Motilal Oswal Financial Services

Sector Update | 18

May 2020

Sector Update Financials

Financials

ICICIBC stake sale in various

subsidiaries

% of

Subs

Date stake

sale

IPRULIFE

FY19 2.0

ICICI Lombard FY18 7.0

ICICI Securities FY18 20.8

IPRULIFE

FY17 12.6

ICICI Lombard FY16 9.0

IPRULIFE

FY16 6.0

Net

gain

(INRb)

11.1

20.1

33.2

56.8

15.5

19.5

Decoding intrinsic value across cycles; strengthening SOTP

offers comfort

SOTP contribution rising steadily; forms 11%-37% of total valuation for major banks



SBIN stake sale in various

subsidiaries

% of

Net

Subs

Date stake gain

sale (INRb)

SBI LIFE

FY20

4.5

34.8

SBI Cards

FY20

4.0

26.5

SBI General

FY19

4.0

4.7

Insurance

SBI LIFE

FY18

8.0

54.4

SBI LIFE

FY17

3.9

17.6

ICICIBC stake sale in subsidiaries,

INR b

ICICIBC stake sale in subsidiaries

Tier-I Ratio (%)

14.4

15.9

15.1



COVID-19 pandemic has significantly dented the earnings/asset quality outlook for the

banking sector resulting in severe correction in stock prices. Lending being a leveraged

business faces significant valuation risks in such an uncertain environment however

banking subs which have gained significant scale / profitability are relatively well

placed to withstand current environment.

The SOTP story for banks thus provides a significant support to overall valuations and

currently subsidiaries of ICICIBC contribute ~22% to our SOTP (~34% as % of CMP)

while that of SBIN contribute ~37% (~64% as % of CMP). Also, post AXSB-MAX deal;

the proportion of subs in the SOTP value could potentially increase to ~11%. ICICIBC

thus trades at a valuation of 1.2x P/ABV (adj. for subs) while SBIN trades at 0.3x P/ABV

– the lowest in more than past one decade.

The monetization of subs has helped banks in raising funds and shoring up capital.

During FY16-19 ICICIBC monetized INR156b by selling stakes in various subs while SBIN

also raised ~INR138b during FY17-FY20 by divesting stake in subs.

The contribution of subs to consolidated profits has thus been increasing steadily with

banks facing asset quality challenges while subs reporting better trends and gaining

share. During FY19, ICICIBC subs contributed ~21% to the overall profits while SBIN

subs contributed ~63% to the consolidated profits of the bank.

We maintain our preference for ICICIBC, HDFCB & SBIN.

13.1

SOTP story getting bigger; ICICIBC/SBIN subs forms ~22%/37% of total SOTP

Increasing customer awareness towards various financial products like mutual

funds, insurance products and credit cards have driven robust earnings performance

in the subsidiary businesses of large banks (ICICIBC, KMB and SBIN). These

subsidiaries have gained scale and market share in their respective business

segments which has led to strong expansion in their market multiples. Hence, banks

like SBIN, KMB and ICICIBC have increasingly transformed into an SOTP-based play

v/s standalone play. Currently, subsidiaries of ICICIBC contribute ~22% to our SOTP

(~34% as % of CMP) while that of SBIN contribute ~37% (~64% as % of CMP).

Recently, AXSB signed an agreement to enter into a JV partnership with Max Life

Insurance. AXSB will acquire 29% stake and will hold 30% stake and thus sprucing up

its SOTP story. We value AXSB on an SOTP basis with the contribution of its

subsidiaries much lower at ~6% compared to major peers. With this deal, the

proportion of its subsidiaries in the SOTP value could potentially increase to ~11%.

Valuation downside for subsidiaries is limited unlike banks; banking stocks

corrected in the range between 29%-65% compared to subs (15%-22%)

Lending being a leveraged business faces significant valuation risks in such an

uncertain environment due to asset quality pressure which led to significant erosion

of capital in banks. However bank subsidiaries focuses on catering financial needs of

customers through various other asset classes like mutual funds, insurance which

have gained significant scale / profitability are relatively better placed to withstand

current environment compared to banks. Thus we have seen banking stocks have

corrected significantly in the range between 29%-65% since Mar’20 while insurance

business corrected in the range between 15%-22% while HDFC AMC/SBI Cards

corrected by 18%/23% during the similar period.

