.0 594.6
jump of 31% in PAT to | 5152 crore. The board of directors have also
P/E (x) 43.8 35.9 27.4 20.9 approved a stock split of 1:5 (resulting in nominal value of | 2 each),
Price / Book (x) 6.7 4.9 4.4 3.8 subject to required approvals.
Price / ABV (x) 7.0 5.0 4.4 3.9
GNPA (%) 2.0 1.4 1.1 1.0 ƒ CASA @51% supports NIM at 4.2%
NNPA (%) 0.6 0.3 0.2 0.2 The reported CASA (adjusted for one-off in current account deposits)
RoNA (%) 1.4 1.5 1.5 1.7 stands at 51%. This, along with higher retail proportion of ~50% (of
RoE (%) 17.2 16.3 16.4 19.6 total loan book), helped the bank to maintain NIM at 4.2%. The bank did
envisage the pressure to manage CASA at 50%. Hence, term deposit
Stock data rates have inched up significantly recently. We believe the bank will be
Market Capitalisation |107467 crore able to maintain average CASA of 50% in the coming period.
GNPA (FY11) |1694 crore
ƒ Asset quality provides comfort
NNPA (FY11) | 296 crore
Asset quality continued to remain healthy with GNPA@1.1% against
NIM (Q4FY11) 4.2 %
1.4% in FY10. NNPA stood at 0.2%, down from 0.3% in FY10. PCR (not
52 week H/L 2518 / 1785 including write-offs, technical or otherwise) was at 82.5% for FY11
Equity capital | 465 Crore compared to 74.8% in FY10. Total restructured loans (including
Face value | 10 applications received and under process for restructuring) were at 0.4%
DII Holding (%) 11.6
of advances, of which 0.1% has already slipped into NNPA. We expect
stable asset quality, going ahead.
FII Holding (%) 28.5
ƒ Distribution platform expands, C/I ratio stable
Price movement The bank added 206 branches in Q4FY11, 261 in FY11. The branch
3000 7000
network now stands at 1986 and 5471 ATMs. Despite aggressive growth
6000
in the distribution platform, the CI ratio was stable at 49%.
2500
2000
5000 Valuation
4000
1500 At the CMP of | 2310, the bank is trading at 3.9x ABV and 21x EPS for
3000
FY12E. The bank has historically commanded premium multiples and is
1000 2000
expected to continue with the trend, going ahead. We value the bank at
Nov-10
Apr-10

Jun-10

Aug-10

Dec-10
Sep-10

Feb-11

Apr-11

4.3x FY12E ABV and arrive at a fair value of | 2560 and recommend BUY.
Exhibit 1: Financial Performance
HDFC Bank Nifty (RHS)
| Crore Q4FY11 Q4FY11E Q4FY10 Q3FY11 YoY Gr.(%) QoQ Gr.(%)
Analyst’s name NII 2839.5 2796.5 2351.4 2776.7 20.8 2.3
Kajal Gandhi Other income 1255.8 1125.5 903.6 1127.8 39.0 11.3
kajal.gandhi@icicisecurities.com Total Income 4095.2 3922.0 3254.9 3904.5 25.8 4.9
Viraj Gandhi PPP 2096.9 2097.3 1694.4 2072.7 23.8 1.2
viraj.gandhi@icicisecurities.com PAT 1114.7 1097.3 836.6 1087.8 33.2 2.5
Mani Arora Source: Company quarterly updates, ICICIdirect.com Research
mani.a@icicisecurities.com

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 ICICI Securities Limited

Exhibit 2: Balance sheet grows strong again

50 35
30
40
25
30 20

(%)

(%)
20 15
The C/D ratio settled at 78% for FY11, after staying at 10
elevated levels of above 80% in the previous three quarters 10
5
.
0 0

Q1FY10

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11

FY11

FY12E
.

