HDFC Bank HDBK.

NS HDFCB IN

EQUITY: BANKS

Small bumps in the path of the juggernaut Global Markets Research

27 August 2019
Maintain Buy as we expect the bank to manage
Rating
robust profitability Remains Buy
Small bumps, but still a resilient franchise; maintain Buy Target Price
Increased from 2450 INR 2600
We believe the current retail slowdown will impact HDFCB’s retail growth over
FY20-21F. Also, unlike the auto/retail slowdown in FY13/14, currently retail credit Closing price
costs have structurally and cyclically inched up and hence we see small bumps 26 August 2019 INR 2256
in the path of HDCB’s retail juggernaut. A positive is that some of the rise in the
credit cost is also cyclical (autos/agri) which should reverse, and with strong Potential upside +15.2%
opex optimization, we believe HDFCB will manage to record ~18% PAT growth
over FY19-21F. Hence, while the near-term core PPOP growth is likely to Anchor themes
moderate for the bank, we do not see any significant challenges to its ability to
Current slowdown is likely to
compound earnings (we estimate 18% CAGR over FY19-21F). We factor in the
impact growth and potentially the
slower growth and higher credit costs and cut our earnings by 4-5% for FY20-
asset quality for all banks,
21F, but marginally raise TP to INR2,600 as we roll over to Sept-21F book. Our
including retail banks/ NBFCs.
new TP implies 20x Sep-21F EPS and 3.3x Sep-21F book. The stock is trading
We continue to prefer corporate
at 2.9x Sep-21F book. We prefer ICICI/Axis Bank, both Buy rated.
banks.
 Growth slowing down: +60% of the book growth has been driven by the
non-corporate book in the past 3-4 years. Within that, auto/ unsecured and Nomura vs consensus
business banking, where the near-term growth outlook is muted, contributed Our FY20-21F PAT estimates are
~50% of the total incremental growth. Like in FY13/14, we believe loan growth slightly below consensus.
will catch up with the slowing disbursement growth, and with ~15% market
retail market share (ex-mortgages), we expect CAGR to moderate to 17-18% Research analysts
in FY20-21F from 22%.
 Credit costs – normalising from a low base: HDFCB’s credit costs have India Banks
risen from 65bps over FY12-17 to 90-100bps over FY18-19 driven by Adarsh Parasrampuria - NFASL
structural factors like changing loan mix and normalisation of credit costs in adarsh.parasrampuria@nomura.com
few segments and cyclical factors like a spike in agri/auto credit costs. While +91 22 4037 4034
we expect the cyclical factors to reverse, credit costs should inch up to 90- Amit Nanavati - NFASL
100bps in FY20-21F from 60-65bps over FY12-17. amit.nanavati@nomura.com
+91 22 4037 4361
 Robust profitability still likely: Despite the retail slowdown, we expect
HDFCB to report ~2.5% RORWAs driven by rising opex ratios and the Tanuj Kyal - NFASL
tanuj.kyal1@nomura.com
medium-term normalisation of the cyclical spike in auto/agri credit costs. +91 22 40374220

Year-end 31 Mar FY19 FY20F FY21F FY22F

Currency (INR) Actual Old New Old New Old New

PPOP (mn) 397,497 479,336 470,965 569,426 549,435 650,766

Reported net profit (mn) 210,782 256,711 245,456 313,716 296,481 354,023
Normalised net profit (mn) 210,782 256,711 245,456 313,716 296,481 354,023
FD normalised EPS 81.22 95.04 90.13 116.14 108.87 130.00
FD norm. EPS growth (%) 20.5 16.5 11.0 22.2 20.8 19.4
FD normalised P/E (x) 27.8 N/A 25.0 N/A 20.7 N/A 17.4
Price/adj. book (x) 4.2 N/A 3.7 N/A 3.2 N/A 2.8
Price/book (x) 4.1 N/A 3.7 N/A 3.2 N/A 2.8
Dividend yield (%) 0.7 N/A 0.8 N/A 0.9 N/A 0.9
ROE (%) 16.5 16.5 15.5 17.6 16.5 17.1
ROA (%) 1.8 2.0 1.8 2.0 1.9 1.9
Source: Company data, Nomura estimates

Key company data: See next page for company data and detailed price/index chart. Production Complete: 2019-08-27 13:14 UTC

See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Nomura | HDFC Bank 27 August 2019