35.0

FY16

56.8

FY17

53.3

FY18

11.1

FY19

SBIN stake sale in subsidiaries,

INR b

SBIN stake sale in subsidiaries

Tier-I Ratio (%)

11.6

10.8

10.4

10.5

17.6

FY17

54.4

FY18

4.7

FY19

61.4

FY20*

Research Analyst: Nitin Aggarwal

(Nitin.Aggarwal@MotilalOswal.com); +91 22 6129 1542 |

Himanshu Taluja

(Himanshu.Taluja@motilaloswal.com)

Alpesh Mehta

(Alpesh.Mehta@MotilalOswal.com);

Yash Agarwal

(Yash.Agarwal@motilaloswal.com)

18 May 2020

Investors are advised to refer through important disclosures made at the last page of the Research Report.

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

Sector Update | Financials

Monetization of subsidiaries helps raise capital in critical requirements

Over the last few years corporate banks have been facing asset quality challenges

which impacted their earnings, capital position and ability to pursue growth. This

had resulted in subdued valuation and ability to access capital markets. Therefore,

many banks focused on monetizing stakes in non-core assets to improve their

capital position. ICICIBC has monetized by selling stakes in various subsidiaries such

as Insurance & Securities businesses and has raised ~INR156b over FY16-FY19 while

SBIN sold stakes in Insurance and Card business and raised ~INR138b over FY17-20.

Subs contribution to the consolidated profits is increasing steadily

Both SBIN & ICICIBC core earnings have been impacted due to asset quality

pressures which led to higher credit cost while on the other hand subsidiaries

businesses gained momentum and market share in their respective segments. The

contribution of subsidiaries to the overall consolidated profits has been increasing in

last few years. During FY19, ICICIBC subs contributed ~21% to the overall profits

while subs of SBIN contributed ~63% to the consolidated profits of the bank.

Stress testing analysis as a proportion of subs value in the SOTP

We have attempted a scenario analysis on bank-wise slippages on the basis of the

exposure toward vulnerable/stressed segments and the historical delinquency

trend. Our scenario analysis suggests that under the base case, the slippages rate is

expected to be in the range of 2.6%-4.6% for large banks with the highest being for

AXSB and the lowest for KMB. The slippages ratio could increase to 4.6%-6.6% under

our stress-case scenario. We thus estimate credit cost to increase sharply for banks

over FY21E.

We further analyzed banks incremental slippages/provisions for FY21E as a

percentage of subsidiaries value (post hold co discount). We note that KMB has the

lowest proportion of slippages/provisions as a percentage of subs value while AXSB

has the highest and therefore could be vulnerable amongst large banks. Slippages

/Provisions for ICICIBC stood at ~35%/23% of subs value while for SBIN stood at

~107%/~48% under the base case.

Subs valuation correlated with financial performance of parent bank

We also believe that the valuation multiple ascribed to the parent entity is also

reflective to certain extent on the subsidiaries’ valuation as well. In the last one

decade, HDFC & KMB bank have traded at a higher multiple compared to its peers

due to stable asset quality trends, strong balance sheet and better profitability. The

multiples at which subsidiaries of HDFC & KMB are valued are higher in comparison

to the subsidiaries of ICICIBC & SBIN.

Valuation & view

We prefer large banks (ICICIBC, HDFCB & SBIN) over mid-size banks as these banks

(a) have better ability to deal with increasing NPA risk, (b) will continue gaining

market shares in key business segments and (c) also have increasingly transformed

into an SOTP-based play v/s standalone play. For mid-cap banks, while valuations

have corrected significantly, they still remain vulnerable to both asset quality

challenges and sustainability of funding franchise; credit cost too is likely to increase

significantly on higher exposure to risk-prone segments.

18 May 2020

Sector Update | Financials

Underscoring the importance of SOTP-based valuations

for large banks

Over the last few years, increasing customer awareness toward various financial

products like mutual funds, insurance products and credit cards have reflected

robust earnings performance in the subsidiary businesses of large banks (ICICIBC,

HDFCB and SBIN). Over the same time, these bank subsidiaries have gained scale

and market share in their respective business segments, which has led to strong

expansion in their market multiples. Hence, banks like SBIN and ICICIBC have

increasingly transformed into an SOTP-based play v/s standalone play.

The contribution of subsidiaries in the SOTP of banks has increased significantly.

Currently, subsidiaries of ICICIBC contribute ~22% to our SOTP (~34% as % of CMP)

while that of SBIN contribute ~37% (~64% as % of CMP). As these businesses further

gain scale and market share, contribution of subs to the SOTP story of banks is

expected to improve.

