result update bajaj finserv companyname...

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Edelweiss Securities Limited

RESULT UPDATE

BAJAJ FINSERV Steady quarter; fairly valued

COMPANYNAME

COMPANYNAME

EDELWEISS 4D RATINGS

Absolute Rating HOLD

Rating Relative to Sector Performer

Risk Rating Relative to Sector Low

Sector Relative to Market Overweight

MARKET DATA (R: BJFS.BO, B: BJFIN IN)

CMP : INR 4,319

Target Price : INR 4,093

52-week range (INR) : 4,750 / 1,725

Share in issue (mn) : 159.1

M cap (INR bn/USD mn) : 687 / 10,601

Avg. Daily Vol.BSE/NSE(‘000) : 197.8

SHARE HOLDING PATTERN (%)

Current Q3FY17 Q2FY17

Promoters *

58.3 58.3 58.3

MF's, FI's & BK’s 6.4 6.8 8.3

FII's 8.2 7.9 6.1

Others 27.0 27.0 27.2

* Promoters pledged shares (% of share in issue)

: NIL

PRICE PERFORMANCE (%)

Stock Nifty EW Banks and

Financial Services Index

1 month (1.2) 3.6 4.3

3 months 17.2 6.9 9.9

12 months 132.3 19.8 35.2

Nilesh Parikh +91 22 4063 5470

[email protected]

Kunal Shah +91 22 4040 7579

[email protected]

Prakhar Agarwal +91 22 6620 3076

[email protected]

India Equity Research| Banking and Financial Services

May 18, 2017

SOTP

Business Method Value (INR mn) Value per share

BAGIC Price to Book 1,89,521 881

BALIC Appraisal Value 2,35,361 1,094

Bajaj Finance Price to Earnings 7,69,712 2,796

Investments 1 times book 7,000 44

Net value (Net of holding company discount of 15%) 4,093

While Bajaj Finserv’s Q4FY17 operating performance was on track, the recent price outperformance leading to full valuations limits the return potential. Thus, we downgrade to ‘HOLD/SP’. Bajaj Finance (BFL) reported a off-track performance given higher credit costs, though core operational parameters were steady. Bajaj General recorded better quarter with improvement in combined ratio. Life insurance (BALIC) continued to improve operating metrics (better individual growth, persistency), though sustainability of same is key. While we are enthused by business performance, BFL’s steep valuations (>23x FY19E P/E) could be tested by rising competitive intensity and any blip on asset quality. Also, intrinsic value of life insurance is already at lower discount to listed market peers, despite <10% core RoEV, which suggests limited upside. Thus, we downgrade to ‘HOLD’ with target price of INR4,093.

BFL: Q4FY17 performance was mixed. Operationally, it was a strong quarter - NII

>50%, driven by >36% AUM growth and NIMs (calc) expansion by >100bps YoY. But,

credit cost spiked (INR2.9bn), largely due to provision of INR700mn on higher

slippages (in 2W and LAP) due to demonetisation. Consequently, GNPL increased to

1.68% (1.47% in Q3FY17).

BALIC: Operating metrics improved (individual APE growth of ~23% following

improvement in agency channel, albeit on low base), but sustainability is key.

Growth was tilted towards ULIPs which constituted 70% (versus 51% in FY16).

Consequently, NBM (pre-overrun) stood lower at 12.9% (16.6% in FY16). The entity

reported EV of INR113bn (INR98.7bn in FY16), suggesting RoEV of 14% aided by

investment variance. However, higher cost overruns fed into sub-10% core RoEV.

BAGIC: GWP grew >30% on higher crop insurance. Increased crop coverage

(announced in Budget) gives us confidence of sustainability of same. On positive

note, combined ratio declined to 92.7% (99.6% in Q3FY17), leading to underwriting

profit of INR350mn. However, lower investment income led to dip in profitability.

Outlook and valuations: Limited upside; downgrade to ‘HOLD’

While we are enthused by the improvement in operating variables across businesses, the

recent stock outperformance renders unfavourable risk-reward ratio. BFL is trading at

>23x FY19E P/E, which could be tested by rising competitive intensity and any blip in

asset quality. Life insurance trades at valuations of ~1.8-2x, despite <10% of core RoEV.

General insurance clocked strong operating performance (RoE potential of 23% plus), but

implicit valuation is higher than some deals in this space. Factoring in these, we see

limited upside. Hence, we downgrade to ‘HOLD/SP’ from ‘BUY/SP’ with SoTP of INR4,093.