Key data on HDFC Bank

Relative performance chart Balance sheet (INRmn)
As at 31 Mar FY18 FY19 FY20F FY21F FY22F
Cash and equivalents 971,381 393,721 586,306 690,749 830,296
Inter-bank lending 257,769 419,755 351,783 414,450 498,178
Deposits with central
Total securities
Other int earning
Gross loans 6,643,390 8,274,109 9,702,51711,462,79513,766,226
Less provisions -60,060 -80,096 -115,523 -150,142 -191,042
Net loans 6,583,331 8,194,012 9,586,99411,312,65313,575,184
Long-term investments 2,422,002 2,905,879 3,302,255 3,799,791 4,464,547
Fixed assets 36,084 40,312 44,540 48,768 52,996
Goodwill
Other intangible assets
Source: Thomson Reuters, Nomura research Other non IEAs 368,781 491,734 540,907 594,998 654,497
Total assets 10,639,34912,445,41314,412,78516,861,40920,075,698
Notes: Customer deposits 7,887,706 9,231,40910,734,07912,661,04315,289,374
Bank deposits, CDs, 750,750 718,534 790,025 861,936 934,543
Other int bearing 480,300 452,317 602,317 752,317 902,317
Total int bearing 9,118,75610,402,26112,126,42014,275,29617,126,234
Performance Non-int bearing 457,643 551,089 606,198 666,818 733,499
(%) 1M 3M 12M Total liabilities 9,576,39910,953,34912,732,61814,942,11417,859,733
Absolute (INR) -0.7 -4.7 9.2 M cap (USDmn) 85,727.1 Minority interest
Absolute (USD) -4.8 -8.2 6.2 Free float (%) 90.3 Common stock 5,190 5,447 5,447 5,447 5,447
Rel to NIFTY50 1.3 1.9 13.6 3-mth ADT (USDmn) 116.0 Preferred stock
Retained earnings 1,057,760 1,486,617 1,674,720 1,913,848 2,210,519
Profit and loss (INRmn) Reserves for credit
Year-end 31 Mar FY18 FY19 FY20F FY21F FY22F Proposed dividends
Interest income 802,414 989,721 1,181,371 1,377,754 1,629,660 Other equity
Interest expense -401,465 -507,288 -629,115 -731,166 -867,177 Shareholders' equity 1,062,950 1,492,064 1,680,167 1,919,295 2,215,965
Net interest income 400,949 482,432 552,256 646,587 762,483 Total liabilities and 10,639,34912,445,41314,412,78516,861,40920,075,698
Net fees and commissions 114,785 139,947 162,339 189,937 224,125 Non-perf assets 86,070 112,242 161,886 210,399 267,713
Trading related profits 10,817 4,021 16,000 12,000 13,000
Other operating revenue 26,601 32,291 37,983 44,080 51,393 Balance sheet ratios
Non-interest income 152,203 176,259 216,322 246,017 288,518 Loans to deposits 84.2 89.6 90.4 90.5 90.0
Operating income 553,152 658,691 768,578 892,604 1,051,001 Equity to assets 10.0 12.0 11.7 11.4 11.0
Depreciation -9,063 -11,401 -12,541 -13,795 -15,175 Asset quality &
Amortisation NPAs/gross loans (%) 1.3 1.4 1.7 1.8 1.9
Operating expenses -149,783 -172,175 -196,280 -228,666 -268,682 Bad debt charge/gross 0.83 0.85 0.99 0.84 0.80
Employee share expense -68,057 -77,618 -88,792 -100,708 -116,378 Loss reserves/assets 0.56 0.64 0.80 0.89 0.95
Pre-provision op profit 326,248 397,497 470,965 549,435 650,766 Loss reserves/NPAs 69.8 71.4 71.4 71.4 71.4
Provisions for bad debt -55,079 -70,425 -95,999 -96,522 -109,950 Tier 1 capital ratio (%) 13.3 15.8 15.4 14.9 14.3
Other provision charges -4,196 -5,076 0 0 0 Total capital ratio (%) 14.8 17.1 16.6 16.0 15.3
Operating profit 266,973 321,997 374,966 452,914 540,816 Per share
Other non-op income Reported EPS (INR) 67.38 81.22 90.13 108.87 130.00
Associates & JCEs Norm EPS (INR) 67.38 81.22 90.13 108.87 130.00
Pre-tax profit 266,973 321,997 374,966 452,914 540,816 FD norm EPS (INR) 67.38 81.22 90.13 108.87 130.00
Income tax -92,106 -111,215 -129,510 -156,433 -186,793 DPS (INR) 13.00 15.00 18.00 21.06 21.06
Net profit after tax 174,867 210,782 245,456 296,481 354,023 PPOP PS (INR) 125.72 153.17 172.94 201.75 238.96
Minority interests BVPS (INR) 409.60 547.89 616.96 704.77 813.70
Other items ABVPS (INR) 402.58 539.62 616.96 704.77 813.70
Preferred dividends NTAPS (INR) 409.60 547.89 616.96 704.77 813.70
Normalised NPAT 174,867 210,782 245,456 296,481 354,023
Extraordinary items 0 0 0 0 0 Valuations and
Reported NPAT 174,867 210,782 245,456 296,481 354,023 Reported P/E (x) 33.5 27.8 25.0 20.7 17.4
Dividends -39,471 -47,794 -57,353 -57,353 -57,353 Normalised P/E (x) 33.5 27.8 25.0 20.7 17.4
Transfer to reserves 135,396 162,988 188,103 239,128 296,670 FD normalised P/E (x) 33.5 27.8 25.0 20.7 17.4
Dividend yield (%) 0.6 0.7 0.8 0.9 0.9
Growth (%) Price/book (x) 5.5 4.1 3.7 3.2 2.8
Net interest income 21.0 20.3 14.5 17.1 17.9 Price/adjusted book (x) 5.6 4.2 3.7 3.2 2.8
Non-interest income 23.8 15.8 22.7 13.7 17.3 Net interest margin (%) 6.39 6.24 5.95 5.97 5.91
Non-interest expenses 20.9 14.9 14.0 16.5 17.5 Yield on assets (%) 12.80 12.81 12.74 12.72 12.63
Pre-provision earnings 26.8 21.8 18.5 16.7 18.4 Cost of int bearing liab 4.93 5.20 5.59 5.54 5.52
Net profit 20.2 20.5 16.5 20.8 19.4 Net interest spread (%) 7.87 7.61 7.15 7.18 7.11
Normalised EPS 18.7 20.5 11.0 20.8 19.4 Non-interest income 27.5 26.8 28.1 27.6 27.5
Normalised FDEPS 18.7 20.5 11.0 20.8 19.4 Cost to income (%) 41.0 39.7 38.7 38.4 38.1
Loan growth 18.7 24.5 17.0 18.0 20.0 Effective tax rate (%) 34.5 34.5 34.5 34.5 34.5
Interest earning assets 20.0 25.9 15.4 18.0 20.0 Dividend payout (%) 22.6 22.7 23.4 19.3 16.2
Interest bearing liabilities 27.1 14.1 16.6 17.7 20.0 ROE (%) 17.9 16.5 15.5 16.5 17.1
Asset growth 23.2 17.0 15.8 17.0 19.1 ROA (%) 1.81 1.83 1.83 1.90 1.92
Deposit growth 22.5 17.0 16.3 18.0 20.8 Operating ROE (%) 27.3 25.2 23.6 25.2 26.2
Source: Company data, Nomura estimates Operating ROA (%) 2.77 2.79 2.79 2.90 2.93
Source: Company data, Nomura estimates

2
Nomura | HDFC Bank 27 August 2019

Small bumps, but still a resilient franchise; maintain Buy

We believe the current retail slowdown will impact HDFCB’s retail growth over FY20-21F
and unlike the auto/retail slowdown in FY13/14, retail credit costs have both structurally
and cyclically inched up; hence, we see small bumps in the path of HDCB’s retail
juggernaut. A positive is that some of the rise in the credit cost is also cyclical
(autos/agri) which we believe will reverse and with strong opex optimization, HDFCB
should be able to record ~18% PAT growth over FY19-21F. Hence, while the near-term
core PPOP growth will moderate for the bank, we do not see any significant challenges
to its ability to compound earnings (we estimate 18% CAGR over FY19-21F). We factor
in slower growth and higher credit costs and cut our earnings estimates by 4-5% for
FY20-21F but marginally increase TP to INR2,600 as we roll over to Sept-21F book. Our
new TP is based on 20x Sep-21F EPS and 3.3x Sep-21F book (both based on
historically traded average multiples). We prefer ICICI/Axis bank, both Buy-rated. Key
downside risks to our rating are further deepening of the current slowdown impacting
growth and any sharp increase in the credit cost in the unsecured book.

Fig. 1: Lower earnings by 4-5% driven by the slower growth and marginally higher credit costs, but lower opex to still lead to
solid earnings CAGR of 18% over FY19-21F
New estimates Old estimates Variation
INRmn FY20F FY21F FY22F FY20F FY21F FY20F FY21F
Loan growth 16.4% 17.5% 19.5% 19.2% 19.3% -2.8% -1.8%
Fee growth 16.3% 16.8% 17.7% 18.6% 18.6% -2.3% -1.8%
NII 552,256 646,587 762,483 564,266 666,469 -2.1% -3.0%
PPOP 470,965 549,435 650,766 479,336 569,426 -1.7% -3.5%
PAT 245,456 296,481 354,023 256,711 313,716 -4.4% -5.5%
NIM 4.23% 4.24% 4.21% 4.38% 4.35% -0.2% -0.1%
Credit cost 1.08% 0.92% 0.88% 0.97% 0.84% 0.1% 0.1%
Opex growth 13.9% 15.3% 16.6% 16.2% 16.7% -2.2% -1.4%
Source: Nomura estimates

