Report NMIMS Asia Pac Winner HDFC Bank

CFA Institute Research Challenge
hosted by
IAIP (Indian Association of Investment Professionals)

Team: Francesco D'Andrea
SELL
Exchange: NSE
Sector: Private Sector Banks
Ticker Symbol: HDFCBANK
Industry: Banks
RELATIVE
Rs.583
Target Price
Current Price <19 Oct 2012>
Rs.628
Downside
7.2%
PERFORMANCE
GROWTH
RETURN
VOLATILITY
P/BV
HDFC BANK : PRETTY BUT PRICEY

FINANCIAL RATIOS
Book value per share
127.52
EPS
22.02
4.3
Dividend per share

Dividend yield
0.68
ROE
18.69
ROA
1.68
MARKET DATA
Market Capitalization(Rs. Cr)
137566
53 wk H/L (Rs.)
639/400
Avg. Vol. (3 m avg)
194204
Free float (%)
76.90%
Circuit Limits
762.35/508.25
Face Value (Rs.)
NSE code
HDFCBANK
BSE Scrip Code
500180
FORWARD 12 m RATIOS:
P/BV
4.25
P/E
23.84
P/Total Assets
0.0015
BVPS
148
Source: NSE, Team Estimates
HDFC and BANK NIFTY
We initiate coverage of HDFC bank with a sell rating and an end-of-the

year target price of Rs 583, which offers a 7.2 % downside from current
stock price.
HDFC bank, 24% owned by HDFC, has a network of more than 2,620
branches and 10,316 ATMs in 1,454 cities making it the second largest
private sector bank in India. Stable CASA ratio (46%) and NIM (4.2%) has
led to consistent profit growth for the last 10 years. We expect HDFC
Bank to deliver 20% CAGR in net earnings over FY13-15E, aided by NII
growth, despite our concerns on higher delinquency rates.
A strong performer - HDFC bank is one of the best banks in India and we
could find little fault with its strategy or management. HDFC banks net
revenues were at 5,076.8 cr for the quarter ended September 30, 2012,
an increase of 22.2% qoq. Net interest income grew by 26.7% qoq. This
was driven by loan growth of 22.9% and a NIM for the quarter of 4.2%.
The bank has always given excellent numbers on growth, profitability and
asset quality.
Growth to moderate - With its strong fundamentals, HDFC bank would
continue to grow. However we expect the growth to moderate in the
years to come and given the size of the bank (increasing base) the
historical growth levels of assets and profits of 30% CAGR are difficult to
sustain. In addition moderation of growth in Auto sector (40% of retail
loans), slower growth on CASA as the bank is concentrating on rural and
semi urban areas (70% new branches in FY11 and FY12) and expected
increased delinquency rates would put pressure on growth. The level of
competition from private banks targeting the same space on the assets
and liability side is also increasing. Based on above analysis, we expect
the profits to grow at a CAGR of 20% plus in FY13E to FY15E and assets
to grow at a CAGR of 18% in FY13E to FY15E.
Valuation - Our valuation methods lead to a target price of Rs 583 by
end of FY13. We still reiterate that HDFC bank is fundamentally a very
strong company but current prices more than reflect all the positives.
HDFC Bank has always commanded a premium valuation vis--vis its
peers due to its track record of consistent growth in earnings and
assets. But the present multiple of 4.9x P/B is not justified by the
financials and we expect it to correct going forward. The stock currently
trades at 4.2x FY13 adjusted book value.
Investment Risks - The major upside risks on the target price are 1)
stable or improved NPAs 2) stronger growth on retail book on account
of HDFC outwitting the competition by new private sector and 3) PSU
banks with stable growth in CASA.
Source:Moneycontrol.com
Investment Summary
Consistent earnings and quality business but expensive valuation - HDFC bank is a consistent performer in the Indian
banking sector and has distinguished itself from the rest of the pack consistently. The banks FY13 Q2 numbers were
in line with our expectations and going forward we expect slight pressure on account of increase in delinquency,
moderation in CASA, increased competition from private & public sector banks and moderation in other income.
Considering its superior business quality, its relative value compared to its peers is most obvious during challenging
times. However, given that its current valuations are above the intrinsic value and the multiples well above the intrinsic
levels, we expect the stock to moderately correct from current levels. The stock has had an excellent run up in the near
past and has consistently outperformed both the Nifty and the sectoral index. We expect the prices to correct and the
stock to trade at its long term average 1 year forward P/ABV multiple of 3.9x which gives a target price of Rs 583.
Concerns amid strong fundamentals - Although the banks business looks formidable with strong fundamentals and
the bank has given excellent performance numbers, we believe current valuations more than reflect these positives,
but ignore risks. We see the following key risks going forward: a) The past performance of the bank could prove to be
an impediment for it in the future. With the high base, the growth in assets and operating profit at historical levels of
30% looks difficult to sustain. We expect a likely slowdown in asset growth and operating profit to mean levels of 20%
on an average. b) potential downside to profitability due to increased competition from private and public sector banks
which target the same business (as the other focus sectors like infra have nearly dried out) and increased delinquency
rates on account of unfavourable macroeconomics. c) moderation in CASA growth at around 16% levels compared to
its own excellent past growth numbers, as market share stagnates due to expansion of branches in lower yielding
rural/semi-urban areas and competition from smaller banks that are expanding at a faster pace.
According to our estimates, we expect HDFC bank to trade in the 3-4x P/BV band in the longer term. Any valuation
which offers an upside from current expensive levels would depend on a sustained ROE improvement outlook over
20%+ or an extremely favourable macro condition, which we do not foresee in near term.
The key upside risks to our target price lie in: (1) any positive news on asset quality; (2) sudden revival in the economy
due to turnaround in macro environment; (3) more than expected growth in loan book of the bank in spite of sluggish
economic outlook; and (4) changing risk perceptions of private banks and they getting perceived as less riskier
compared to public sector banks. If any of these factors has a greater impact than we expect, the stock could have
difficulty achieving our target price.
Business Overview
Shareholding Pattern
Incorporated in the year 1994, HDFC Bank commenced operations as