Recently, AXSB signed an agreement to enter into a JV partnership with Max Life

Insurance. AXSB will acquire 29% stake and will hold 30% stake and thus sprucing up

its SOTP story. We value AXSB on an SOTP basis with the contribution of its

subsidiaries much lower at ~6% compared to major peers. With this deal, the

proportion of its subsidiaries in the SOTP value could potentially increase to ~11%.

Exhibit 1:

SBIN –Subs contribution to the CMP

Subs contribution to Mkt Price

277

160

107

15%

FY05

FY08

13%

FY09

FY11

20%

FY14

17%

FY15

22%

FY17

36%

64%

11%

FY06

10%

FY07

192

267

CMP

293

250

155

107

28%

FY09

17%

FY10

30%

FY13

26%

FY15

41%

FY17

44%

34%

175

186

Exhibit 2:

ICICIBC –Subs contribution to the CMP

Subs contribution to Mkt Price

CMP

290

256

284

299

FY18 Current

Source: MOFSL, Company

Exhibit 3:

KMB –Subs contribution to the CMP

Subs contribution to Mkt Price

57%

36% 35%

39% 38%

657

229

327

42%

39%

26% 31%

30%

872

1,048

CMP

1,335

1,113

Exhibit 4:

HDFCB –Subs contribution to the CMP

Subs contribution to Mkt Price

CMP

946

721

511

536

1,158

836

120

10%

FY15

13%

FY16

12%

FY17

12%

FY18

14%

FY19

11%

Current

FY06 FY07 FY09 FY11 FY13 FY15 FY17 FY18 FY19 Current

Source: MOFSL, Company

18 May 2020

Sector Update | Financials

Exhibit 5:

Increase in AXSB’s stake in Max Life could increase contribution of subs to ~11%

Based on Sep’21

Proposed Stake (%)

Valuation of Max Life

- at current multiples (1.3x)

- at proposed multiples (3.0x)

Value for AXSB

Per share value of AXSB

% contribution to total SOTP of AXSB

Proposed contribution of all subs to SOTP of AXSB (%)

Revised Target Price

% increase from the base case (TP of INR600)

INR m

30.0

176,873

393,050

101,915

36.1

5.8

10.6

620

3.3

Source: Company, MOFSL

Monetization of subsidiaries helps raise capital in critical

requirements

Over the last few years corporate banks have been facing asset quality challenges

which impacted their earnings, capital position and ability to pursue growth. This

had resulted in subdued valuation and ability to access capital markets. Therefore,

many banks focused on monetizing stakes in non-core assets to improve their

capital position. ICICIBC has monetized by selling stakes in various subsidiaries such

as Insurance & Securities businesses and has raised ~INR156b over FY16-FY19 while

SBIN also sold stakes in Insurance and Card business and raised ~INR138b over FY17-

FY20.

Exhibit 6:

ICICIBC monetization in subsidiaries over the last

few years

ICICIBC stake sale in subsidiaries (INRb)

14.4%

15.9%

Tier-I Ratio (%)

15.1%

10.5%

10.8%

Exhibit 7:

SBIN monetization in subsidiaries over the last

few years

SBIN stake sale in subsidiaries (INRb)

Tier-I Ratio (%)

11.6%

13.1%

10.4%

35.0

FY16

56.8

FY17

53.3

FY18

11.1

FY19

17.6

FY17

54.4

FY18

4.7

FY19

61.4

FY20*

Source: MOFSL, Company

Source: MOFSL, Company, Note: SBI cards stake sale in the IPO not

reflecting in the tier-1 ratio

Exhibit 8:

ICICIBC stake sale in various subsidiaries

Subs

IPRULIFE

ICICI Lombard

ICICI Securities

IPRULIFE

ICICI Lombard

IPRULIFE

Date

FY19

FY18

FY17

FY16

% of stake

sale

2.0

7.0

20.8

12.6

9.0

6.0

Net gain

(INRb)

11.1

20.1

33.2

56.8

15.5

19.5

Exhibit 9:

SBIN stake sale in various subsidiaries

Subs

SBI LIFE

SBI Cards

SBI General Insurance

SBI LIFE

Date

FY20

FY19

FY18

FY17

% of stake

sale

4.5

4.0

8.0

3.9

Net gain

(INRb)

34.8

26.5

4.7

54.4

17.6

Source: MOFSL, Company

18 May 2020

Sector Update | Financials

Subs contribution to the consolidated profits is increasing

steadily

Both SBIN & ICICIBC core earnings have been impacted due to asset quality

pressures which led to higher credit cost while on the other hand subsidiaries

businesses gained momentum and market share in their respective segments. The

contribution of subsidiaries to the overall consolidated profits has been increasing

in last few years. During FY19, ICICIBC subs contributed ~21% to the overall profits

while subs of SBIN contributed ~63% to the consolidated profits of the bank.