Fig. 2: HDFCB’s ROE tree – We expect RORWA to sustain 2.5% levels

ROA decomposition FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20F FY21F FY22F
Net Interest Income/Assets 4.35% 4.40% 4.48% 4.30% 4.25% 4.40% 4.37% 4.26% 4.29% 4.23% 4.24% 4.21%
Fees/Assets 1.81% 2.04% 1.90% 1.82% 1.60% 1.59% 1.47% 1.50% 1.53% 1.53% 1.53% 1.52%
Investment profits/Assets -0.02% -0.07% 0.05% 0.03% 0.11% 0.12% 0.15% 0.11% 0.04% 0.12% 0.08% 0.07%
Net revenues/Assets 6.15% 6.38% 6.43% 6.15% 5.96% 6.11% 6.00% 5.88% 5.86% 5.88% 5.85% 5.80%
Operating Expense/Assets -2.95% -3.17% -3.19% -2.80% -2.66% -2.70% -2.60% -2.41% -2.32% -2.28% -2.25% -2.21%
Provisions/Assets -0.79% -0.64% -0.48% -0.37% -0.39% -0.43% -0.47% -0.63% -0.67% -0.73% -0.63% -0.61%
Taxes/Assets -0.78% -0.80% -0.93% -1.00% -0.97% -1.01% -1.00% -0.98% -0.99% -0.99% -1.03% -1.03%
Total Costs/Assets -4.52% -4.62% -4.59% -4.17% -4.02% -4.15% -4.08% -4.02% -3.98% -4.00% -3.91% -3.85%
ROA 1.62% 1.77% 1.84% 1.97% 1.94% 1.96% 1.92% 1.86% 1.87% 1.88% 1.94% 1.96%
Equity/Assets 9.69% 9.45% 9.38% 9.28% 10.02% 10.73% 10.70% 10.40% 11.36% 12.14% 11.79% 11.42%
ROE 16.7% 18.7% 19.6% 21.3% 19.4% 18.3% 17.9% 17.9% 16.5% 15.5% 16.5% 17.1%
RORWA 2.25% 2.37% 2.37% 2.61% 2.66% 2.58% 2.49% 2.43% 2.43% 2.43% 2.49% 2.50%
EPS growth (%) 31.0% 30.4% 23.6% 29.9% 15.3% 19.3% 16.7% 18.7% 14.9% 16.5% 20.8% 19.4%
PAT growth 33.1% 31.6% 25.3% 30.9% 20.5% 20.4% 18.3% 20.2% 20.5% 16.5% 20.8% 19.4%

Source: Nomura estimates

Fig. 3: Our TP at INR2600 implies 20x Sep-21F earnings and 3.3x Sep-21F book
Valuation assumptions
BVPS - Sep-21F 791
EPS - Sep-21F 127
ROE - FY22F 17.1%
Sep-20 PT 2,600
Implied Sep-21 P/B 3.3
Implied Sep-21 P/E 20
Source: Nomura estimates. Note: Figures in INR

3
Nomura | HDFC Bank 27 August 2019

Fig. 4: Credit cost reduction to be negated by lower opex ratios

Opex/Assets Credit cost
3.40% 1.20%
3.20% 1.10%
3.00% 1.00%
2.80% 0.90%
2.60% 0.80%
2.40% 0.70%
2.20% 0.60%
2.00% 0.50%
FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20F

FY21F

FY22F
Source: Company data, Nomura estimates

Fig. 5: Peer comps; we prefer corporate banks

P/B P/E ROE
Tickers Rating TP
FY20F FY21F FY22F FY20F FY21F FY22F FY20F FY21F FY22F
Corporate Banks
Axis AXSB IN Equity Buy 900 2.20 1.88 1.59 19.8 12.1 9.9 11.9% 16.6% 17.4%
ICICI ICICIBC IN Equity Buy 575 1.82 1.57 1.36 13.1 10.3 8.6 13.5% 15.2% 15.8%
SBI SBIN IN Equity Buy 420 0.78 0.67 0.59 7.3 5.3 4.7 11.1% 13.8% 13.3%
Yes YES IN Equity Neutral 110 0.60 0.57 0.52 23.6 9.4 4.8 2.6% 6.2% 11.3%

Retail Banks
IndusInd IIB IN Equity Buy 1,775 2.57 2.12 1.78 15.9 12.3 9.6 17.6% 19.1% 20.2%
HDFCB HDFCB IN Equity Buy 2,600 3.54 3.08 2.66 23.6 19.5 16.3 15.5% 16.5% 17.1%
Kotak KMB IN Equity Neutral 1,450 4.64 4.01 3.41 34.4 27.5 21.8 14.4% 15.7% 16.9%
Source: Bloomberg, Nomura estimates; Priced (INR) as of the close of markets on 26 August 2019

Growth slowing down

• HDFCB’s ~60% book growth has been driven by the non-corporate book in the past
three-four years. Within that, sectors like auto/ unsecured and business banking, where
the near-term growth outlook is muted, contributed ~50% of total incremental growth.
• The last auto slowdown was in FY13/14 where car volumes contracted by 5% over
FY12-14. Slowing retail disbursements led to auto growth slowing down for HDFCB
from ~30% y/y growth in 4QFY12 to almost flat y/y book by end-FY14. Slowing retail
disbursements impact vehicle growth with a lag and we expect a similar trend even in
FY19-21F as our auto team expects (link) muted OEM volumes over FY19-21F.
• Unsecured retail credit has contributed ~25% of incremental growth in the past three-
four years for HDFCB, with ~35% CAGR over FY15-19. With slowing consumption and
high base impact, unsecured credit growth, especially for personal loans, has come
down to ~25% y/y growth.
• Part of the slowdown on the retail credit side has been offset by the high growth in the
corporate loan book (in FY14, the corporate book for HDFCB grew by +35% y/y). While
the outlook for corporate credit growth overall is not very strong, HDFCB was able to
gain share in FY14 and we expect that could repeat in the current environment as well.
• Management indicated that it is focusing on engaging more with its existing client base
and that should lead to market share gain and drive volumes in spite of weak OEM
sales. While market share gains are possible, HDFCB’s market share of non-mortgage
retail business has increased from 10% in FY13/14 to ~15% now and within car
financing, HDFCB’s market share has increased from ~20% in FY13/14 to +25% now
(our estimate) and that will restrict the ability to gain further market share.
• Overall, with slowing auto loan growth and the high base impact on unsecured retail
lending, we expect 17.5% CAGR growth for HDFCB over FY19-21F vs. ~22% CAGR
growth over FY14-19.