a Scheduled Commercial Bank in January 1995. HDFC bank is
headquartered in Mumbai and is promoted by HDFC - India's premier
housing finance company. HDFC Bank has had strong and steady
growth over the past 10 years and continues to grow at more than
25%. HDFC Bank acquired Times Bank in 2000 and Centurion Bank of
Punjab in 2008.
Promot
er
23%
Others
35%
DII
10%
FII
32%
Source: NSE India, Team Estimates
Mar-09
Mar-10
Mar-11
Mar12
528
779
996
1399
Branches
1412
1725
1986
2544
ATMs
3295
4232
5471
8913
Cities
Source: Annual Report
New
Pvt
Banks
Avg
2
1.5
1
0.5
0
ROA
All Pvt
Banks
Avg
HDFC
Bank
Deposits
HDFC Bank offers a wide range of commercial and transactional

banking services and treasury products to its wholesale and retail
customers. The bank has three key business segments: Wholesale
Banking Services, Retail Banking Services and Treasury. Together they
offer a complete suite of products to meet diverse customers`
requirements.
HDFC banks has two subsidiaries
All
SCB
Avg
Source: RBI website,

Team Estimares
Business Comparison
Advances
The Bank at present has an enviable network of 2,544 branches

spread in 1,399 cities across India. The Bank also has 10,235
networked ATMs across these cities. HDFC Bank's mission is to be a
World-Class Indian Bank and it has been continuously progressing
towards achieving its mission and today with a total business of 4.5
lakh cr, it is the 2nd largest private sector bank in the country. Along
with achieving excellent returns (ROA of 1.68% and ROE of 18.69%) for
all its stakeholders, the bank has always maintained the highest level
of ethical standards, professional integrity, corporate governance and
regulatory compliance.
All Pvt Banks Avg
HDFC Bank
All SCB Avg
New Pvt Banks Avg
5,87,294
24,67,064
7,50,426
1226708.
623
4,83,209
19,54,200
5,90,067
1051890.
677 Source: RBI website,
HDFC securities Limited - a leading AAA / Stable (CRISIL) rated

brokerage firm offering integrated financial solutions for both retail and
institutional investors. HDFC bank holds 63% ownership interest in
HDFC securities.
HDB Financial Services - a leading Non Banking Financial Company
(NBFC) that offers customized financial solutions to both retail and
commercial customers which include asset backed loans, Loans for
personal and business purposes, Commercial vehicle loans, life
insurance and general insurance etc. HDFC bank holds 97.4%
ownership interest in HDBFS.
HDFC bank also has ownership interest in two associates, Atlas
Documentary Facilitators Company Private Limited (29.0% stake) and
International Asset Reconstruction Company Private Limited (29.4%
stake).
HDFC bank has always stuck with a predominantly non price strategy
model because of the existing regulatory framework and the
complementarities built into the system. But because of its excellent
management, impeccable execution, product and technological
innovation and excellent asset quality, the bank has been a consistent
performer over the last 10 years with strong growth in profit (bottom
line growth of over 30%), high profitability (ROE of over 17%) and low
NPLs (GNPA of 0.9% and NNPA 0.18%). The bank has achieved pre
provisioning operating margin growth at 35% & 28% CAGR over the last
10 & 5 years & PAT at 33% & 35% respectively.
Team Estimares
Industry Overview
(see Appendix 1)
Banking in India is resilient, however, under extreme shocks, some

banks could face moderate liquidity problems and their profitability
could be affected. The banks in India have been found to be deeply
interconnected, which can bring about magnification of shocks. The
threat of contagion is relatively lesser due to RBI regulation on
interbank exposure.
Demographics - boost to Retail Banking

AGE:
Below 20
20-50
50 and above
51.1
50
45.144.7
38.2
36
13.9
2001
Asset quality management Net NPAs for the private banking sector
have been falling since 2008-09, however, we notice that that rose
during crisis period. There is a possibility of NPAs rising going forward.
Also, rising SME loans in their portfolio tend to be sticky and can be
harmful in a volatile interest rate scenario.
17.9
16.3
2011
2016
Source: Census of India, Team Estimates
Favourable Demographic trends point towards an increase in demand

for retail as well as other banking services. Retail banking will benefit
due to a demographic shift to a younger and larger labour force and
emergence of a large middle class, increasing demand for affordable
and accessible banking. Also, households earning more than Rs.
500,000 per annum are expected to grow the fastest, thus raising
demand for wealth management and other allied facilities for HNIs.
Having said this consumption growth has weakened given the fall in
real incomes. (See Appendix 1 A)
Bank credit (as a % of GDP)
80
70
60
50
40
Source: Google Public Data

Financial Products available per customer
Global best practices
benchmark range
Public Banks
Foreign Banks
Private banks
Source: IBA-FICCI,
Team Estimates
16000
14000
12000
Increased pressure on NIMs is anticipated by the banking sector due

to the increase in competition. This implies greater dependence on
fee incomes and other sources of revenue generation like crossselling. Cross-selling will emerge as a very important source of
revenues because this potential is relatively untapped in India
compared to global benchmarks.
Credit Growth and GDP: Recent fuel price hikes and inadequate rain
are likely to exert upward pressure on inflation rate. There are also
misgivings about the inflationary impact QE 3 would have on
commodity prices. To keep inflation in check, the RBI is less likely to
lower policy rates any more in the immediate future. 2013 GDP
growth forecasts have been revised downward to 4.9-5.3%, with the
IMF giving a conservative number of 4.9%. It has been observed that
the banking sector grows at about a 2.5 multiple of the GDP growth.
We put the expected growth figure in the range 12.25%-13.25% for
the sector.
180
Sectoral Impacts: In Power, The CCEA has approved a restructuring