Exhibit 10:

ICICIBC– Trend in composition of consolidated

PAT

Standalone PAT

11%

Subs PAT

12%

21%

17%

31%

Exhibit 11:

KMB: Trend in composition of consolidated PAT

Kotak Bank

32%

40%

PAT from subsidiaries

31%

34%

32%

31%

89%

91%

96%

88%

79%

83%

69%

68%

60%

69%

66%

68%

69%

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY14

FY15

FY16

FY17

FY18

FY19

FY20

Source: MOFSL, Company

Exhibit 12:

SBIN: Trend in composition of consolidated PAT

Standalone PAT

Subs PAT

63%

99%

96%

95%

37%

FY13

FY14

FY15

FY16

FY19

Exhibit 13:

HDFCB – Trend in composition of cons. PAT

Standalone PAT

Subs PAT

98%

97%

95%

94%

93%

96%

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

Source: MOFSL, Company; Note: SBIN reported losses in FY17 & FY18

Source: MOFSL, Company

We have attempted a scenario analysis on bank-wise slippages on the basis of the

exposure toward vulnerable/stressed segments and the historical delinquency

trend. Our scenario analysis suggests that under the base case, the slippages rate is

expected to be in the range of 2.6%-4.6% for large banks with the highest being for

AXSB and the lowest for KMB. The slippages ratio could increase to 4.6%-6.6% under

our stress-case scenario. We thus estimate credit cost to increase sharply for banks

over FY21E.

We further analyzed banks incremental slippages/provisions for FY21E as a

percentage of subsidiaries value (post holdco discount). We note that KMB has the

lowest proportion of slippages/provisions as a percentage of subs value while AXSB

18 May 2020

Various stress testing analysis as a proportion of subs value in

the SOTP

Sector Update | Financials

has the highest and therefore could be vulnerable amongst large banks. Slippages

/Provisions for ICICIBC stood at ~35%/23% of subs value while for SBIN stood at

~107%/~48% under the base case.

Exhibit 14:

Assumptions - slippages and LGD under base, normal and severe stress scenario

Assumptions

Personal Loans

Credit Cards

Home Loans

Vehicle Loans

Other Retail

SME

Agri

MFI

Corporate

Slippages Range (%)

2-5

4-8

2-4

3-6

2-6

4-8

3-6

4-8

3-7

LGD (%)

80.0

30.0

20.0

60.0

Source: MOFSL, Company

Exhibit 15:

Potential slippages and credit cost under base-case scenario for FY21E

Slippage ratio could

increase to 2.6%-4.6%

under base case scenario

Slippages-FY21E (INRb)

Personal Loans

Credit Cards

Home Loans

Vehicle Loans

Other Retail

Agri

SME

Corporate

Total Slippages

Slippages (%)

Credit Cost (%)

AXSB

108

246

4.5%

2.3%

HDFCB

100

250

2.7%

1.5%

ICICIBC

232

3.6%

2.1%

KMB

2.6%

1.2%

SBIN

167

656

1.058

4.6%

2.0%

Source: MOFSL, Company

Exhibit 16:

Potential slippages and credit cost under adverse-case scenario for FY21E

Slippages-FY21E (INR b)

Personal Loans

Credit Cards

Home Loans

Vehicle Loans

Other Retail

Agri

SME

Corporate

Total Slippages

Slippages (%)

Credit Cost (%)

AXSB

157

355

6.5

3.2

HDFCB

191

437

4.7

2.3

ICICIBC

143

354

5.6

3.0

KMB

4.6

2.1

Slippage ratio could

increase to 4.6%-6.6%

under stress case while

credit cost can increase by

incremental ~90-100bpbp

SBIN

176

126

222

875

1,519

6.6

3.0

Source: MOFSL, Company

18 May 2020

Sector Update | Financials

Exhibit 17:

Under base case scenario- Slippages as a

percentage of subs value

Slippages-FY21E

Slippages as a % of subs value

107%

133%

Exhibit 18:

Under stress case scenario- Slippages as a

percentage of subs value

Slippages-FY21E

Slippages as a % of subs value

191%

154%

35%

KMB

232

ICICIBC

250

50%

1,058

246

SBIN

AXSB

11%

KMB

87%

54%

354

ICICIBC

437

HDFCB

1,519

355

SBIN

AXSB

HDFCB

Source: MOFSL, Company

Exhibit 19:

Under base case scenario- Provisions as a

percentage of subs value

Total Provisions-FY21E

Provisions as a % of subs value

81%

Exhibit 20:

Under stress case scenario- Provisions as a

percentage of subs value

Total Provisions-FY21E

Provisions as a % of subs value

108%

72%

51%

31%

48%

34%

23%

152

ICICIBC

172

HDFCB

473

SBIN

151

AXSB

KMB

206

ICICIBC

254

HDFCB

712

SBIN

201

AXSB

KMB

Source: MOFSL, Company

18 May 2020

Sector Update | Financials

Large Banks trading near its trough multiples

Exhibit 21:

SBIN – P/ABV (adjusted for subs) trading at its

lowest multiples

P/ABV (adj for Subs)

GFC

1.5

0.9

1.2

1.0

1.3

0.9

2.0

1.8

Economic

slowdown

1.2

0.9

1.4

RBI 12th

Circular

1.7

1.3

1.0

0.9

0.3

1.5

0.7

Exhibit 22:

ICICIBC – P/ABV (adjusted for subs) comparable

to other bottoms

P/ABV (adj for Subs)

2.0

2.2

2.0

2.1

1.2 1.3

RBI 12th Feb

Circular

1.8

1.5

1.0

RBI AQR

1.8

1.3

1.2

Source: MOFSL, Bloomberg

Exhibit 23:

KMB – P/ABV (adjusted for subs) trades at 2x

higher compared to other private banks

P/ABV (adj for Subs)

3.9

3.0

2.2

0.8 2.4

2.1

2.7

2.4

4.0

Exhibit 24:

HDFCB – P/ABV (adjusted for subs) trades closer

to GFC crisis

P/ABV (adj for Subs)

3.9

3.3

3.8

3.0

2.1

3.6

3.5

3.4

3.2

4.0

2.5

2.6

3.7

3.5

3.3

3.1

2.8

3.3

3.1

2.2

Source: MOFSL, Bloomberg

Exhibit 25:

AXSB: P/ABV (adjusted for subs) currently trades

below GFC crisis…..

P/ABV (adj for Subs)

3.1

2.4

2.9

2.0

1.1

2.6 2.6

1.7

1.6

2.7

2.1

2.7

2.4 2.2

1.0

Exhibit 26:

IIB trades closer to GFC crisis

P/ABV

2.7

2.0

0.6

2.0

2.3

0.7

2.6

3.1

2.9

4.3

3.7 3.7

2.4

Source: MOFSL, Company

18 May 2020

Sector Update | Financials

Valuations multiples for Insurance/AMC business

Exhibit 27:

IPRULIFE: 1yr forward- P/EV trades near its trough multiple

P/EV (x)

3.4

2.8

2.2

1.6

1.0

1.8

Avg (x)

Max (x)

Min (x)

3.5

2.9

2.6

2.2

1.9

+1SD

-1SD

Source: MOSL, Company

Exhibit 28:

HDFCLIFE: 1yr forward- P/EV trades near its trough multiple

6.0

5.3

4.5

3.8

3.0

3.9

3.5

P/EV (x)

Avg (x)

Max (x)

Min (x)

5.6

5.2

4.5

3.7

+1SD

-1SD

Source: MOSL, Company

Exhibit 29:

HDFC AMC: currently, 1yr forward- P/E trades at 41x

P/E (x)

24.9

22.2

36.5

48.2

Avg (x)

Max (x)

58.5

41.2

Min (x)

+1SD

-1SD

Source: MOSL, Company

18 May 2020

Sector Update | Financials

Valuing the liability franchise of the bank

Exhibit 30:

SBIN: Market cap/deposits (adj. for subs.) trends

across various crises

Economic

Slowdown

12.9%

GFC

Exhibit 31:

SBIN: Trend of market cap/CASA deposits (adj.

for subs.) across various crises

Mkt Cap/CASA (%)

17%

Mkt Cap/Deposits (%)