4
Nomura | HDFC Bank 27 August 2019

Fig. 6: Growth over the past four years has been driven by auto, unsecured credit and business banking – near-term growth
outlook for these sectors is weak
FY15 1QFY20 Incremental FY14-1QFY20
Segment
INRmn Mix (%) INRmn Mix (%) INRmn Mix (%)
- Car Loans 405,280 11.1% 819,130 9.9% 413,850 8.9%
- 2 wheeler loans 41,570 1.1% 100,700 1.2% 59,130 1.3%
- CV/CE Loans 127,890 3.5% 292,290 3.5% 164,400 3.5%
Total Auto loans 574,740 15.7% 1,212,120 14.6% 637,380 13.7%
Personal loans 258,200 7.1% 971,480 11.7% 713,280 15.4%
Credit Cards 161,540 4.4% 495,230 6.0% 333,690 7.2%
Business Banking 188,260 5.2% 577,200 7.0% 388,940 8.4%
Home Loans 241,250 6.6% 557,690 6.7% 316,440 6.8%
LASS 13,530 0.4% 17,800 0.2% 4,270 0.1%
- Kisan gold card 161,820 4.4% 366,550 4.4% 204,730 4.4%
- Others 88,510 2.4% 181,140 2.2% 92,630 2.0%
Other Retail 250,330 6.8% 547,690 6.6% 297,360 6.4%
Gold Loans 40,570 1.1% 52,320 0.6% 11,750 0.3%
Retail Total 1,728,420 47.3% 4,431,530 53.4% 2,703,110 58.2%
Non-Retail Loans 1,926,530 52.7% 3,865,768 46.6% 1,939,238 41.8%
Total Loan book 3,654,950 100% 8,297,298 100% 4,642,348 100%
Source: Company data, Nomura research

Fig. 7: Last big slowdown in the auto sector was in FY13/14

Growth y/y FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20F FY21F
MHCV -1.8% -32.9% 34.4% 31.9% 8.0% -23.0% -25.3% 16.1% 29.9% 0.0% 12.5% 14.7% -15.0% 0.0%
LCV 18.1% 0.1% 49.7% 19.5% 33.5% 19.6% -20.2% -18.1% -2.0% 6.2% 25.5% 18.5% 5.0% 10.0%
PV 11.3% -0.5% 24.4% 29.7% 2.8% 0.9% -5.5% 5.9% 7.7% 9.5% 7.7% 2.7% -5.0% 10.0%
Tractor -5.0% 0.8% 32.2% 19.4% 11.3% -1.7% 20.2% -13.1% -10.4% 18.0% 22.1% 10.6% -7.0% 8.0%
2 Wheelers -8.0% 2.6% 25.7% 26.1% 13.9% 2.7% 7.3% 8.1% 2.8% 6.9% 14.8% 4.9% -0.7% 7.7%
Source: SIAM, Nomura estimates

Fig. 8: Like FY13/14, we expect auto loan growth to catch up Fig. 9: Growth in the unsecured book is coming off due to a
with slowing disbursement growth with a lag high base impact
35%
Auto book growth y/y
30%
Started
25%
reflecting in
20% AUM with
Beginning lag
15%
of auto
10% slowdown
5%
0%
-5%
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17
3Q17
1Q18
3Q18
1Q19
3Q19
1Q20

Source: Company data, Nomura research Source: Company data, Nomura research

Fig. 10: Market share in the retail segment (ex-mortgages) for HDFCB has increased from ~10% in FY13/14 to ~15% currently.
We estimate +25% market share in auto loans for HDFCB

60% FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 54.5%
53.0% 49.9% 52.8%
49.2%
52.6%
50%
40.6%
40% 34.1%

30% 26.7%
21.7% 25.2%
20.9% 27.6%
20.4% 23.0%
20%
13.7% 14.6%
19.6% 8.6%
9.2% 10.4% 12.7% 14.6%
8.0% 7.2% 6.6% 8.0% 11.6%
10% 6.5% 7.7%
8.3%
10.1%

0%
Vehicles CVs Credit cards Retail ex mortgages
Source: Company data, RBI, Nomura estimates

5
Nomura | HDFC Bank 27 August 2019

Fig. 11: We expect 17-18% growth over next 2 years vs ~22% growth in last 3-4 years

28% Loan growth y/y

26.4% 27.1%
26% 27.1%
24.5%
24%
22%
22.7%
22.2%
20%
20.6%
18% 20.0%
19.4%
18.7%
16% 18.0%
17.0%
14%
12%
10%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20F FY21F FY22F

Source: Company data, Nomura estimates

Asset quality- the best is behind:

HDFCB’s credit costs have moved up from 60-65bps over FY12-17 to ~90-95bps
currently. We analyse HDFCB’s asset quality on a segmental basis based on the
disclosures in its SEC form 20-F filing to identify structural and cyclical factors for the rise
in credit costs. We believe that given the change in the loan mix with more unsecured
loans, mean reversion in credit costs in many categories from very low levels and weak
consumption cycle, we estimate HDFCB’s credit costs will be >100bps in FY20F and will
likely settle at 90-100bps on a normalized basis.
SEC form 20-F segmental data on asset quality:
• Spike in auto NPAs/ credit costs: NPAs in auto loans have increased from 0.5% in
FY13-14 to 75-100bps in FY16-18 and spiked to 1.4% in FY19. The spike in FY19 led
to credit costs of ~1.25% in FY19 vs 80-100bps of credit costs over FY16-19. Apart
from the general increase in stress from the low points, management indicated that a
large part of the FY19 spike is due to some large stress in dealer accounts (mainly
frauds) and over the medium term should not recur. Core consumer auto lending credit
costs have been stable in the past two-three years.
• Unsecured credit provisioning increased from 170-18bps in FY16-18 to ~210bps.
Historically, credit costs have been high in this segment at 230-250bps, and as per
management, the experience over the past few years was better than expected which
is normalizing now.
• Business banking: Credit costs in FY19 at ~70bps were in-line with that in the past
two-three years between 60-80bps.
• CVs: CVs have had a volatile trend with 100bps credit cost in FY19, in line with 70-
100bps average over FY16-19. In the last weak CV cycle, credit costs did inch up to
150-225bps. Given the current CV cycle weakness, we expect some inch up in credit
costs in CVs in FY20F.
• Other retail, mainly agri, remains a pain point: Other retail segment comprises agri
loans – NPAs and credit costs have spiked in this segment from 50bps in FY13-16 to
~140-150bps now. Of the total INR1trn of other retail loans, the Kisan Credit Card
(KCC) portfolio was worth INR390bn in FY19 and majority of the INR30bn of NPAs in
this segment is from the KCC portfolio. As management has already guided, the bank
expects credit costs to remain high in the agri book in the near-term as well.
Credit costs to settle at higher levels:
• Overall, credit costs for HDFCB have spiked from 60-65bps over FY13-17 to ~90-
100bps.
• A good part of the increase in credit costs is due to structural factors like: (1) an
increasing mix of unsecured loans where credit costs are 2x of the retail book, and (2) a
general increase in credit costs in most segments from very low levels in FY13-FY17.
Also, the spike in FY18/19 is due to cyclical factors like the stress in dealer financing
and agri book which should normalize over the medium term.

6
Nomura | HDFC Bank 27 August 2019

• Of the 40bps increase in credit costs, we estimate that ~30bps is due to structural
factors, while 10bps is due to cyclical factors which may reverse. We, thus, expect
HDFCB’s credit costs to settle at 90-100bps over the medium term.