plan for State Electricity Board loans through bank credit, Bank credit
140 to the the sector rose to 7.2 % of all bank lending in March 2012. SEB
120 discoms have doubtful repayment ability. In Auto, High inflation,
100 economic uncertainty and high fuel prices led to the steepest monthly
fall in 4 years in auto sales in September 2012 .
BANKEX
160
WPI
10000
8000
80
6000
60
4000
40
2000
20
0
Mar-04
Dec-04
Sep-05
Jun-06
Mar-07
Dec-07
Sep-08
Jun-09
Mar-10
Dec-10
Sep-11
Jun-12
Bankex and WPI The Bankex and the WPI show a strong positive
correlation. However, we observe that the Bankex or inflation tends to
move about the WPI in the short run. In other words, we see the
Bankex coming back to the WPI line after deviating in the short run.
We expect Bankex to rise in the medium run as the inflation is not
expected to come down due to the aforementioned factors.
Source: BSE, Team Estimates
Competitor Analysis
(see Appendix 2)
ROA%
5year
3year
2year
1year
HDFC Bank
1.51
1.57
1.63
1.68
ICICI Bank
1.19
1.30
1.41
1.47
Axis Bank
1.46
1.58
1.61
1.61
Yes Bank
1.51
1.52
1.47
1.42
Kotak
Bank
SBI
1.52
1.80
1.86
1.86
0.93
0.85
0.82
0.91
ROE%
5year
3year
2year
1year
HDFC Bank
17.33
17.25
17.72
18.69
ICICI Bank
9.68
9.61
10.43
11.20
Axis Bank
19.10
19.59
19.82
20.29
Yes Bank
20.82
21.49
22.10
23.07
Kotak
Bank
SBI
12.32
14.25
14.61
11.37
15.39
14.38
14.17
15.72
HDFC Bank is highly valued by the markets on account of (1) consistent

growth (2) Asset quality which withstood during economic downturn (3)
Qualified and Performance driven management. However analysis of
the ratios reveals that HDFC Bank is not the lone bank with these
qualities.
Private sector banks like Yes Bank and Kotak Mahindra bank fare better
than HDFC Bank on parameters like ROA, ROE and % growth in
deposits. Though the GNPA ratio of HDFC Bank is at all time low, it is
HDFC Bank has the most favourable CASA deposit ratio at 48.4%,
however this is a 8.8% decline from FY11 on account of cannibalization
of CASA deposits to term deposits which offered attractive interest
rates. The growth in CASA deposits for all the big banks is much lower
as compared to the new generation banks as their asset base and
reach is very high.
The Bank's performance on per employee basis is the lowest although it
has been improving over the years. Ratios such as Profit per employee,
Business per employee are the lowest and the bank has a long way to
catch up. Wages as a percentage of total expenses is one of the highest
in the industry.
Source: Annual Report, Team Estimates

Business
Profit per
Wages as
per
employee
% Total
CASA Ratio %
employee
(in lacs)
Expenses
(in lacs)
48.40
8
669.1
14.42
GNPA %
5year
3year
2year
1year
Growth in
CASA
Deposits %
Growth in
Business
%
HDFC Bank
1.37
1.16
1.03
1.02
18.40
19.96
ICICI Bank
3.75
4.06
3.85
3.58
9.20
11.44
43.50
2273.3
11.47
Axis Bank
1.05
1.13
1.07
1.04
16.30
17.54
42.00
14
1228.0
10.41
Yes Bank
0.30
0.24
0.22
0.22
8.52
16.30
20
1544.5
8.45
Kotak Bank
2.17
1.70
1.49
1.29
41.00
30.70
32.20
799.5
16.4
SBI
3.03
3.36
3.64
4.18
14.10
13.99
46.60
1196.6
19.01
71.50
Porter's 5 Forces Model

Bargaining
power of
suppliers
4
Industry rivalry
2
0
Threat of new
entrant
Source: Team Estimates
Threat of
substitutes
Bargaining
power of
customers:
The five forces
Score
Bargaining power
of suppliers
Threat of
substitutes
Bargaining power
of customers
HDFC is a leading bank providing world

class facilities which acts as a
benchmark. However, other banks are
adept at innovating to attract customers.
Threat of new
entrant
There are high regulatory barriers to

entry
Industry rivalry
The industry sees a tough competition

from its peers which are equally well
placed.
Rationale
The Brand name HDFC coupled with the
fact that it's one of the industry
leaders, leads to a low bargaining
power of suppliers
HDFC
faces
tough
competition
from the other top banks. For almost
every HDFC product, there is a substitute
in ICICI and to a great extent in Axis as
well
Financial Analysis:
Operating performance and revenue:
NII & PAT
Robust Revenues - FY12 has been characterized by strong growth in revenues

at CAGR 22% over last 5 years, primarily driven by an increase in both net
interest income and other income. Non Interest Income has grown at a steady
rate of 22% on account of growth in Fees & commission, foreign exchange &
derivative commission and Gain/Loss in revaluation or sale of investment.
HDFC Bank has increased its focus on the 3 mentioned areas, as it contributes
to about 20% of their total income.
25000
NII
PAT
20000
CAGR~20.72%
15000
CAGR~26.08%
10000
5000
-Interest on advances will grow at 10-10.25% of Net Advances, in comparison

to a growth of 10.5% in FY12 on account of an expected decline in the growth
of both retail and wholesale loan book.
Non Performing Assets

2.5%
2.0%
1.5%
We expect a growth of 20% in Interest earned during FY13 to FY 15 on account

of
100%
1.95%
82.51%
78.42%
80.48%
82.38%
68.43%
1.41%
78.76%
79.51%
90%
80%
70%
60%
1.05% 1.02% 1.05%
1.14% 1.19%
50%
1.0%
40%
0.63%
0.5%
30%
0.31%
0.25%
0.19% 0.18% 0.21% 0.24%
0.0%
20%
10%
0%
GNPA(%)
NNPA(%)
Provision Coverage Ratio
-Growth in income from inve stment will be in line with F Y12 at