28.6%

15.4%

7.0%

15.2%

5.8%

FY09

FY11

6.2%

FY14

4.8%

FY16

7.1%

5.1%

FY18

7.4%

1.6%

FY19 Current

FY09

FY11

12.6%

16.2%

16.5%

11.5%

3.7%

FY17

FY14

FY16

FY17

FY18

FY19 Current

Exhibit 32:

ICICIBC: Trend of market cap/deposits (adj. for

subs.) across various crises

Mkt Cap/Deposits (%)

46.2%

27%

Exhibit 33:

ICICIBC: Trend of market cap/CASA deposits (adj.

for subs.) across various crises

Mkt Cap/CASA (%)

62%

102.6%

73.1%

53.8%

31.4%

18.3% 19.8% 18.1%

26.7%

16.5%

43.4%

12.5%

40.0% 39.4% 35.0%

36.6%

FY09

FY11

FY14

FY16

FY17

FY18

FY19 Current

FY09

FY11

FY14

FY16

FY17

FY18

FY19 Current

Exhibit 34:

KMB: Trend of market cap/deposits (adj. for

subs.) across various crises

Mkt Cap/Deposits (%)

65%

Exhibit 35:

KMB:: Trend of market cap/CASA deposits (adj.

for subs.) across various crises

Mkt Cap/CASA (%)

235%

71%

64%

70%

64%

79%

47%

175%

201%

167%

159%

125%

151%

84%

27%

83%

FY09

FY11

FY14

FY16

FY17

FY18

FY19 Current

FY09

FY11

FY14

FY16

FY17

FY18

FY19 Current

Exhibit 36:

HDFCB: Trend of market cap/deposits (adj. for

subs.) across various crises

Mkt Cap/Deposits (%)

48%

Exhibit 37:

HDFCB: Trend of market cap/CASA deposits (adj.

for subs.) across various crises

Mkt Cap/CASA (%)

125%

100%

105%

84%

138%

52%

49%

43%

51%

54%

58%

36%

104%

99%

109%

29%

65%

FY09

FY11

FY14

FY16

FY17

FY18

FY19 Current

FY09

FY11

FY14

FY16

FY17

FY18

FY19 Current

Source: MOFSL, Company

18 May 2020

Source: MOFSL, Company

Sector Update | Financials

SBIN: Subsidiaries story so far….

Exhibit 38:

SBI Cards snapshot – PAT/spends CAGR of 42%/50% over past 2 years

INR m

Spends on cards

Mkt. Share Spends (%)

Mkt. Share cards base (%)

Revenue

PAT

PBT

RoA (%)

RoE (%)

Net Worth

Total Assets

FY15

2,33,610

11.3

15.0

19,050

2,670

2,710

4.4

30.8

8,660

60,480

FY16

3,09,050

11.9

14.8

24,920

2,840

4,380

3.7

26.7

10,610

78,800

FY17

4,60,070

13.1

15.3

33,630

3,904

5,980

3.7

29.5

13,217

1,06,521

FY18

7,98,080

16.8

16.4

51,870

5,810

7,760

4.6

33.4

16,141

1,46,950

FY19

10,36,046

17.1

17.6

69,990

7,880

4.8

30.2

195,930

9MFY20

9,88,569

17.8

18.1

72,400

11,612

6.7

36.5

259,935

Source: MOFSL , Company

Exhibit 39:

SBILIFE reported 150bp improvement in NBM

over FY19 while VNB grew 24% in FY19

VNB (INRb)

NBM (RHS)

17.7%

Exhibit 40:

SBI Life – Total expense (as % of GWP) improved

to 10.5% in FY19 from ~16% in FY13

15.9%

15.5%

13.8%

13.7%

11.6%

16.2%

15.4%

16.2%

11.2%

10.5%

FY19

7.9

FY16

10.2

FY17

13.8

FY18

17.2

FY19

FY13

FY14

FY15

FY16

FY17

FY18

Source: MOFSL , Company

FY17

210.2

101.4

15.7%

9.6

977.4

165.4

FY18

253.5

109.7

16.0%

11.5

1,162.6

190.6

FY19

329.9

137.9

17.7%

13.3

1,410.2

224.0

Exhibit 41:

Key operating metrics of SBI Life

INR b

Gross premium

New business premium

New business margin

Net profit

AUM

Embedded Value

Source: MOFSL , Company

Exhibit 42:

SBI General Insurance – GWP CAGR of 31% over

FY15-19

Gross Written Premium (INRm)

Exhibit 43:

SBI General Insurance – PAT grew sharply over

the last 3 years with RoE improving to ~20%

PAT (INRm)

RoE (%)

13.9%

22.1%

20.1%

3,340

47,065

20,410

FY16

26,070

35,530

-1,050

-1,200

1,530

2,650

15,770

FY15

FY17

FY18

FY19

FY15

FY16

FY17

FY18

FY19

Source: MOFSL , Company

18 May 2020

Sector Update | Financials

ICICIBC: Subsidiaries story so far….