Advances growth Deposit growth Balance sheet (RHS)

Source: Company quarterly press release, ICICIdirect.com Research

The market share has now consistently been maintained Exhibit 3: Market share on a roll
over 4.2-4.3%
5.5

4.5

3.5
(%)

2.5

1.5
FY06 FY07 FY08 FY09 FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11

Deposits Advances

Source: WSS-RBI, Company quarterly press release, ICICIdirect.com Research

Saving rate deregulation can impact the CASA proportion Exhibit 4: CASA stands at 51% excluding one off in CA deposits
for HDFC Bank and our estimates to that extent
150000 52.0 52.7 51.7 55
50.3 50.5
49.0
50
122097

45.0
100000
45
(| Crore)

98656
95140

(%)
82541
80300
80217

74817
74386

40
63448

50000
61038
49877

48409
46696

46460
43249

35
38489
27026

32170

33276

37227

36024

0 30
Q1FY10

Q2FY10

Q3FY10

FY10

9MFY11

FY11

FY12E

Saving Current Term CASA (RHS)

Source: Company quarterly press release, ICICIdirect.com Research,

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ICICI Securities Limited

Exhibit 5: Strong liability franchise also helps in CASA accumulation

FY11 1986 5471

The cost to income ratio stands at 48%, on account of Q3FY11 1780 5121
higher than expected branch additions in Q4FY11
Q2FY11 1765 4721

Q1FY11 1725 4393

FY10 1725 4232

Q3FY10 1725 3898

Branches
Q2FY10 1506 3573
ATM
Q1FY10 1416 3382

10 1010 2010 3010 4010 5010 6010 7010 8010

Source: Company quarterly press release and annual report, ICICIdirect.com Research

Exhibit 6: Trend in net interest income Exhibit 7: NII growth strong YoY, QoQ
3100 100 6 10 20
2 5 2
2900 80 10
2700 0
2777 2839 60 (%)
2500 -10
40
2300 2527 29 29 -20
27 25
2100 2351 2401 20 21
-30
2224
1900 0 -40
(| Crore)
1700 -20 -50
1500

Q4FY10

Q1FY11

Q2FY11

Q3FY11

Q4FY11
Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11

Q4FY11

YoY QoQ

Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research

Exhibit 8: NIM stable despite higher interest cost

4.6

4.4
4.4
4.2 4.3 4.3 4.3 4.3
(%)

4.2 4.2 4.2 4.2 4.2 4.2 4.2

4.0

3.8

3.6
FY12E*
Q2FY09

Q3FY09

Q4FY09

Q1FY10

Q2FY10

Q3FY10

Q4FY10

Q1FY11

Q2FY11

Q3FY11

FY11

Source: Company quarterly press release, ICICIdirect.com Research *- Calculated NIM

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 ICICI Securities Limited

Exhibit 9: Fee income growth: A positive surprise

1100 1400
1255

1000
1200

943
1129

857
700 1000

765
960

746
940

724
904

(| Crore)

(| Crore)
852
800

300 ` 600

245
217
154

180

172

152
400

22

9
-27

-47

-52

-31
-100 200
Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11

Commission Forex Revaluattion of Investment Total (RHS)

Source: Company quarterly press release, ICICIdirect.com Research

Exhibit 10: Asset quality improves further

2.5

The provision coverage ratio excluding write-off stands at a 2.0

healthy 82%
1.5
(%)

1.0

0.5

0.0
FY08

Q1FY09

Q2FY09

Q3FY09

FY09

Q1FY10

Q2FY10

Q3FY10

FY10

9MFY11

FY11

FY12E
GNPA NNPA

Source: Company quarterly press release and annual report, ICICIdirect.com Research

Exhibit 11: Strong CAR to enable near term business growth

20
18.3
17.4 17
16 16.3 16.3 16.2
15.4 15.7
(%)

13.8
13.3
12.4 12.7
12 12.1 12.2
10.6 10.9

8
Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11

Total Tier I

Source: Company quarterly press release and annual report, ICICIdirect.com Research

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ICICI Securities Limited

ICICIdirect.com coverage universe (Banking)