6.6% of Net investment. This leads to a growth of 23 -30% growth
in income from inve stment. -Interest on investment with RBI and
Banks are on short term bas is and hen ce it is ass umed to be the
same as in FY 12.
-Interest on investment with RBI and Banks are on short term basis and hence
it is assumed to be the same as in FY 12.
-Growth in Non interest Income is expected to be 16-18% with major growth
seen in fees and commission. Other income is expected to remain at 20% of
total income earned due to increased focus of Bank to expand in this segment.
Weaker Margins : Interest expense increased sharply in FY11 on account of
increase in saving deposit base interest rate from 3.5% to 4%. This caused the
cost of funds to increase from 4.21% to 5.54%. In Nov 2011 RBI deregulated
savings interest rates; however most of the banks have not increased their
saving interest rate. HDFC bank has a stable margin of 4.2%, however we expect
it to subside to 4.06% in FY13 and subsequently, increase to 4.29% in FY15.
Net Profit expected to weaken Banks net profit rose to Rs. 5167.1 cr from Rs.
3926.4 cr, rising by over 31% in comparison to 15% growth in pre-provisioning
operating profits. This was on account of low provisioning in FY12 due to growth
in healthy assets leading to lowering of NPA levels. The bank continues to
maintain 80% provision coverage ratio. The EPS rose by about 30% from Rs. 17
per share to Rs. 22.11 per share.
Our projections for FY13-15 show the growth in pre-provisioning operating profit
to be 20% which is in line with the growth over the past few years. However due
to increased wholesale loan exposure to perceived sensitive sectors, we expect
the NPA levels to increase marginally from historic low levels; this calls for
higher provisioning.
Bank's exposure to sensitive sectors (as of March 31, 2012)

As a percentage of total exposure
Commercial
Capital
Telecom
real Estate
Market
Textile
Iron and
Steel
Power
Roads
Total
HDFC Bank
2.2%
6.1%
1.0%
2.9%
3.4%
0.9%
1.9%
18.3%
ICICI Bank
5.4%
5.7%
NA
5.5%
4.7%
0.7%
4.1%
26.2%
Axis Bank
3.3%
2.0%
1.2%
4.7%
2.0%
1.8%
2.3%
17.3%
Yes Bank
3.0%
4.7%
1.4%
3.7%
1.1%
0.4%
1.6%
15.9%
Kotak Mahindra Bank
3.6%
NA
NA
9.6%
2.0%
NA
0.2%
15.3%
Source:
Annual Reports
Dividends - The Bank has a defined policy of distributing 20-25% of its PAT as
dividends to its shareholders.
CASA & Term Deposits

120%
100% 44.37%
80%
52.03%
52.69%
46.47%
45.31%
45.82%
48.40%
As on March 31, 2012, HDFC Banks total balance sheet size was Rs. 337,909
cr an increase of 21.8% yoy over Rs. 277,353 cr as on March 31, 2011.
60%
40%
Total Deposits increased 18.3% from Rs. 208,586 cr as on March 31, 2011 to
Rs. 246,706 cr as on March 31, 2012. Savings account deposits grew by 16.6%
to Rs. 73,998 cr while current account deposits were stagnant at Rs. 45,408 cr
as on March 31, 2012.However CASA deposits stood at 48.4% of total deposit,
down from 52.7% in FY11.
20%
0%
Term Deposit (%)
CASA(%)
Loan Book Mix

100%
Balance sheet and financing:
Our expectation for FY13 is a growth of 15% in Demand deposit, 16-18% growth
in Savings deposit and a 20% growth in term deposit. This will lead to CASA
deposits reducing to 45% levels .FY13 will see a continuing shift towards term
deposits as the interest rates are not expected to subside significantly.
58.18% 61.01% 56.79% 49.65% 54.41%
80%
60%
40%
20%
0%
FY08
FY09
FY10
FY11
FY12
Wholesale Loan Book
Retail Loan Book
Banks loan growth was driven by an increase of 33.7% in retail advances to Rs.
107,126 cr, and an increase of 10.5% in wholesale advances to Rs. 89,764 cr.
Advances are expected to improve by 20% YoY due to increased focus on
growing the retail loan book . However other private sector banks like Axis bank
and ICICI bank have now shifted their focus on growing their retail loan portfolio
which would result in moderation of HDFC banks loan book. The Bank has a
market share of 3.9% in total system deposits and 4.3% in total system
advances. The Banks Credit Deposit (CD) Ratio was 79.2% as on March 31,
2012 and is expected to improve to 79.54% by FY15.
Valuation
(see Appendix 3 and 4)
We initiate the coverage of HDFC bank with a SELL rating and a price target of Rs 583
Growth in Deposits & Advances

Deposit
Credit Deposit Ratio
4,50,000
4,00,000
3,50,000
3,00,000
2,50,000
2,00,000
1,50,000
1,00,000
50,000
0
Advances
82%
80%
78%
76%
74%
72%
70%
68%
66%
64%
Source: Annual Report, Team estimates
HDFC Bank has outperformed its peers over the last few years in terms of high
NIM(4.2) , low NPA(net NPA 0.2%) and growth in EPS(30%) .However due to
deteriorating macro economic conditions and the expansion of the bank into
semi urban areas , we believe that there will be an incremental increase in NPA
levels which will exert pressure on the bottom line . A valuation of P/ABV of 3.9x
and P/E of 22x in FY 2013 are a result of the following expectation:
-Decrease in growth of CASA deposits as the bank has opened around 70% of
the new branches in Tier II to Tier VI cities. The growth in deposits from these
new branches will be lower than traditional values as these branches will have
lesser number of transactions and also a lower balance.
-Increasing competition from new private sector banks as they are expanding
rapidly, especially in the urban areas. This will put pressure on the already
stable and dominant banks.
-Increase in NPA levels from historic low levels which will be difficult for the bank
to maintain. We expect slippage to increase by 10 bps in comparison to 0.81%of
net advances in FY12.
V aluat ion:
SOTP Valuation Methodology