Banking and Financial Services

2 Edelweiss Securities Limited

Business Overview

BALIC: Individual APE growth sustains, core RoEV at sub-10% levels

Gross written premium (GWP) came in at INR22.5bn (down 7% YoY, albeit on higher

base), given >5% YoY dip in new business premium (NBP) and >8% dip in renewal

premiums. For the full year FY17, NBP grew ~14% YoY. But, owing to softer renewals

growth (down 4% YoY), GWP growth was pegged at 4.8% YoY.

Segment-wise, individual APE growth improved (up ~23% YoY) with group NBP

declining to INR7.4bn (versus INR8.57bn in Q4FY16). The company’s efforts in terms of

agency force revamp in past few years seem to be yielding some results (agency

channel’s individual APE moved up >35% for FY17). However, sustainability of same

needs to be tracked.

Growth seems to have been coming from the tilt towards ULIP segment (formed 74% of

individual APE in Q4FY17 versus 58% a year ago). Consequently, NBMs (pre-overrun)

were lower at 12.9% (16.6% in FY16).

AUM, as at Q4FY17, stood at INR493bn (up 11.5% YoY) with ~42% contributed by unit

funds. Improving AUM accretion along with rationalisation of expenses holds key to

BALIC’s stable earnings.

The company reported embedded value (EV) of INR113bn for FY17 (versus INR98.7bn in

FY16), suggesting RoEV of 14%. However, the rise was supported by INR6.4bn of

investment variance, adjusting for which core RoEV stood at sub-10% levels due to

higher cost-overruns.

Solvency ratio stood at healthy 582% (regulatory requirement of 150%).

Table 1: BALIC - Key metrics (INR mn)

Source: Company

Table 2: AUM composition

Source: Company

(INR mn) Q4FY17 Q4FY16 YoY (%) Q3FY17 QoQ (%) FY16 FY17 YoY (%)

Gross Written Premium 22,480 24,190 (7.1) 14,847 51.4 58,970 61,830 4.8

New Business Premium 11,460 12,130 (5.5) 7,820 46.5 28,850 32,900 14.0

Renewal Premium 11,020 12,060 (8.6) 7,026 56.8 30,120 28,930 (4.0)

Shareholder Profit 1,982 2,316 (14.4) 1,924 3.0 8,790 8,360 (4.9)

(INR mn) Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17

AUM 4,33,614 4,41,075 4,58,000 4,69,000 4,68,000 4,92,000

-Unit Linked 1,93,012 1,92,215 2,01,000 2,03,000 1,95,000 2,08,000

-Other than Linked 2,40,602 2,48,860 2,57,000 2,66,000 2,73,000 2,84,000

Bajaj Finserv


BFL: Operationally strong, but higher credit costs take toll on earnings

BFL’s Q4FY17 performance was mixed. Operationally, the company reported a strong

quarter - NII >50%, driven by >36% AUM growth and NIMs (calc) expansion by >100bps

YoY. But, higher credit costs (INR2.9bn, up > 85% YoY) led to lower profitability.

BFL posted PAT of INR4.5bn (down >19% QoQ), which stood lower than estimates on

higher credit cost as the company made higher provision of INR700mn on account of

demonetisation and non-recurring provision. The company highlighted that there are

balance provisions of INR400-500mn that would be taken over next 2-3 quarters, post

which it would return to normalised credit cost.

AUM came in at INR602bn (up >36% YoY, commendable given challenging

environment). Growth was driven by consumer (up >43% YoY) and commercial (up

>50% YoY) segments. On the other hand, SME segment growth remained sluggish (up

18% YoY, a conscious decision by management). Management stated they would grow

cautiously in small business segments and in the interim consumer segment would

drive growth.

GNPLs during the quarter came in at 1.68% versus 1.47% in previous quarter. NPAs

increased mainly in 2-wheeler and LAP segments, with other segments back at pre-

demonetisation levels from asset quality standpoint

NIMs (calc.) dipped >100bps QoQ to 11.4%, though a seasonal effect - NIMs are higher

in first and third quarters due to up-fronting of income recognition. The decline in this

quarter was lower than historical trend aided by benefits of funding cost (NIMs

improved > 100bps YoY).