Bank of India NP (| Cr) EPS (|) PE (x) P/ABV (x) RoNA (%) RoE(%)
Idirect Code BANIND CMP 488 FY10 1741.1 33.1 14.7 2.4 0.7 12.6
Target 490 FY11E 2670.3 50.8 9.6 2.1 0.9 17.5
Mcap (| Cr) 25670 Upside (%) 0.4 FY12E 3195.1 52.8 9.2 1.8 0.9 17.3
Bank of Baroda
Idirect Code BANBAR CMP 984 FY10 3058.3 83.7 11.8 3.0 1.2 21.9
Target 995 FY11E 4070.7 103.6 9.5 2.1 1.3 22.3
Mcap (| Cr) 35968 Upside (%) 1.1 FY12E 4995.4 127.2 7.7 1.7 1.4 21.1
Dena Bank
Idirect Code DENBAN CMP 110 FY10 511.3 17.8 6.2 1.6 1.0 21.4
Target 130 FY11E 615.9 18.5 6.0 1.3 1.0 19.9
Mcap (| Cr) 3667 Upside (%) 18.2 FY12E 754.7 22.6 4.9 1.1 1.0 19.4
Indian Overseas Bank
Idirect Code INDOVE CMP 155 FY10 707.0 13.0 11.9 1.9 0.6 11.5
Target 168 FY11E 972.1 15.7 9.9 1.4 0.7 13.3
Mcap (| Cr) 8444 Upside (%) 8.4 FY12E 1527.1 24.7 6.3 1.2 0.9 17.0
IDBI Bank
Idirect Code IDBI CMP 147 FY10 1031.1 8.8 16.8 2.2 0.5 13.2
Target 160 FY11E 1580.5 16.1 9.2 1.6 0.7 15.1
Mcap (| Cr) 14508 Upside (%) 8.6 FY12E 1930.9 19.6 7.5 1.4 0.7 14.3
OBC
Idirect Code ORIBAN CMP 374 FY10 1134.7 45.3 8.2 1.4 0.9 14.5
Target 384 FY11E 1573.2 53.9 6.9 1.1 1.1 16.1
Mcap (| Cr) 9358 Upside (%) 2.8 FY12E 1827.6 62.6 6.0 1.0 1.1 15.1
Punjab National Bank
Idirect Code PUNBAN CMP 1192 FY10 3905.4 123.9 9.6 2.5 1.4 23.9
Target 953 FY11E 4367.5 137.9 8.6 2.1 1.3 22.3
Mcap (| Cr) 37751 Upside (%) -20.0 FY12E 5631.4 177.8 6.7 1.7 1.4 23.7
SBI
Idirect Code STABAN CMP 2808 FY10 91.7 144.4 19.4 3.2 0.9 14.8
Target 3067 FY11E 109.7 172.7 16.3 2.9 1.0 15.6
Mcap (| Cr) 178308 Upside (%) 9.2 FY12E 121.9 173.0 16.2 2.3 0.9 14.0
Syndicate Bank
Idirect Code SYNBN CMP 126 FY10 813.3 15.6 8.1 1.5 0.6 15.3
Target 137 FY11E 986.7 17.2 7.3 1.3 0.7 15.6
Mcap (| Cr) 6556 Upside (%) 9.1 FY12E 1282.2 22.4 5.6 1.2 0.7 17.6
Union Bank of India
Idirect Code UNIBAN CMP 331 FY10 2074.9 41.1 8.4 2.2 1.2 26.2
Target 362 FY11E 2150.8 39.4 8.7 1.8 1.0 20.8
Mcap (| Cr) 17995 Upside (%) 9.4 FY12E 2724.7 49.9 6.9 1.4 1.1 20.9

Axis Bank
Idirect Code UTIBAN CMP 1430 FY10 2514.5 62.1 23.0 3.7 1.7 19.2
Target 1570 FY11E 3355.5 80.1 17.9 3.2 1.7 19.2
Mcap (| Cr) 58708 Upside (%) 9.8 FY12E 3986.4 95.2 15.0 2.8 1.6 19.4
City Union Bank
Idirect Code CITUNI CMP 48 FY10 152.8 3.8 12.6 2.4 1.5 20.6
Target 52 FY11E 213.5 5.3 9.0 2.0 1.7 23.3
Mcap (| Cr) Upside (%) 8.1 FY12E 268.6 6.4 7.5 1.6 1.7 23.0
Dhanlaxmi Bank
Idirect Code DHABAN CMP 125 FY10 23.3 3.6 34.4 2.0 0.3 5.4
Target *UR FY11E 28.9 3.4 36.8 1.4 0.3 4.6
Mcap (| Cr) 1064 Upside (%) - FY12E 72.1 8.5 14.8 1.3 0.5 8.4
DCB
Idirect Code DCB CMP 59 FY11 21.4 1.1 55.1 2.3 0.3 3.9
Target 72 FY12E 53.1 2.4 25.0 1.8 0.6 8.0
Mcap (| Cr) 1181 Upside (%) 22.0 FY13E 75.0 3.0 19.7 1.5 0.8 8.3
Federal Bank
Idirect Code FEDBAN CMP 455 FY10 464.5 27.2 16.8 1.7 1.1 10.3
Target 501 FY11E 569.4 33.3 13.7 1.7 1.2 11.9
Mcap (| Cr) 7778 Upside (%) 10.1 FY12E 672.7 39.3 11.6 1.6 1.3 13.5