Particulars
Basis
Multiple
Stake(%)
Value
HDFC Bank
RI and
Gordon
Growth
3.5x
100%
589
DCF
63.02%
2.17
Gordon
Growth
97.03%
2.13
HDFC
Securities
HDB
Financial
Total Value
of HDFC
Bank
Res idual Income method:
Rs.
593
The value per share using two stage residual income method is Rs 583. The
methodology followed to arrive at the intrinsic price is as follows:
COMPONENTS OF A TWO STAGE GORDON

GROWTH MODEL
ROE
We have valued the stock using 3 methods: Residual Income method, Gordon
growth Model and Relative valuation. The Residual income analysis is based on
sum of parts method where we have valued the main business of the bank and
its two subsidiaries HDFC Securities (HDFCsec) and HDB Financial services
separately. We have followed this approach as the two subsidiaries are
relatively small in size and the risk in their line of business is very different from
the parent bank.
18.69%
High growth period
25
Payout for 25 years
20%
Growth rate for 25 years
20%
Profit after Tax (PAT) : The growth in PAT is estimated to be around 20% YoY
during FY2013-2015. We expect some pressure on PAT due to increase in
provisioning on account of increasing NPA in the coming years.
Stable Firm
Growth till perpetuity
3%
Payout ratio
Equity Cost: The book value is expected to increase 17% , in line with FY 12 .
84%
cost of equity
Excess Returns: It is observed that HDFC bank gives returns in excess of

investor expectations during economic upswing. The excess returns have been
estimated till FY 2015, after which we assumed a nominal growth of 15% in PAT
and a ROE of 17% to estimate the book value for next 22 years. The bank is
then expected to grow at 3% till perpetuity.
16.72%
Target P/BV
3.8x
FY13E Book Value per share
148
Rs. 561
Target Price
Go rdon Growth Mode l:

7
P/B vs ROA
HDFC
Bank
The value per share using Two stage Gordon growth model is Rs 568. The
methodology followed to arrive at the intrinsic price is as follows:
Kotak
Bank
P/BV
4
3
2
Yes Bank
Axis Bank
ICICI Bank
SBI
Two stage is appropriate to value the bank as its revenues are growing at more
than 20% YoY .We expect the high growth to continue for at least 25 years as
there is huge potential for the Indian economy to grow and mature. The
perpetual growth rate is estimated to be 3%.
1
0
0.80
1.30
1.80
2.30
Growth in EPS
ROA
Re lat ive Valuatio n Method:
Sensitivity Analysis Gordon Growth

Model
Payout Ratio
Rs.
561.
391
20%
21%
22%
23%
24%
25%
15%
239
245
251
257
263
269
16%
282
289
295
302
308
315
17%
334
341
349
356
363
370
18%
396
404
413
421
429
437
19%
471
480
489
499
508
517
20%
561
572
582
592
603
613
We have compared HDFC bank with ICICI bank and Axis bank as these banks
are comparable in terms of the customers they cater to within the Indian
markets. The multiples used to value the bank are P/BV , P/E and P/Total
Asset as these are primary drivers for a bank.
We have not considered the price from relative valuation in the final value as
HDFC bank commands a premium compared to its peers in all the three
multiples used .
Final Price:
Residual income model is a stable model which gives maximum value to the
current book value and the impact of terminal value is minimal. However
Gordon growth model is extremely sensitive to its inputs and sensitivity
analysis shows volatility in the target price. Hence we assign a weight of 70%
to the value using Residual income model and 30% to Gordon growth model.
Corporate Governance & CSR

Independence
of the Board of
Directors
Independent
Committees
Transparency
and
Accountability
Whistle Blower
Policy
Compensation
Structure
Means of
communicatio
n: Half yearly
Quarterly
reports
Annual report
HDFC
ICICI
Axis
55%
67%
55%
Complied
Complied
Complied
Complied
Complied
Complied
Complied
Complied
Complied
Complied
Complied
Complied
Available
Available
Available
Available
Available
Available
Available
Available
Available
(see Appendix 5)
We believe that Corporate Governance (CG) and Corporate Social

Responsibility (CSR) could enhance the potential of the bank, and
consequently its long term value. We performed an assessment of HDFC
Bank in these areas of interest.
Corporate Governance:
The bank was among the first four companies, which subjected itself to a
Corporate Governance and Value Creation (GVC) rating by CRISIL. The rating
provides an independent assessment of an entity's current performance
and an expectation on its "balanced value creation and corporate
governance practices" in future. The bank has been assigned a 'CRISIL GVC
Level 1' rating, which indicates that the bank's capability with respect to
wealth creation for all its stakeholders while adopting sound corporate
governance practices is the highest.
HDFC Bank follows Corporate Governance code pursuant to Clause 49 of
the Listing Agreement entered into with the Stock Exchanges and also forms
a part of the report of the Board of Directors. Analyzing HDFC Bank, we have
identified areas in which the company complies with best practices and also
compared it with ICICI Bank and Axis Bank. - HDFC bank has been actively
involved in CSR activities and it was able to achieve mileage to its brand
name on account of its CSR activities. The CSR at HDFC bank is driven by
Changing Lives by empowering individuals through Finance, Education and
Training. CSR at HDFC bank has been analyzed on account of Governance,
Community development, Employee welfare and Environment development.
We also performed a comparative study on account of CSR and HDFC bank
came out to be 2nd best in the sample. Details in Appendix.
Basel III Compliance
(see Appendix 6)
HDFC bank should not have much issues to comply with the BASEL 3 guidelines issued by RBI. With a CRAR of 16.52% of which tier
1 accounts for 11.60% HDFC bank is almost sufficiently capitalized. Based on our estimates of growth in risk weighted assets at a
CAGR of 21% (FY13E -FY17E) and a growth in tier 1 capital at CAGR of 18% the bank would just be able to comply with the CRAR
requirement of 11.5% in FY17. The tier 1 capital estimated in FY17 which includes the capital conservation buffer ( CCB ) of 2.5% is
9.98% which is also above the 9.5% requirement stipulated by RBI.
Risk Analysis
(see Appendix 7)
To understand the risk from a holistic perspective, we have analysed both the company risk and investment risk.
Company Risk: CAMELS Analysis