Fig. 12: Credit costs moderated to 60-65bp over FY12-17 and have now inched up – We
expect some inch up in FY20F and credit costs of 90-100bps on a normalised basis

1.2% Credit cost

1.0% 0.95% 1.08%

1.01%
0.8% 0.91% 0.92%
0.88%
0.68% 0.62%
0.6% 0.70% 0.69%
0.62% 0.60%
0.4%

0.2%

0.0%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20F FY21F FY22F

Source: Company data, Nomura estimates

Fig. 13: Credit cost trend for HDFCB on a segment basis – Business banking and unsecured credit are normalising from a low
base + cyclical spike in agri and auto loan book
+90dpd book (% of AUM)
2012 2013 2014 2015 2016 2017 2018 2019
Total Loan book 0.94% 0.83% 0.92% 1.00% 1.06% 1.39% 1.47% 1.54%
Retail loans 0.84% 0.84% 0.96% 0.95% 1.08% 1.30% 1.46% 1.64%
- Auto 0.31% 0.34% 0.45% 0.56% 0.76% 0.85% 0.98% 1.43%
- PL/ Cards 0.50% 0.54% 0.57% 0.59% 0.71% 0.77% 0.86% 1.03%
- Business banking 1.76% 1.45% 1.37% 1.52% 1.96% 2.30% 1.96% 2.03%
- CV/ CE 0.69% 1.33% 2.21% 1.82% 1.39% 1.32% 1.17% 1.51%
- Housing 0.28% 0.16% 0.11% 0.10% 0.34% 0.44% 0.52% 0.42%
- Other retail 1.42% 0.89% 0.81% 0.81% 0.89% 1.55% 2.59% 2.92%
Wholesale loans 1.12% 0.81% 0.84% 1.10% 1.01% 1.56% 1.52% 1.33%

Credit Cost (% of Avg AUM)

2012 2013 2014 2015 2016 2017 2018 2019
Retail 0.93% 1.04% 1.09% 0.81% 0.89% 1.07% 1.40% 1.41%
- Auto 0.43% 0.49% 0.62% 0.74% 0.83% 0.89% 0.96% 1.27%
- Personal loans/ cards 2.50% 2.29% 1.87% 1.95% 1.73% 1.78% 1.86% 2.11%
- Business banking 0.15% 0.20% 0.14% 0.32% 0.58% 0.72% 0.83% 0.69%
- CV/ CE 0.50% 1.44% 2.31% 1.53% 0.98% 0.90% 0.77% 0.98%
- Housing loans 0.06% -0.03% -0.03% 0.01% 0.11% 0.10% 0.08% 0.05%
- Other retail 0.34% 0.51% 0.45% 0.42% 0.43% 0.75% 1.33% 1.40%
- Unallocated 0.26% 0.22% 0.23% 0.01% 0.10% 0.15% 0.30% 0.19%
Wholesale 0.21% 0.21% 0.27% 0.42% 0.19% 0.43% 0.35% 0.33%
- Specific 0.25% 0.04% 0.25% 0.38% 0.15% 0.38% 0.20% 0.26%
- Unallocated -0.04% 0.17% 0.03% 0.05% 0.04% 0.05% 0.15% 0.07%
Source: Company data, Nomura research

7
Nomura | HDFC Bank 27 August 2019

Fig. 14: Credit cost movement over FY12-17 to FY20F: we estimate ~30bps impact to be
cyclical in nature of the 40bps increase expected by us
Credit cost movement %
FY12-17 credit costs (a) 0.65%
FY18-19 credit costs (b) 0.93%
FY20 credit costs expectation (c ) 1.08%
FY21-22 normalised credit costs (d) 0.91%

Credit cost movement from FY13/14 to now (a-c) 40bps

change in
Mix (%)
credit costs
Structural changes 30bps
Credit cost normalisation - Busines banking 45bps 16.5% 7bps
Credit cost normalisation - Unsecured book 35bps 11.5% 4bps
Credit cost normalisation - Auto loans 30bps 12.0% 4bps
Credit cost normalisation - Agri loans 50bps 15.0% 6-7bps
Change in mix - increase in unsecured loans 10bps

Cyclical factors 10bps

Dealer financing impact in Auto loans in FY19 3-4bps
Agri credit cost spike 6-7bps
Source: Company data, Nomura estimates

Auto – growth moderation reflecting the slowdown in OEM volumes

• Growth: Auto segment has seen growth moderating from >20% in FY18 to ~5% in
1Q20 with a sharp moderation in OEM volumes. OEM volumes in the passenger
vehicles segment are declining y/y since the past 12 months and the contraction has
materially intensified since the past four-five months averaging >20% contraction y/y.
• We estimate HDFCB currently to have ~25% market share in the vehicle segment and
hence the slowdown is clearly reflected in the disbursement volumes which we
estimate to be contracting as well and gradually reflecting into loan growth moderation.
• Our auto team (link) does not expect a material improvement in the demand outlook as
well and hence we think the growth will remain muted in the vehicle segment which is
~10% of loans for HDFCB.
• Management indicated that some part of the impact is due to the auto dealer book
which used to be at ~INR100bn in FY18, and has currently come down to INR50-60bn
given that sales volumes have come off and some cut in exposures given couple of
fraud cases in the auto dealer segment.
• That said, management believes that given the capacity constraints in the past, it was
unable to fully leverage its customer base which it can start leveraging now and gain
market share. We think gaining market share on a base of 25% market share is not an
easy task and hence growth in the vehicle segment will remain under pressure and
reflect the growth trends in OEM volumes.
Learnings from the past cycle:
• OEM volumes in the past cycle did see a sharp moderation in growth over FY12-14
where OEM volumes remained largely muted with no material growth.
• HDFC Bank did see a similar moderation in growth in the auto segment with 18-20%
growth in FY12, moderating to <7% y/y growth in FY14. Over FY14-18, while OEM
volume growth did not see a big spike, HDFCB delivered >20% loan CAGR in the auto
segment, led by +500bps market share gains from ~20% to >25% market share
currently.
• We think such large market share gains may not be repeated given a much higher base
now. On asset quality, despite the sharp moderation in OEM volumes, asset quality did
hold up well and hence we expect no material uptick in credit cost from FY18-19’s
normalised base.

8
Nomura | HDFC Bank 27 August 2019

• Asset quality: Auto segment has also seen some inch-up in credit cost over the past
2-3 years over a very benign base of FY12-16 where the credit cost was ~60bps.
• Credit cost has inched up to >90bps in this segment, while ~130bps of credit cost in
FY19 is impacted by couple of dealer fraud cases to the tune of INR2-4bn which may
not recur again, in our view.
• Management indicated that the dealer book has run down from INR100bn at the peak
in FY18 to INR50-60bn now and even after couple of fraud cases it has more than
adequate property collateral and hence may not lose money.
• Adjusted for that, credit cost has been around 90bps over the past 2-3 years which may
be the new normal, in our view.