Exhibit 44:

IPRULIFE: Protection mix improves to ~18% of

total APE vs 4% in FY17

ULIP

10%

84%

PAR

11%

82%

Non-PAR

80%

Group

11%

77%

Protection

18%

16%

13%

54%

Exhibit 45:

IPRULIFE: Trends in VNB margins & protection

mix

VNB Margin

Protection (%)

Source: MOFSL, Company

Exhibit 46:

IPRU AMC’s AUM has grown 25% over FY14-19

Average AUM (INRb)

Growth (RHS, %)

Exhibit 47:

IPRU AMC: PAT grew at 30% CAGR over FY14-19

PAT (INRm)

0.17

0.13

0.17

as a % of avg AUM

0.19

0.20

0.21

2,430

FY17

3,057

FY18

3,208

FY19

878

FY13

1,068

FY14

1,486

FY15

1,672

FY16

1,102

FY13

1,827

FY14

2,468

FY15

3,257

FY16

4,800

FY17

6,140

FY18

6,830

FY19

Source: Company, MOFSL

Exhibit 48:

ICICI Lombard: GWP/PAT grew at 16%/15% CAGR

over FY14-19

GWP (INRb)

PAT (INR b)

8.6

7.0

5.1

3.1

61.3

FY13

68.6

FY14

66.8

FY15

80.9

FY16

107.3

FY17

123.6

FY18

144.9

FY19

5.4

5.1

10.0

Exhibit 49:

ICICI Lombard: Combined/loss ratio trends….

84%

Combined ratio (%)

83%

81%

Loss ratio (%)

80%

77%

75%

104%

FY13

105%

FY14

104%

FY15

107%

FY16

104%

FY17

100%

FY18

99%

FY19

Source: MOFSL

Source: Source: MOFSL

18 May 2020

Sector Update | Financials

KMB: Subsidiaries story so far…

Exhibit 50:

Gross Written Premium grew at 28% CAGR over

FY15-FY20

Gross Written Premium (INRb)

81.7

66.0

30.4

39.7

51.4

15.4

22.1

26.8

103.4

Exhibit 51:

New Business Premium grew at 27% CAGR over

FY15-FY19

New Business Premium (INRb)

34.0

39.8

FY15

FY16

FY17

FY18

FY19

FY20

FY15

FY16

FY17

FY18

FY19

Source: MOFSL, Company

Exhibit 52:

Kotak Prime – Loan growth declines 12%/4%

YoY/QoQ

Auto Loans (INR b)

Other Loans (INR b)

Exhibit 53:

Kotak AMC: Market share trends

AUM-Market share (%)

Equity AUM-Market share (%)

5.4

3.7

6.2

4.8

6.7

5.1

6.1

3.5

2.3

4.5

3.2

5.2

Source: MOFSL, Company

Exhibit 1: K-Sec market share trends over the last few years

Exhibit 2: Trend in composition of PAT

Kotak Bank

31%

32%

40%

PAT from subsidiaries

31%

34%

32%

31%

69%

68%

60%

69%

66%

68%

69%

Source: MOFSL, Company

18 May 2020

Sector Update | Financials

HDFC Bank: Subsidiaries story so far…

Exhibit 54:

HDB Financials AUM book grew at 27% CAGR since FY15

216%

125%

107%

AUM (INRb)

YoY growth (%)

64%

42%

34%

30%

31%

25%

15%

592

136

193

259

338

443

554

Source: MOFSL, Company

Exhibit 55:

HDB asset quality trends over the past few years

GNPA (%)

NNPA (%)

3.4

2.5

1.2

0.5

1.5

0.7

0.8

1.6

1.0

1.8

1.3

0.3 0.2

0.1 0.1

0.4 0.3

0.8

0.4

0.8

Source: MOFSL, Company

Exhibit 56:

HDB: PAT grew at 35% CAGR over FY15-FY19

67%

PAT(INRb)