HDFC bank has been analyzed for its financial, operational and compliance stability using the CAMELS analysis. Based on our analysis
HDFC bank has received a B1 rating, the upper most rating in B category. The rating B indicates that the institution is fundamentally sound
and its operation are satisfactory. This reiterates the fact that HDFC bank does have a quality business. We believe HDFC Banks ability to
withstand stress is higher than other private sector counterparts because of its robust margins, strong funding structure and loan book
diversity.
Investment Risk Analysis
(see Appendix 8)
In this section we analyze the main upside risks that could affect our target price
GDP vs Adv Growth
60%
Strategic Risk
10
50%
40%
30%
20%
Strong growth in retail loan book - A strong growth in the retail loan
book of the bank, which has been its focus area, in spite of increasing
competition would help the bank maintain the 30% plus growth in PAT
with robust loan growth. This would also help the bank to negate the
impact of wholesale loan growth which can affect the NIM negatively.
Both the above factors would impact the price positively.
Improvement in the NPA from historic low levels - An improvement in
the NPL of the bank from historic low level of 0.9% GNPA in Q2FY13
would ensure that the provisioning required can be further reduced
resulting in a strong increase in PAT, positively impacting price. The
provisions for the quarter ended September 2012 were at historic low
levels of Rs 292.9 cr with a decrease of about 20% yoy.
Continued and sustainable growth in non-interest income - Healthy fee
income growth of 20% plus, strong forex income and higher trading
gains would support the strong growth in non-interest income which
would positively impact the price.
GDP Growth
12
GDP
AdvGrowth %
10%
0%
2007 2008 2009 2010 2011 2012
Source: RBI
12%
10%
Macro risks
8%
6%
4%
Inflation (CPI)
2%
Sep-12
Jul-12
Mar-12
May-12
Jan-12
Nov-11
Jul-11
Sep-11
May-11
Jan-11
Mar-11
0%
Source: CSO
Quick revival in the economy - The incremental credit growth of the

bank has a direct relation to the GDP. The credit growth of HDFC has
been at 3-4% above the 2.5X multiple of GDP growth on an average.
The current forecast on FY13 GDP numbers are between 4.9% to 5.3%.
Revival of the economy with a GDP growth rate exceeding expectations
would result in robust credit growth.
Moderating inflation outlook - The inflationary tendencies are expected
to persist with increase in diesel prices and retail inflation still hovering
around the double digit mark at 9.73% in September 2012. RBI with
the primary focus on containment of inflation and anchoring of inflation
expectations is not expected to cut policy rates any time soon. But a
moderation in inflation numbers to 5% levels would tempt the central
bank to decrease the policy rates to revive the economy which in turn
would improve the NIM in banking sector.
Financial risks:
Fluctuations of exchange rates - Since HDFC banks operations are
confined to India, fluctuations in exchange rate wouldn't have a great
impact on the banks balance sheet in terms of transaction or
translation adjustments. On the revenue front in terms of non-interest
income it would have a positive impact on the forex income of the bank
as clients would use more forex and derivative products for hedging
the foreign exchange risk.
Source: RBI
Model Risk
Valuation risk - DCF valuation using Excess earning is used for the
valuation of HDFC bank. The assumption regarding the estimated P/BV
does have a major impact on the target price. For arriving at the
estimated P/BV we have taken the historical and the one
year average P/BV and calculated the weighted average of it. To
mitigate the risk, a Monte Carlo simulation was done with estimated
P/ABV and the weights assigned as the variable parameter assuming
log normal distribution and it was found that there is no major variation
in the calculated target price. The mean and median values being Rs
590 and Rs 583 respectively.
In order to understand the impact of various risks getting triggered, on the valuation and hence the target price, we performed a
Monte Carlo simulation by assigning probability distributions to each risk affected parameter. Examination of analysis shows that the
standard deviation of target price is only Rs 20 with mean value of Rs 583 and median value of Rs 585. Details in Appendix 8B
10
Appendices
Appendix 1 A: Demographic Profile of India
A look into the demographical structure of the client base of the Indian banking industry shows very prominent trends
which can be used a fair estimate of the forthcoming scenario.
Firstly, an overview of the age-distribution of population predicts a younger population. Along with that it also shows an
expanding labour force, i.e. a growth in the working age group. Referring to the theory of demographic transition, we
see that India is poised at the growth phase. If we look at the graph given in the main text, we see a marked shift in
population towards working age. As of 2016 projections, India peaks in working age population. The high 0-4 age
group percentage implies a further expected increase in working age population in the next 15 years or so.
Largely for demographic reasons, urbanization in India is on a firmly upward path. And urban population growth is
occurring at the relatively fast pace that it is because the country is still at an intermediate stage in the demographic
transition.
New geographical markets are emerging. While the tier-I cities represent 6% of the population and account for 14% of
Indias GDP, tier-II represents about 7% of the nations population and contribute about 13% to GDP. Expansion into
these cities can be expected in the immediate future.
The fastest growing segment is the households earning more than Rs. 500,000 per annum. And the by scale the
largest sector in the coming decade will most likely be the households earning between 90000-200000 INR per
annum. This will contribute to income inequality in a particular band of incomes.
This shows the emergence of two very distinct (in terms of preference patterns) and important customer segments.
The former will increase the demand for wealth management and other related services. We can also expect the
number of HNIs to rise commensurately. The latter will want banks to provide easily accessible, mass-produced and
affordable products and services. The latter will also facilitate the need for expansion into tier II and III cities where the
growth in such populations can be expected.
Appendix 1 B
Macroeconomic Snapshot:
concerns over global growth prospects and financial stability
inflation, rising interest rates and policy impediments pulled down credit growth from 23% in 2011 to 16% in
2012
Poor infrastructure project execution and subdued capex in areas such as power took infrastructure loan
growth lower to 18.8% in February, 2012 from 40.0% a year ago.
Slow growth in monetary base increased structural drag on Inflation
cyclical deterioration in asset quality remains a concern
agriculture is likely to do well owing to low base and sufficient rainfall.
The Indian Economy is at a pivotal position in light of the political and economic issues it faces or is likely to face. The
trickle-down from the global economic crisis has affected the financial sector directly and the other sector indirectly
through the linkages.
The lack of confidence of the economic agents in the economy is compounded by expectation failure working through
the adaptive expectations framework. Constantly frustrated expectations are reflected in the popularity of the catchphrase policy paralysis. This has built in uncertainty and fickle sentiments in the system. This behavioural impact on
the economy could cost us dearly.
However, efforts to remedy this are in place by bona fide reforms and reshuffling of pre-existing signalling agents. This
is supposed to provide positive signals to global investors; however, many are sceptical about its immediate efficacy in
re-establishing the signalling framework. The government credibility will take time to get restored enough to improve
confidence, reinforce expectations and improve economic conditions.
The private banking sector in India has less or hedged exposures to external disturbances. The confidence in the
robustness of the banking sector has not led to any bank runs. Also, the faltering stock markets make the safe
instruments offered by banks more attractive.
In the long term, however, banks have other prospects and issues to tackle with.
Appendix 1 C
Mortgage Market
1.
There could be a bourgening market for real estate and hence for mortgages. The India Infrastructure Report
2006 predicts a growth in Urban population which could be a contributing factor to increase in mortgage
business. FICCI-BCG predicts that mortgages will cross 40 trillion by 2020. The reasons why this forecast may
be creditable is:
a. Total mortgages have grown from 1.5% to 10% of total bank advances from 2000-20101
b. Mortgages are 7.7% of GDP currently, with the demographic trend towards urbanisation and rise in
the working-age population; we can expect a significant rise in this percentage. If this crosses 20%
by 2020, mortgages could grow to 40 trillion while currently the entire loan book of the banking
sector is 30 trillion.
c. Demographic reasons as discussed above.
Appendix 1 D
Sectoral Review
Power Sector
The CCEA has approved a restructuring plan that will remain open, in the first instance, till December 2012. Under this,
participating states will take over half the distribution companies outstanding debt; the rest will be restructured by
lenders. The immediate effect of the restructuring is the stress on banks. According to Standard & Poors, bank credit
to the power sector rose to Rs 3.3 lakh cr in March 2012 7.2 per cent of all bank lending. Meanwhile, SEB
distribution companies have run significant losses, casting doubt over their ability to repay and thus over financial
sector stability. In the same month, March 2012, the accumulated losses of discoms stood at Rs 2.46 lakh cr; and the
short-term debt of the seven states that accounted for 75 per cent of total debt liability (Rajasthan, Uttar Pradesh,
Madhya Pradesh, Andhra Pradesh, Punjab, Haryana and Tamil Nadu) was Rs 1.2 lakh cr.
These restructurings necessitate tariffs to be linked to the costs. However, how likely the SEB discoms are to honour
their debt is uncertain owing to the political nature of tariff revisions and the risk of moral hazard.
Auto Sector
Due to many and varied factors such as high inflation, economic uncertainty and high fuel prices the September 2012
auto sales in the country have shown the steepest monthly fall in four years. This implies that the Auto Industry can
miss the governments Automotive Mission plan Target for FY16. SIAM has revised the growth forecasts from 11-13%
to 5-7%.
This does not spell well for the bank lending to auto sector and especially HDFC Bank which has around 40% exposure
of loan portfolio to this sector.
Indian Banking 2020:Making the Decades Promise Come True
Appendix 2: Competitor Ratios