Fig. 15: Auto volumes witnessing significant contraction for Fig. 16: HDFCB’s book has started reflecting the slow growth
the past one year now in volumes
25% PV Vol y/y growth 30% Car loans y/y growth - HDFCB
20%
15% 17.8%
19.9% 25%
25.9%
10% 13.2% 23.8%
11.5% 20% 22.4% 22.6% 22.6%
5%
6.9% 7.0% 20.1% 19.8%
0% 5.7% 18.9%
4.5% 15%
2.1% 16.4% 16.4%
-5% -0.6%
-1.9%
-3.7% 10% 12.7%
-10%
-15% 5%
6.3%
-20% 4.3%
-18.4% 0%
-25%
1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20
1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20

Source: Company data, Nomura research Source: Company data, Nomura research

Fig. 17: HDFCB did see similar moderation in volumes in Fig. 18: HDFC Bank has gained significant market share
FY14 (+500bps) over the past five years

Car loans - HDFCB y/y PV volumes y/y HDFCB's share of PV finance market
25% 29% 27.6%
Market share 26.7%
20% 22.4% 22.8% 27% gain of +500bps
20.6% 21.1% over FY14-18 25.2%
19.2%
15% 17.7% 25%
23.0%
10% 23% 21.7%
11.4% 20.9%
5%
9.5%
21% 20.4%
7.7% 7.7% 7.5% 19.6%
5.9%
0% 2.8% 2.7% 19%
0.9%
-5% 17%
-5.5%
-10% 15%
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Source: Company data, Nomura research Source: Company data, Nomura research

9
Nomura | HDFC Bank 27 August 2019

Fig. 19: Auto credit costs seem to have stabilised at 90bps over the past 3-4 years

1.40% HDFCB's Credit cost PVs (% of AUM) Oneoff credit cost

1.20%
Auto credit costs have
stabilised at ~90bps ex of 0.30%
1.00% one offs over last 3-4 years

0.80%

0.60%
0.96% 0.94%
0.83% 0.89%
0.40%
0.74%
0.62%
0.43% 0.49%
0.20%

0.00%
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

Source: Company data, Nomura research

CV/CE segment – growth to moderate; credit cost normalizing off a low base
• HDFC Bank is present in MHCV and large fleet operator segments in CVs. Growth in
this segment continues to remain robust at ~20%, but the growth has started
moderating in the CV segment as well given the sharp moderation in OEM volumes in
the past five-six months in MHCVs.
• Management indicated that some part of the impact also comes from lower passenger
vehicle volumes impacting CV freight demand.
• In the past cycle of FY12-15, CV sales did see a sharp contraction of >10% CAGR in
MHCV volumes. HDFC Bank’s CV book also reflected a similar moderation of ~3-5%
CAGR over FY13-15. With the moderation in CV volumes and a slowdown in the
economy, growth will get impacted for HDFC Bank as well, in our view.
• Credit cost had remained benign over FY15-19 in CVs at <100bps given the better
macro environment. That said, in the past cycle of FY12-15 credit cost in CVs also
deteriorated meaningfully to 150-200bps annual run-rate.
• With increasing distress in cash flows/earnings in the fleet operator segment (given the
slowdown), we expect credit cost to inch up in the CV segment as well.

Fig. 20: The industry is witnessing significant moderation in Fig. 21: HDFCB’s book has also started moderating and
CV volumes expect the trend to continue for a while
100% MHCV Vol y/y growth 26% CV/CE loans y/y growth - HDFCB
80% 24%
83.6%
24.3%
60% 22%
22.6%22.2% 22.7%22.8%
40% 20% 21.1%
20.3%20.1% 20.7%
42.0%
18% 19.0%
20% 18.8%
26.5%
20.6% 19.2% 16% 17.0%
0% 14.5%
14% 15.8%
4.1%
-3.1%
-20% -7.0% -4.4%
-13.9% 12%
-16.5%
-40% -31.8%
10%
1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20

1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

4Q18

1Q19

2Q19

3Q19

4Q19

1Q20

Source: Company data, Nomura research Source: Company data, Nomura research

10
Nomura | HDFC Bank 27 August 2019

Fig. 22: Historically, HDFCB’s book has shown good correlation to CV volumes with a
slight lag

40% MHCV volumes y/y CV/CE loans - HDFCB y/y RHS 70%

60%
30% 29.9%
58.9% 50%
20% 16.1% 14.7%
12.5% 40%
10% 24.4% 30%
19.8%
8.0% 17.0%
29.4%
0% 9.1% 25.3% 20%
20.9%
2.3% 0.0% 10%
-10%
0%
-20% -16.5% -10%
-23.0%
-25.3%
-30% -20%

1QFY20
FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19
Source: Company data, Nomura research

Fig. 23: The last cycle was accompanied with an impact on asset quality; we expect
credit costs for this book to inch up this time around too
2.50% HDFCB's credit cost (CV) (% of AUM)

2.00% Credit cost in the past cycle

deteriorated to 150-200bps
(FY13-15), we expect it to inch
1.50% up given the slowdown
2.31%
1.00%
1.44% 1.53%
0.50% 0.98% 0.90% 0.98%
0.77%
0.50%
0.00%
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Source: Company data, Nomura research

Unsecured segment – asset quality trends still within the comfort zone
• HDFC Bank’s unsecured loan mix has increased materially over the past five-seven
years, increasing to 17% of loans vs <11% in FY12. The increase in the mix has come
by both credit cards as well as personal loan segments growing at >30% AUM CAGR.
• Within personal loans, 80% of loans are towards the salaried segment, of which 55% is
internal while the rest 25% is the external segment. Unlike other private peers, HDFC
Bank has a larger share of non-HDFC Bank customers with 30-40% of customers being
external ones.
• Unsecured segment has always been a high credit cost segment with credit cost of
>200bps, while in FY16/17 credit cost was lower at ~180bps. This is now normalizing to
>200bps credit cost in FY19, while the inch-up in overall credit cost is also led by an
increasing in mix of unsecured segment where credit cost has been higher at +200bps
vs overall credit cost of 60-70bps.
• We estimate the ~10bps inch-up in overall credit cost to be attributed to a change in the
loan mix, while some part of the inch-up is due to normalisation from a low base.
• Management is comfortable on the asset quality trends seen in unsecured segments;
while credit cost have been inching up over the past few years, it continues to remain
well within the range that it has priced in in its risk-based pricing approach.
• From an asset quality trends perspective, the company still thinks its asset quality
behavior is intact and does not see any material deterioration in asset quality trends.

11
Nomura | HDFC Bank 27 August 2019

Even when looked at its own customers vs external customers, delinquency trends are
holding up well and there is no material divergence.
• Management highlighted that the bank has built capabilities and with a significant
market share in payment systems, the bank has better capability to have insights into
non-HDFC Bank customers as well which enables the bank to source a much higher
share of external customers.

Fig. 24: Unsecured mix has grown to ~17% from <10% in the past 7-8 years for HDFCB
at +30% CAGR

19% Unsecured loans share (% of HDFCB's book)

17%
16.7%
15% 16.1%

13% 14.1%

12.5%
11%
11.4% 11.4%
10.8% 10.8%
9%
9.6%
7%

5%
FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

1QFY20F
Source: Company data, Nomura estimates

Fig. 25: Asset quality for the unsecured book has held up well

Source: Company data, Nomura research

Agriculture segment – elevated credit cost to continue but still the best option of
priority sector lending
• HDFC Bank has seen a rise in agri NPAs over the past two years from 1.9% in FY17 to
>4% in FY19, and that has been one of the key drivers for the increase in the credit
cost.
• Overall, GNPAs for the bank have inched up to 1.4%, but excluding agri book GNPAs
are at a stable 1.2%. Slippages in 1Q20 were at 2%, but excluding agri slippages, were
stable at 1.4%.
• Management highlighted that agri stress continues to remain elevated and hence the
credit cost will unlikely come down in the near future.
• Kisan Credit Card (KCC) has seen elevated levels of stress in the agri portfolio which is
a crop loan covered by land collateral.