Strategy perspective: From 1-3 years horizon, management is confident of delivering

>25% balance sheet growth and balance sheet composition would be ~35-37% of

consumer lending, ~45-47% of SME financing, ~10-12% of commercial lending, with

rural book comprising the rest.

Table 3: BFL- Key metrics

Table 4: Portfolio composition

Source: Company


Interest Income 26,650 19,162 39.1 26,930 (1.0) 73,330 1,00,030 36.4

Interest Expense 9,837 8,058 22.1 9,802 0.4 29,270 38,030 29.9

Net Interest Income 16,813 11,104 51.4 17,128 (1.8) 44,060 62,000 40.7

Operating Expenses 7,099 4,921 44.3 6,940 2.3 18,980 25,640 35.1

Operating Profit 9,794 6,455 51.7 10,297 (4.9) 25,080 36,360 45.0

PBT 6,897 4,890 41.0 8,500 (18.9) 19,650 28,180 43.4

Tax 2,406 1,740 38.3 2,943 (18.3) 6,860 9,810 43.0

PAT 4,492 3,150 42.6 5,557 (19.2) 12,790 18,370 43.6

(%) Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17

Consumer Finance 42.0 41.3 42.3 42.9 44.2 45.7 46.9 45.1

SME Business 46.8 46.9 44.1 42.3 40.3 38.9 36.6 36.7

Commercial 9.7 10.0 11.0 11.8 12.1 11.7 12.1 13.1

Rural 1.5 1.7 2.7 3.0 3.4 3.7 4.5 5.1



Table 5: Asset quality marginally increases

Source: Company

BAGIC: Growth sustained, combined ratio improves

GWP growth maintained momentum (up >30%), largely driven by higher crop insurance

under the Pradhan Mantri Fasal Bima Yojna (proportion of agri business rose to 21%

versus 14% in previous quarter). Higher crop coverage from 30% in FY17 to 40% in FY18

(announced in Budget) raises our confidence of sustainability of same.

Combined ratio (including motor pool losses) fell to 92.7% (versus 99.6% in previous

quarter), leading to underwriting profit of INR350mn. However, lower investment

income (INR2.1bn versus run-rate of INR2.4bn in past few quarters) led to lower

profitability.

While there is 85% re-insurance arrangement, further cushioned by stop-loss

arrangement with banks, actual loss will be ascertained in couple of quarters and will

be a key monitorable.

Table 6: BAGIC - Key metrics (INR mn)

Table 7: Combined ratio (including motor pool losses) falls to 92.7%

Source: Company

Table 8: SoTP valuation (FY19E)

Source: Edelweiss research

(%) Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17

GNPLs 1.3 1.2 1.5 1.6 1.5 1.7

NNPLs 0.3 0.3 0.4 0.4 0.4 0.4


Gross written premium 22,600 17,300 30.6 17,216 31.3 59,010 76,870 30.3

Net Earned Premium 13,000 11,260 15.5 12,588 3.3 42,240 49,370 16.9

Investment Income 2,120 2,270 (6.6) 2,950 (28.1) 8,360 10,140 21.3

PBT 2,482 2,575 (3.6) 3,023 (17.9) 7,710 10,780 39.8

Tax 832 495 68.2 1,052 (20.9) 2,070 3,500 69.1

PAT 1,650 2,080 (20.7) 1,971 (16.3) 5,640 7,280 29.1

(%) Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17

Combined ratios 95.7 98.9 108.7 94.3 101.2 94.3 99.6 92.7

Business Method INR mn Multiple

Business

Valuation Stake

Bajaj Finserv

valuation Per share

BAGIC Price to Book 54,149 3.5 1,89,521 74% 1,40,245 881

BALIC Appraisal Value 1,32,536 1.8 2,35,361 74% 1,74,167 1,094

Bajaj Finance Price to Earnings 30,788 25.0 7,69,712 58% 4,44,893 2,796

Investments 1 times book 7,000 1.0 7,000 100% 7,000 44

total 4,816

Less: Holding co. disc. 15% 722

Sum of Parts 4,093

Bajaj Finserv


Financial snapshot (Standalone) (INR mn)