53%

28%

36%

24%

9.3

11.5

YoY growth (%)

Exhibit 57:

HDFC Sec: PAT grew at 19% CAGR over FY15-FY19

PAT(INRb)

110%

62%

17%

-19%

0.8

1.6

1.3

2.2

3.4

60%

-4%

3.3

YoY growth (%)

3.5

5.3

6.8

Source: MOFSL, Company

18 May 2020

Sector Update | Financials

Explanation of Investment Rating

Investment Rating

Expected return (over 12-month)

BUY

>=15%

SELL

< - 10%

NEUTRAL

< - 10 % to 15%

UNDER REVIEW

Rating may undergo a change

NOT RATED

We have forward looking estimates for the stock but we refrain from assigning recommendation

*In case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall within

following 30 days take appropriate measures to make the recommendation consistent with the investment rating legend.

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though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report

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In Singapore, this report is being distributed by Motilal Oswal Capital Markets Singapore Pte Ltd (“MOCMSPL”) (Co.Reg. NO. 201129401Z) which is a holder of a capital markets

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Specific Disclosures

1 MOFSL, Research Analyst and/or his relatives does not have financial interest in the subject company, as they do not have equity holdings in the subject company.

2 MOFSL, Research Analyst and/or his relatives do not have actual/beneficial ownership of 1% or more securities in the subject company

3 MOFSL, Research Analyst and/or his relatives have not received compensation/other benefits from the subject company in the past 12 months

4 MOFSL, Research Analyst and/or his relatives do not have material conflict of interest in the subject company at the time of publication of research report

5 Research Analyst has not served as director/officer/employee in the subject company

6 MOFSL has not acted as a manager or co-manager of public offering of securities of the subject company in past 12 months

7 MOFSL has not received compensation for investment banking/ merchant banking/brokerage services from the subject company in the past 12 months

8 MOFSL has not received compensation for other than investment banking/merchant banking/brokerage services from the subject company in the past 12 months

18 May 2020

Sector Update | Financials

9 MOFSL has not received any compensation or other benefits from third party in connection with the research report

10 MOFSL has not engaged in market making activity for the subject company

********************************************************************************************************************************

The associates of MOFSL may have:

financial interest in the subject company

actual/beneficial ownership of 1% or more securities in the subject company

received compensation/other benefits from the subject company in the past 12 months

other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on

the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOFSL

even though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report.

acted as a manager or co-manager of public offering of securities of the subject company in past 12 months

be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the

company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies)

received compensation from the subject company in the past 12 months for investment banking / merchant banking / brokerage services or from other than said services.

The associates of MOFSL has not received any compensation or other benefits from third party in connection with the research report

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clients which are not considered in above disclosures.

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The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the

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customers by virtue of their receiving this report.

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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

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Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022 71934200/ 022-71934263;

Website www.motilaloswal.com.CIN no.: L67190MH2005PLC153397.Correspondence Office Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road,

Malad(West), Mumbai- 400 064. Tel No: 022 7188 1000.

Registration Nos.: Motilal Oswal Financial Services Limited (MOFSL)*: INZ000158836(BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst:

INH000000412. AMFI: ARN - 146822; Investment Adviser: INA000007100; Insurance Corporate Agent: CA0579;PMS:INP000006712. Motilal Oswal Asset Management Company

Ltd. (MOAMC): PMS (Registration No.: INP000000670); PMS and Mutual Funds are offered through MOAMC which is group company of MOFSL. Motilal Oswal Wealth

Management Ltd. (MOWML): PMS (Registration No.: INP000004409) is offered through MOWML, which is a group company of MOFSL. Motilal Oswal Financial Services Limited is

a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs,Insurance Products and IPOs.Real Estate is offered through Motilal Oswal Real Estate Investment Advisors II Pvt.

Ltd. which is a group company of MOFSL. Private Equity is offered through Motilal Oswal Private Equity Investment Advisors Pvt. Ltd which is a group company of MOFSL.

Research & Advisory services is backed by proper research. Please read the Risk Disclosure Document prescribed by the Stock Exchanges carefully before investing. There is no

assurance or guarantee of the returns. Investment in securities market is subject to market risk, read all the related documents carefully before investing. Details of Compliance

Officer: Name: Neeraj Agarwal, Email ID: na@motilaloswal.com, Contact No.:022-71881085.

* MOSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National

Company Law Tribunal, Mumbai Bench.

18 May 2020