12
Nomura | HDFC Bank 27 August 2019

• While the credit cost remains elevated, management continues to believe this to be the
best option vs a negative carry of RIDF bonds.

Fig. 26: Agri portfolio has underwent significant stress owing Fig. 27: Other retail (which includes agri) credit cost has
to farm loan waivers (+200bps GNPA over FY17-19) increased to 140bps similar to the last cycle
1.6%
Other Retail - Credit cost
1.4%
1.46%
1.40%
1.2% 1.33%

1.0%
0.8%
0.6% 0.75%

0.4% 0.51%
0.45% 0.42% 0.43%
0.2% 0.34%

0.0%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

Source: Company data, Nomura research Source: Company data, Nomura research

Corporate book – managed cycles well; no material exposures towards new

stressed names
• Despite having one of the largest corporate books among private peers, HDFC Bank
has been able to manage cycles well with impeccable asset quality performance over
the past cycle with no material term lending towards the power sector.
• Even in the current cycle, HDFCB has very limited exposure towards new stress names
and that too despite growing corporate book at ~20% CAGR over the past two years.
• With better underwriting and working capital based lending, credit cost for HDFC Bank
in the corporate segment has always remained benign at ~30bps and the trends are
still holding up well for the bank. We continue to expect HDFC Bank to have low credit
cost in the corporate segment.

Fig. 28: HDFCB has delivered very well on wholesale book Fig. 29: despite delivering ~20% CAGR growth
asset quality through the cycle….
1.0% 40%
Wholesale book - Credit cost Corporate loans y/y growth - HDFCB
35%
0.8% 36.0%
30%

0.6% 25%
0.65% 25.6% 25.0% 25.8%
25.6%
20%
20.7% 20.5%
0.4% 15% 18.8%
0.42% 0.43% 16.7% 16.5%
15.7% 16.2%
0.35% 0.33% 10% 14.2%
0.2% 0.27% 5% 8.8%
0.21% 0.21% 0.19% 6.0%5.1% 5.1%
0%
0.0%
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

Source: Company data, Nomura research Source: Company data, Nomura research

13
Nomura | HDFC Bank 27 August 2019

Appendix A-1
Analyst Certification
We, Adarsh Parasrampuria and Amit Nanavati, hereby certify (1) that the views expressed in this Research report accurately
reflect our personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of
our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this
Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by
Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.

Issuer Specific Regulatory Disclosures

The terms "Nomura" and "Nomura Group" used herein refers to Nomura Holdings, Inc. and its affiliates and subsidiaries, including Nomura
Securities International, Inc. ('NSI') and Instinet, LLC('ILLC'), U. S. registered broker dealers and members of SIPC.

Materially mentioned issuers

Issuer Ticker Price Price date Stock rating Sector rating Disclosures
Axis Bank AXSB IN INR 683 26-Aug-2019 Buy N/A A1,A2
HDFC Bank HDFCB IN INR 2256 26-Aug-2019 Buy N/A A1,A2,A3,A4,A5,A6,A7
ICICI Bank ICICIBC IN INR 411 26-Aug-2019 Buy N/A A1,A2

A1 The Nomura Group has received compensation for non-investment banking products or services from the subject company in the past 12
months.
A2 The Nomura Group has had a non-investment banking securities related services client relationship with the subject company during the
past 12 months.
A3 The Nomura Group has had a non-securities related services client relationship with the subject company during the past 12 months.
A4 The Nomura Group has had an investment banking services client relationship with the subject company during the past 12 months.
A5 The Nomura Group has received compensation for investment banking services from the subject company in the past 12 months.
A6 The Nomura Group expects to receive or intends to seek compensation for investment banking services from the subject company in the
next three months.
A7 The Nomura Group has managed or co-managed a public or private offering of the subject company's securities in the past 12 months.

HDFC Bank (HDFCB IN) INR 2256 (26-Aug-2019) Buy (Sector rating: N/A)
Rating and target price chart (three year history)
Date Rating Target price Closing price
21-Jan-19 2,450.00 2,143.381
15-Dec-17 2,350.00 1,869.291
25-Oct-17 2,200.00 1,791.115
08-Sep-17 2,100.00 1,783.681
25-Jul-17 2,000.00 1,735.788
21-Apr-17 1,750.00 1,493.278
29-Mar-17 1,650.00 1,425.429
27-Sep-16 1,520.00 1,295.168

For explanation of ratings refer to the stock rating keys located after chart(s)

Valuation Methodology Our TP of INR2,600 implies 20x Sep-21F EPS and 3.3x Sep-21F book (both based on historically
traded average multiples). The benchmark index for the stock is Nifty 50.

14
Nomura | HDFC Bank 27 August 2019

Risks that may impede the achievement of the target price 1) Further slowdown in retail credit growth; and 2) any sharp
increase in credit cost in the unsecured book.

Axis Bank (AXSB IN) INR 683 (26-Aug-2019) Buy (Sector rating: N/A)
Rating and target price chart (three year history)
Date Rating Target price Closing price
20-Mar-19 900.00 755.75
30-Jan-19 850.00 690.95
04-Nov-18 750.00 610.65
27-Apr-18 630.00 539.20
26-Feb-18 675.00 552.30
23-Jan-18 720.00 620.10
06-Dec-17 620.00 530.50
13-Nov-17 640.00 537.35
03-Oct-17 610.00 509.65
26-Jul-17 630.00 528.85
15-Dec-16 Buy 478.10
15-Dec-16 550.00 478.10
26-Oct-16 540.00 487.55

For explanation of ratings refer to the stock rating keys located after chart(s)

Valuation Methodology Our TP of INR900 implies 2.4x Sep-21F adjusted book after deducting subsidiary value of INR30. The
benchmark index for this stock is the Nifty 50.

Risks that may impede the achievement of the target price 1) a slower-than-expected recovery in margins; and (2) any
sharp increase in stress levels would be a key downside risk to our rating

ICICI Bank (ICICIBC IN) INR 411 (26-Aug-2019) Buy (Sector rating: N/A)
Rating and target price chart (three year history)
Date Rating Target price Closing price
29-Jul-19 575.00 429.35
07-May-19 500.00 386.50
31-Jan-19 480.00 364.45
21-Dec-18 450.00 354.20
27-Oct-18 415.00 315.65
30-Jul-18 375.00 307.35
08-May-18 400.00 309.30
12-Jan-18 375.00 317.70
03-Oct-17 335.00 278.40
18-Oct-16 295.00 245.772

For explanation of ratings refer to the stock rating keys located after chart(s)

Valuation Methodology Our TP of INR575/share is based on 2.2x Sep-21F book for the lending business and subsidiaries
valued at INR123/share (holding discount of 15%). The benchmark index for this stock is Nifty 50.

Risks that may impede the achievement of the target price Key risk: Large additions to stress pool and sharp deterioration
in margins due to tight liquidity.