Income statement Q4FY17 Q4FY16 YoY (%) Q3FY17 QoQ (%) FY17E FY18E FY19E

Operational Income 239 825 (71.1) 227 5.2 1,539 1,816 2,070

Other Income 30 23 28.9 27 11.6 111 155 202

Total income 269 848 (68.3) 254 5.9 1,650 1,971 2,272

Other operating expenses 88 64 36.8 81 8.2 392 335 341

Employee expense 60 40 49.1 47 26.1 204 218 248

Total expenses 148 104 41.5 129 14.8 595 553 589

Gross profit 121 744 (83.7) 125 (3.3) 1,055 1,418 1,683

Depreciation 4 2 54.2 4 0.0 15 18 18

Profit before tax 117 742 (84.2) 122 (3.4) 1,040 1,400 1,665

Tax 54 67 (19.4) 58 (7.5) 340 252 300

Reported net profit 64 675 (90.6) 63 0.5 700 1,148 1,365

Ratios (%)

Tax rate 45.9 9.0 48.0 32.7 18.0 18.0

Operating profit margin 45.1 87.7 49.3 63.9 71.9 74.1

Net profit margin 23.6 79.5 24.9 42.4 58.2 60.1



Q3FY17 Concall Highlights

Life Insurance

The company started its transformation journey 2 years ago and the benefits are

starting to kick-in

o Despite higher base, management expects the growth momentum to sustain

(above industry growth)

Individual rated premium continued the growth momentum and continues to remain a

focus area

o Grew by ~62% YoY for Q3FY17, vs. industry growth rate of ~22%

Share of ULIPs is higher as that is what is selling in the markets

o Management expects the next quarter to be like Q3FY17

o The company has increased minimum ticket size and is focusing on larger cities

(where its share is lower)

o Lower allowances in ULIPs is being compensated by rationalization of expenses

Protection business is mostly in the group segment

o Group: Huge amount of financial inclusion business (~INR4bn single premium in

9MFY17)

o Individual: Not much growth as the company did have a competititive product in

the market

However, the company has launched a product few weeks back and expects it

to gain traction

AUM: Transition from old book to new book will take 2-3 years of time

o While new book is growing, old book has seen higher surrenders (Q3 better as

compared to Q1 and Q2)

o Over next few years, management expects maturity pressure within the old book

Bancassurance: The company is in discussion with a few bancassurance partners

o Some of them are new banks, which may go with more than 1 partner

o Management expects the banks to take a decision within the next 3-6 months

General Insurance

Crop insurance is expected to be a regular part of business (although quantum may

vary)

o Business: ~INR2.4bn in Q3FY17 (vs. ~INR7.4bn in Q2FY17)

o Management expects claim ratios to be better this year (below 100%) as compared

to last year

The company’s claim ratios should be better than the market average

o Govt. initiatives (incl. increased budget for CI subsidies) should drive growth going

forward

Bajaj Finserv


o Market share in this segment is the same as the overall market share

o Reinsurance is an essential ingredient of this business (~85% reinsured)

o Of total crop insurance, ~70% will be run by top public and private sector

companies

Group health accounts for >50% of the total health segment (hence, need presence

within this vertical)

o The company’s ability to contain loss ratios would be lower if it does not have

strong relationships



Company Description

Bajaj Finserv

Bajaj Finserv was formed as a result of its demerger from Bajaj Auto to act as a pure play

financial services business. The company holds stakes in Bajaj Allianz Life (sixth largest

private insurer (BALIC), Bajaj Allianz General Insurance (BAGIC) (second largest general

insurer), Bajaj Finance (BFL) and Bajaj Financial Solutions.

Bajaj Allianz Life Insurance

BALIC is a joint venture between Allianz (26%) and Bajaj Finserv (74%). However, Allianz has

the call option to increase its holding to 74%. The agreement is likely to hold till July 30,

2016 (predetermined price formula based on cut-off date of July 30, 2016), and is subject to

the government increasing FDI limit and various other regulatory approvals.

Bajaj Allianz General Insurance

BAGIC is a joint venture between Allianz (26%) and Bajaj Finserv (74%). However, Allianz has

the call option to increase its holding to 50%. The agreement is likely to hold till April 22,

2016 (predetermined price formula based on cut off date of April 22, 2016) and is subject to

government increasing FDI limit and various other regulatory approvals.

Bajaj Finance

BFL is a diversified NBFC present in consumer finance, SME and commercial lending

business. It operates across various business verticals with total AUM of ~INR602bn.

Bajaj Financial Solutions

Bajaj Financial Solutions (BFS) is a wealth management and advisory services player. It

provides financial advisory services for a holistic financial plan to customers.