Comparison of
Ratios
HDFC Bank
ICICI Bank
AXIS Bank
YES Bank
Kotak Bank
SBI
Burden efficiency ratio
0.76%
0.15%
0.16%
0.09%
1.31%
0.66%
Cash cover-age ratio
5.54%
4.68%
4.21%
3.68%
3.09%
5.04%
2003.17
10,607.00
1,806.30
83.86
699.74
49,648.70
1.02%
3.58%
1.04%
0.22%
1.29%
4.18%
NNPA
354.19
2,692.00
472.64
17.46
273.43
21,095.09
NNPA to Net advance

Total business growth
ratio
0.18%
0.92%
0.28%
0.05%
0.51%
1.81%
1.20
1.11
1.18
1.09
1.31
1.14
Priority sector ratio

Aggregate deposits
(Rs. Cr.)
Average working funds
(awf)
32.68%
20.29%
28.56%
25.92%
23.19%
29.71%
2,46,706.45
2,81,950.47
2,19,987.68
49,151.71
36,460.73
14,14,689.40
3,07,631.05
5,68,979.64
263991.58
66334.54
83015.26
1738927.21
Working funds
3,37,909.50
6,04,191.41
2,85,416.51
73,662.11
92,349.39
18,29,956.17
Net profits
5,167.02
7,937.63
4,218.51
977.00
1,850.53
15,973.31
Operating profits
8,950.35
12,092.99
7,413.02
1,540.22
2,755.24
40,857.24
Total debt
2,70,552.95
4,43,247.10
2,54,059.35
63,308.19
65,655.42
15,72,680.76
Net worth
29,924.37
61,276.50
22,681.71
4,676.64
12,935.87
1,06,230.01
9.04
7.23
11.20
13.54
5.08
14.80
1,95,420.03
2,92,125.42
1,69,759.54
37,988.64
53,143.61
11,63,670.21
Invest-ments
97,482.91
2,39,864.09
92,921.44
27,757.35
31,658.43
4,60,949.14
Interest income
27,286.30
37,994.86
21,994.90
6,307.36
8,470.42
1,47,197.39
8.87%
6.68%
8.33%
9.51%
10.20%
8.46%
5,243.69
28,663.42
5,487.19
857.12
4,543.40
29,835.44
1.80%
5.04%
2.08%
1.29%
5.47%
1.72%
8,590.06
29,552.05
6,099.89
932.53
5,716.62
46,856.03
8.42%
7.46%
7.46%
9.19%
10.22%
6.88%
8,950.35
12092.9851
7,413.02
1,540.22
2,755.24
40,857.24
2,41,896.32
4,41,488.00
2,31,711.39
51,982.63
74,279.29
11,12,982.46
GNPA
GNPA to Gross
advance
Total debt to net worth