Important Disclosures

15
Nomura | HDFC Bank 27 August 2019

Online availability of research and conflict-of-interest disclosures

Nomura Group research is available on www.nomuranow.com/research, Bloomberg, Capital IQ, Factset, Reuters and ThomsonOne.
Important disclosures may be read at http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx or requested
from Nomura Securities International, Inc., or Instinet, LLC on 1-877-865-5752. If you have any difficulties with the website, please
email grpsupport@nomura.com for help.

The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a
portion of which is generated by Investment Banking activities. Unless otherwise noted, the non-US analysts listed at the front of this report are
not registered/qualified as research analysts under FINRA rules, may not be associated persons of NSI or ILLC, and may not be subject to
FINRA Rule 2241 restrictions on communications with covered companies, public appearances, and trading securities held by a research
analyst account.

Nomura Global Financial Products Inc. (“NGFP”) Nomura Derivative Products Inc. (“NDPI”) and Nomura International plc. (“NIplc”) are
registered with the Commodities Futures Trading Commission and the National Futures Association (NFA) as swap dealers. NGFP, NDPI, and
NIplc are generally engaged in the trading of swaps and other derivative products, any of which may be the subject of this report.

Distribution of ratings (Nomura Group)

The distribution of all ratings published by Nomura Group Global Equity Research is as follows:
51% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 46% of companies with this
rating are investment banking clients of the Nomura Group*. 0% of companies (which are admitted to trading on a regulated market in the EEA)
with this rating were supplied material services** by the Nomura Group.
44% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 55% of companies with
this rating are investment banking clients of the Nomura Group*. 0% of companies (which are admitted to trading on a regulated market in the
EEA) with this rating were supplied material services by the Nomura Group
5% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 14% of companies with
this rating are investment banking clients of the Nomura Group*. 0% of companies (which are admitted to trading on a regulated market in the
EEA) with this rating were supplied material services by the Nomura Group.
As at 30 June 2019.
*The Nomura Group as defined in the Disclaimer section at the end of this report.
** As defined by the EU Market Abuse Regulation

Distribution of ratings (Instinet, LLC)

The distribution of all ratings published by Instinet, LLC Equity Research is as follows:
54% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; Instinet LLC has provided
investment banking services to 0% of companies with this rating within the previous 12 months.
42% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; Instinet LLC has provided
investment banking services to 0% of companies with this rating within the previous 12 months.
4% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; Instinet LLC has provided
investment banking services to 0% of companies with this rating within the previous 12 months.

Definition of Nomura Group's equity research rating system and sectors

The rating system is a relative system, indicating expected performance against a specific benchmark identified for each individual stock,
subject to limited management discretion. An analyst’s target price is an assessment of the current intrinsic fair value of the stock based on an
appropriate valuation methodology determined by the analyst. Valuation methodologies include, but are not limited to, discounted cash flow
analysis, expected return on equity and multiple analysis. Analysts may also indicate expected absolute upside/downside relative to the stated
target price, defined as (target price - current price)/current price.

STOCKS
A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral',
indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that
the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating, target
price and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies
that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage. Investors should not expect continuing or
additional information from Nomura relating to such securities and/or companies. Benchmarks are as follows: United States/Europe/Asia ex-
Japan: please see valuation methodologies for explanations of relevant benchmarks for stocks, which can be accessed
at: http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx; Global Emerging Markets (ex-Asia): MSCI
Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology; Japan: Russell/Nomura Large Cap.

SECTORS
A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance,
indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that
the analyst expects the sector to underperform the Benchmark during the next 12 months. Sectors that are labelled as 'Not rated' or shown as
'N/A' are not assigned ratings. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging
Markets (ex-Asia): MSCI Emerging Markets ex-Asia. Japan/Asia ex-Japan: Sector ratings are not assigned.

Target Price
A Target Price, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part the analyst's
estimates for the company's earnings. The achievement of any target price may be impeded by general market and macroeconomic trends, and
by other risks related to the company or the market, and may not occur if the company's earnings differ from estimates.

Disclaimers

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Nomura | HDFC Bank 27 August 2019

This publication contains material that has been prepared by the Nomura Group entity identified on page 1 and, if applicable, with the
contributions of one or more Nomura Group entities whose employees and their respective affiliations are specified on page 1 or identified
elsewhere in the publication. The term "Nomura Group" used herein refers to Nomura Holdings, Inc. and its affiliates and subsidiaries including:
Nomura Securities Co., Ltd. ('NSC') Tokyo, Japan; Nomura Financial Products Europe GmbH (‘NFPE’), Germany; Nomura International plc
('NIplc'), UK; Nomura Securities International, Inc. ('NSI'), New York, US; Instinet, LLC ('ILLC'); Nomura International (Hong Kong) Ltd. (‘NIHK’),
Hong Kong; Nomura Financial Investment (Korea) Co., Ltd. (‘NFIK’), Korea (Information on Nomura analysts registered with the Korea Financial
Investment Association ('KOFIA') can be found on the KOFIA Intranet at http://dis.kofia.or.kr); Nomura Singapore Ltd. (‘NSL’), Singapore
(Registration number 197201440E, regulated by the Monetary Authority of Singapore); Nomura Australia Ltd. (‘NAL’), Australia (ABN 48 003
032 513), regulated by the Australian Securities and Investment Commission ('ASIC') and holder of an Australian financial services licence
number 246412; PT Nomura Sekuritas Indonesia (‘PTNSI’); Nomura Securities Malaysia Sdn. Bhd. (‘NSM’), Malaysia; NIHK, Taipei Branch
(‘NITB’), Taiwan; Nomura Financial Advisory and Securities (India) Private Limited (‘NFASL’), Mumbai, India (Registered Address: Ceejay
House, Level 11, Plot F, Shivsagar Estate, Dr. Annie Besant Road, Worli, Mumbai- 400 018, India; Tel: +91 22 4037 4037, Fax: +91 22 4037
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appropriate, seek professional advice, including tax advice. The Nomura Group does not provide tax advice.
The Nomura Group, and/or its officers, directors and employees, may, to the extent permitted by applicable law and/or regulation, deal as
principal, agent, or otherwise, or have long or short positions in, or buy or sell, the securities, commodities or instruments, or options or other
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This document may contain information obtained from third parties, including ratings from credit ratings agencies such as Standard & Poor’s.
Reproduction and distribution of third-party content in any form is prohibited except with the prior written permission of the related third-party.
Third-party content providers do not guarantee the accuracy, completeness, timeliness or availability of any information, including ratings, and
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content. Third-party content providers give no express or implied warranties, including, but not limited to, any warranties of merchantability or
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Investors should consider this document as only a single factor in making their investment decision and, as such, the report should not be
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Figures presented herein may refer to past performance or simulations based on past performance which are not reliable indicators of future
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as a “benchmark” as defined by the European Benchmark Regulation.
Certain securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of, or income derived
from, the investment.

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Nomura | HDFC Bank 27 August 2019

With respect to Fixed Income Research: Recommendations fall into two categories: tactical, which typically last up to three months; or strategic,
which typically last from 6-12 months. However, trade recommendations may be reviewed at any time as circumstances change. ‘Stop loss’
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Additional information regarding the methodologies or models used in the production of any investment recommendations contained
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Copyright © 2019 Nomura International (Hong Kong) Ltd. All rights reserved.

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