Bajaj Windmill

Bajaj Finserv has wind farm assets, comprising 138 windmills in Maharashtra with an

installed capacity of 65.2MW. All 138 windmills are registered with REC registry of India

through Maharashtra Energy Development Agency (MEDA) and are eligible for Renewable

Energy Certificates (REC) Investment Theme

While we are enthused by the improvement in operating variables across businesses, the

recent stock outperformance renders unfavourable risk-reward ratio. BFL is available at

>23x FY19E P/E, which could be tested by rising competitive intensity and any blip in asset

quality. Life insurance trades at valuations of ~1.8-2x, despite <10% of core RoEV. General

insurance clocked strong operating performance (RoE potential of 23% plus), but implicit

valuation is higher than some deals in this space. Factoring in these, we see limited upside.

Hence, we downgrade to ‘HOLD/SP’ from ‘BUY/SP’.

Key Risks

Further deterioration in persistency: BALIC has poor persistency; any further deterioration

in the same will impact the company.

Introduction of direct tax code: If the corporate tax rate increases from the current 12.5% to

30% as proposed, it will hit margins and profitability.


Bajaj Finserv

Financial Statements

Key assumptions

Year to March FY16 FY17E FY18E FY19E

Macro

GDP(Y-o-Y %) 7.2 6.5 7.1 7.7

Inflation (Avg) 4.9 4.8 5.0 5.2

Repo rate (exit rate) 6.8 6.3 6.3 6.3

USD/INR (Avg) 65.0 67.5 67.0 67.0

Sector

Credit growth 9.3 9.0 12.0 14.0

Borrowings growth (%) 8.6 14.0 12.0 13.0

Bank's base rate (%) 9.5 9.0 9.0 9.0

Wholesale borrowing cost (%) 8.5 8.5 8.5 8.5

G-sec yield (%) 7.5 6.5 6.5 6.5

Company

BAF

Loan growth 36.9 34.5 31.4 27.2

Yield 18.4 18.3 18.2 18.0

Gross NPLs 1.2 1.7 1.4 1.5

BAGIC

Premium growth 19.0 25.6 19.0 18.2

Reinsurance ceded (INR mn) 14,556 21,811 22,474 26,680

Claims (INR mn) 30,657 34,886 43,232 50,342

Combined ratio 97.1 96.8 97.1 96.4

BALIC

GWP growth (2.0) 7.1 14.4 18.8

Conservation ratio 62.6 64.3 67.1 70.3

Commision ratio 2.7 3.1 3.0 2.9

Opex ratio 18.8 17.9 18.0 18.4

Balance sheet (INR mn)


SOURCES OF FUNDS :

Share capital 796 796 796 796

Reserves total 26,164 26,865 27,734 28,821

Total shareholders funds 26,960 27,660 28,530 29,617

Other liabilities 86 95 110 110

Total liabilities 27,046 27,755 28,640 29,727

APPLICATION OF FUNDS :

Gross block 3,568 3,573 3,573 3,573

Less: Accumulated deprec. 2,807 2,822 2,837 2,852

Net block 761 751 736 721

Investments 23,789 26,661 27,482 28,490

Total current assets 2,582 381 419 461

Less: Total cur. liab. & prov. 319 291 320 352

Net current assets 2,263 90 98 108

Net deferred tax (107) (95) (95) (95)

Other assets 341 349 418 502

Total assets 27,046 27,755 28,640 29,727

Income statement (INR mn)


Total income 2,515 1,650 1,971 2,272

Other operating expenses 382 392 335 341

Employee expense 171 204 218 248

Total expenses 553 595 553 589

Gross profit 1,962 1,055 1,418 1,683

Depreciation 14 15 18 18

Profit before tax 1,948 1,040 1,400 1,665

Tax 317 340 252 300

Reported net profit 1,631 700 1,148 1,365

Extraordinary items 0 0 0 0

Adjusted net profit 1,631 700 1,148 1,365

Growth


Operating income 21.0 (36.5) 18.0 14.0

Other income (20.1) 21.6 40.0 30.0

emp. exp % of operating inc. 7.0 13.2 12.0 12.0

Other oper. exp % of total inc. 15.2 23.8 17.0 15.0

Tax rate 16.3 32.7 18.0 18.0

Book value (INR) 169.4 173.8 179.3 186.1

EPS (INR) 10.3 4.4 7.2 8.6

DPS (INR) 1.8 1.8 1.8 1.8

Consolidated PAT (%)