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ICICI Securities Limited

Continued…

HDFC Bank NP (| Cr) EPS (|) PE (x) P/ABV (x) RoNA (%) RoE(%)
Idirect Code HDFBAN CMP 2363 FY10 2948.7 64.4 36.7 5.1 1.5 16.3
Target 2411 FY11E 3909.0 85.4 27.7 4.6 1.6 17.1
Mcap (| Cr) 109933 Upside (%) 2.0 FY12E 5072.6 110.8 21.3 4.0 1.7 19.6
Kotak Bank
Idirect Code KOTMAH CMP 452 FY10 561.1 8.1 55.2 7.3 1.7 13.5
Target 434 FY11E 779.9 10.7 41.6 5.5 1.9 14.7
Mcap (| Cr) 33307 Upside (%) -4.0 FY12E 989.6 13.6 32.8 5.0 1.9 15.3
South Indian Bank
Idirect Code SOUIN0 CMP 23 FY10 233.7 2.1 11.1 1.8 1.1 17.9
Target 23 FY11E 281.5 2.5 9.2 1.7 1.0 17.9
Mcap (| Cr) 2599 Upside (%) 0.0 FY12E 356.1 3.2 7.3 1.4 1.0 19.5
Yes Bank
Idirect Code YESBAN CMP 260 FY10 477.7 14.1 23.5 3.6 1.6 20.3
Target 362 FY11E 740.7 21.3 15.5 2.9 1.6 20.9
Mcap (| Cr) 11456 Upside (%) 39.2 FY12E 1006.8 28.9 11.4 2.4 1.5 22.6
*UR: Under Review

Exhibit 12: Recommendation History

2600 TP-2539,Buy
2400 TP-2151,Buy
2200
2000 TP-2349,Reduce
1800
TP-2559,Buy TP-2304,Buy
1600
1400 TP-1880,Buy
TP-2151,Add
1200
1000 Nov-10
Aug-10

Oct-10
Apr-10

May-10

Jun-10

Jul-10

Sep-10

Dec-10

Jan-11

Feb-11

Mar-11
HDFC Bank

Source: Bloomberg, ICICIdirect.com Research

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 ICICI Securities Limited

RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.

Strong Buy: 20% or more;

Buy: Between 10% and 20%;
Hold: Up to +/-10%;
Sell: -10% or more;

Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,
7th Floor , Akruti Centre Point,
MIDC Main Road, Marol Naka,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com

ANALYST CERTIFICATION
We /I, Kajal Gandhi CA Viraj Gandhi MBA-CM Mani Arora MBA research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report
accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific
recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.

Disclosures:
ICICI Securities Limited (ICICI Securities) and its affiliates are a full-service, integrated investment banking, investment management and brokerage and financing group. We along with affiliates are leading
underwriter of securities and participate in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationship with a significant percentage of
companies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. ICICI Securities
generally prohibits its analysts, persons reporting to analysts and their dependent family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts
cover.

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and
meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without
prior written consent of ICICI Securities. While we would endeavour to update the information herein on reasonable basis, ICICI Securities, its subsidiaries and associated companies, their directors and
employees (“ICICI Securities and affiliates”) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities
from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities
policies, in circumstances where ICICI Securities is acting in an advisory capacity to this company, or in certain other circumstances.

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This
report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial
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risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to
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ICICI Securities and its affiliates might have managed or co-managed a public offering for the subject company in the preceding twelve months. ICICI Securities and affiliates might have received
compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of public offerings, corporate finance, investment
banking or other advisory services in a merger or specific transaction. ICICI Securities and affiliates expect to receive compensation from the companies mentioned in the report within a period of three
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transaction. It is confirmed that Kajal Gandhi CA Viraj Gandhi MBA-CM Mani Arora MBA research analysts and the authors of this report have not received any compensation from the companies
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ICICI Securities or its subsidiaries collectively do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the
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It is confirmed that Kajal Gandhi CA Viraj Gandhi MBA-CM Mani Arora MBA research analysts and the authors of this report or any of their family members does not serve as an officer, director or advisory
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ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. ICICI Securities and affiliates may act upon or make use
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