Standalone 8.1 3.0 4.0 3.9

BAGIC 21.4 23.4 21.3 22.2

BALIC 32.2 25.1 22.9 20.2

Bajaj Finance 38.6 48.6 52.0 53.8

Bajaj Allianz Financial Distributor 0.1 0.1 0.1 0.1

Bajaj Financial Solutions (0.3) (0.3) (0.2) (0.2)

Total 100.0 100.0 100.0 100.0



Peer comparison valuation

Market cap Diluted P/E (X) P/B (X) ROAE (%)

Name (USD mn) FY18E FY19E FY18E FY19E FY18E FY19E

Bajaj Finserv * 10,601 NA 1.6 NA 1.8 7.9 9.1

Max Financial Services * 2,692 NA 2.8 NA 11.2 17.8 17.9

Dewan Housing Finance 2,019 11.8 10.3 1.5 1.4 13.7 14.3

HDFC 37,662 29.4 25.6 5.6 5.1 20.0 20.8

Indiabulls Housing Finance 6,899 12.9 10.8 3.4 3.0 27.7 29.2

LIC Housing Finance 5,255 15.6 14.2 2.6 2.3 19.6 18.9

Mahindra & Mahindra Financial Services 2,797 26.6 18.2 2.6 2.4 10.2 13.8

Manappuram General Finance 1,178 8.5 7.1 2.1 1.8 26.5 27.4

Muthoot Finance 2,336 11.1 9.4 2.0 1.8 19.5 20.0

Power Finance Corp 6,356 6.0 5.6 0.9 0.8 16.1 15.3

Reliance Capital 2,561 13.4 10.8 1.0 0.9 7.4 8.6

Repco Home Finance 727 20.8 17.9 3.6 3.0 18.5 18.2

Rural Electrification Corporation 6,662 7.0 6.6 1.1 1.0 17.2 16.1

Shriram City Union Finance 2,225 17.0 12.0 2.5 2.1 15.7 19.3

Shriram Transport Finance 3,481 13.4 1.8 14.2

Median - 13.4 10.8 2.1 1.8 17.2 18.8

AVERAGE - 14.9 12.1 2.4 2.1 17.4 18.5

Source: Edelweiss research

* P/E is P/EV and RoAE is RoEV


Bajaj Finserv

Holding - Top 10

Perc. Holding Perc. Holding

Jaya Hind Investments 4.02 ICICI Prudential Asset Management 2.49

Maharashtra Scooters 2.34 Life Insurance Corporation of India 1.99

Vanguard Group 0.81 BlackRock 0.79

Dimensional Fund Advisors 0.43 Sundaram Asset Management 0.38

Axis Asset Management 0.35 Birla Sun Life Asset Management 0.28

*as per last available data

Insider Trades

Reporting Data Acquired / Seller B/S Qty Traded

No Data Available

*in last one year

Bulk Deals Data Acquired / Seller B/S Qty Traded Price

No Data Available

*in last one year

Additional Data

Directors Data Rahul Bajaj Chairman Nanoo Pamnani Vice Chairman

Sanjiv Bajaj Managing Director Madhur Bajaj Director

Rajiv Bajaj Director D.J. Balaji Rao Director

Naresh Chandra Director Gita Piramal Director

Auditors - Dalal & Shah LLP

*as per last annual report


Company Absolute

reco

Relative

reco

Relative

risk

Company Absolute

reco

Relative

reco

Relative

Risk

Allahabad Bank HOLD SU M Axis Bank BUY SO M

Bajaj Finserv BUY SP L Bank of Baroda BUY SP M

Bharat Financial Inclusion BUY SO M Capital First BUY SO M

DCB Bank REDUCE SU M Dewan Housing Finance BUY SO M

Equitas Holdings Ltd. BUY SO M Federal Bank BUY SP L

HDFC HOLD SP L HDFC Bank BUY SO L

ICICI Bank BUY SO L IDFC Bank HOLD SP L

Indiabulls Housing Finance BUY SO M IndusInd Bank BUY SP L

Karnataka Bank BUY SP M Kotak Mahindra Bank HOLD SP M

L&T FINANCE HOLDINGS LTD BUY SO M LIC Housing Finance BUY SP M

Magma Fincorp BUY SP M Mahindra & Mahindra Financial Services HOLD SU M

Manappuram General Finance BUY SO H Max Financial Services BUY SO L

Multi Commodity Exchange of India BUY SP M Muthoot Finance BUY SO M

Oriental Bank Of Commerce HOLD SP L Power Finance Corp BUY SO M

Punjab National Bank BUY SP M Reliance Capital BUY SP M

Repco Home Finance BUY SO M Rural Electrification Corporation BUY SO M

Shriram City Union Finance BUY SO M Shriram Transport Finance BUY SO L

South Indian Bank BUY SP M State Bank of India BUY SP L

Union Bank Of India HOLD SP M Yes Bank BUY SO M

RATING & INTERPRETATION

ABSOLUTE RATING

Ratings Expected absolute returns over 12 months

Buy More than 15%

Hold Between 15% and - 5%

Reduce Less than -5%

RELATIVE RETURNS RATING

Ratings Criteria

Sector Outperformer (SO) Stock return > 1.25 x Sector return

Sector Performer (SP) Stock return > 0.75 x Sector return

Stock return < 1.25 x Sector return

Sector Underperformer (SU) Stock return < 0.75 x Sector return

Sector return is market cap weighted average return for the coverage universe

within the sector

RELATIVE RISK RATING

Ratings Criteria

Low (L) Bottom 1/3rd percentile in the sector

Medium (M) Middle 1/3rd percentile in the sector

High (H) Top 1/3rd percentile in the sector

Risk ratings are based on Edelweiss risk model

SECTOR RATING

Ratings Criteria

Overweight (OW) Sector return > 1.25 x Nifty return

Equalweight (EW) Sector return > 0.75 x Nifty return

Sector return < 1.25 x Nifty return

Underweight (UW) Sector return < 0.75 x Nifty return


Bajaj Finserv

Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098.

Board: (91-22) 4009 4400, Email: [email protected]

Aditya Narain

Head of Research

[email protected]

Coverage group(s) of stocks by primary analyst(s): Banking and Financial Services

Allahabad Bank, Axis Bank, Bharat Financial Inclusion, Bajaj Finserv, Bank of Baroda, Capital First, DCB Bank, Dewan Housing Finance, Equitas Holdings Ltd., Federal Bank, HDFC, HDFC Bank, ICICI Bank, IDFC Bank, Indiabulls Housing Finance, IndusInd Bank, Karnataka Bank, Kotak Mahindra Bank, LIC Housing Finance, L&T FINANCE HOLDINGS LTD, Max Financial Services, Multi Commodity Exchange of India, Manappuram General Finance, Magma Fincorp, Mahindra & Mahindra Financial Services, Muthoot Finance, Oriental Bank Of Commerce, Punjab National Bank, Power Finance Corp, Reliance Capital, Rural Electrification Corporation, Repco Home Finance, State Bank of India, Shriram City Union Finance, Shriram Transport Finance, South Indian Bank, Union Bank Of India, Yes Bank

Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe

Rating Distribution* 161 67 11 240 * 1stocks under review

Market Cap (INR) 156 62 11

Date Company Title Price (INR) Recos

Recent Research

18-May-17 Punjab National Bank

In the slow lane; Result Update

164 Buy

17-May-17 Karnataka Bank

In soft terrain; Result Update

171 Buy

16-May-17 South Indian Bank

Asset quality stress persists; retail focus continues; Result Update

25 Buy

> 50bn Between 10bn and 50 bn < 10bn

Buy Hold Reduce Total

Rating Interpretation

Buy appreciate more than 15% over a 12-month period

Hold appreciate up to 15% over a 12-month period

Reduce depreciate more than 5% over a 12-month period

Rating Expected to

-

149

297

446

594

743

Jan

-14

Feb

-14

Mar

-14

Ap

r-1

4

May

-14

Jun

-14

Jul-

14

Au

g-1

4

Sep

-14

Oct

-14

No

v-1

4

De

c-1

4

(IN

R)

One year price chart

0

1,000

2,000

3,000

4,000

5,000

May

-16

Jun

-16

Jun

-16

Jul-

16

Au

g-1

6

Au

g-1

6

Sep

-16

Oct

-16

No

v-1

6

No

v-1

6

De

c-1

6

Jan

-17

Jan

-17

Feb

-17

Mar

-17

Mar

-17

Ap

r-1

7

May

-17

(IN

R)

Bajaj Finserv



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Bajaj Finserv

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