Gross advances
Interest income to
average working funds
Non-interest income
Non-interest income to
average working funds
Operating expenses
Interest spread
Net spread
Risk weighted assets
Net profit to awf
1.68%
1.40%
1.60%
1.47%
2.23%
0.92%
Net profit to net worth

Operating profits to net
worth
17.27%
12.95%
18.60%
20.89%
14.31%
15.04%
29.91%
19.74%
32.68%
32.93%
21.30%
38.46%
Capital adequacy ratio
16.52%
19.60%
13.66%
17.90%
17.92%
13.68%
Tier I
11.60%
12.80%
9.45%
9.90%
16.54%
9.65%
Tier II
4.92%
6.80%
4.21%
8.00%
1.38%
4.03%
4,42,126.48
574075.89
389747.21
87,140.35
89,604.34
25,78,359.61
Business
Equity multiplier
1129.21%
9.86
12.58
15.75
7.14
17.23
3.92
2.26%
2.90%
2.33%
4.45%
3.30%
12,296.72
12,981.61
8,025.72
1,615.64
3,928.46
57,877.83
48.40%
42.13%
41.55%
14.96%
31.36%
40.69%
0.98%
1.22%
1.09%
0.17%
0.67%
2.90%
0.08
0.09
0.14
0.2
0.09
0.05
ROA
1.68
1.47
1.61
1.42
1.86
0.91
ROE
18.69
11.2
20.29
19
11.37
15.72
NIM
Net Interest Income
CASA Ratio
Slippage Ratio
Profits per employee
(Rs. Cr.)
Source: Team estimates, livemint.com, capitaline.com
Appendix 3 A
Income Statement (Rs. Cr.)
(Rs in Crs)
Year
FY 07
FY 08
FY 09
FY 10
FY 11
FY 12
FY 13 (E)
FY 14 (E)
FY 15 (E)
Interest Earned
6,648
10,115
16,332
16,173
19,928
27,286
32,681
38,869
46,644
Interest on advances
AVERAGE YIELD ON
ADVANCES
4,334
6,967
12,137
12,098
15,085
20,537
24,010
27,914
33,198
12.62%
14.96%
10.77%
10.56%
11.56%
11.18%
10.87%
10.86%
Income on investments
AVERAGE YIELD ON
INVESTMENTS
Interest on investment with RBI
and Banks
2,058
2,872
4,008
3,981
4,675
6,505
8,484
10,768
13,259
7.18%
7.41%
6.78%
7.22%
7.72%
7.51%
7.38%
7.28%
253
272
184
81
148
137
137
137
137
1,516
2,283
3,291
3,983
4,335
5,244
6,469
7,540
8,509
3,179
4,887
8,911
7,786
9,385
14,990
17,800
20,149
23,670
4.64%
5.86%
4.32%
4.21%
5.54%
5.44%
5.19%
5.10%
2,695
4,383
8,015
6,998
8,028
12,690
15,309
17,450
20,743
Interest on RBI / Inter-bank

borrowings (including
subordinated debt)
274
242
885
746
1,336
2,253
2,433
2,628
2,838
Other interest
210
262
11
43
20
47
58
71
89
3,468
5,228
7,421
8,387
10,543
12,297
14,881
18,719
22,974
INCOME :
Other Income
II. Expenditure
Interest expended
COST OF FUNDS
Interest on Deposits
Net Interest Income

NIM
4.10%
4.24%
3.91%
4.05%
4.20%
4.06%
4.20%
4.29%
Net Income
4,985
7,511
10,712
12,370
14,878
17,540
21,350
26,260
31,483
Operating expenses
Operating Profit - pre
provisioning
2,421
3,746
5,533
5,940
7,153
8,590
10,664
12,934
15,689
2,564
3,765
5,179
6,430
7,725
8,950
10,686
13,326
15,793
46.86%
37.54%
24.15%
20.15%
15.86%
19.39%
24.70%
18.51%
1,485
1,880
2,141
1,907
1,437
1,629
2,367
2,684
60.5%
26.6%
13.9%
-10.9%
-24.6%
13.4%
45.3%
13.4%
2,281
3,299
4,289
5,819
7,513
9,057
10,959
13,109
497
690
1,054
1,340
1,892
2,346
2,828
3,423
4,094
1,141
1,590
2,245
2,949
3,926
5,167
6,228
7,537
9,015
% growth
39.31%
41.17%
31.36%
33.15%
31.60%
20.54%
21.00%
19.62%
Net profit margin
12.83%
11.44%
14.63%
16.18%
15.88%
15.91%
16.24%
16.35%
1.70
2.00
2.40
3.30
4.30
5.28
6.34
7.52
% growth
Provisions & Contingencies
925
% growth
Pre Tax Profit
Provision for Tax
PAT
Dividend per share
1,639
1.40
Source : Annual Report, Team Estimates
Appendix 3B: Balance Sheet

Year
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
319
354
425
458
465
469
469
469
469
6114
11143
14221
21062
24911
29455
34438
40467
47679
0.30
0.30
0.30
TOTAL LIABILITIES &

SHAREHOLDERS EQUITY
Capital
Equity share warrant
Reserves and surplus
400.92
Employees Stock Options (Grants)

Outstanding
Equity
Deposits
Borrowings
6433
11497
15053
21522
25379
29925
34907
40937
48149
68298
100769
142812
167404
208586
246706
296769
351447
417370
2815
4479
9164
12916
14394
23847
30160
36954
46300
Other Liabilities & Provisions
13689
16432
16243
20616
28993
37432
43443
52330
60417
TOTAL LIABILITIES
91236
133177
183271
222459
277353
337909
405280
481668
572236
5075
12553
13527
15483
25101
14991
14255
11366
11819
3971
2225
3979
14459
4568
5947
3876
3365
2574
Investments
30565
49394
58818
58608
70929
97483
128541
163147
200888
61.6%
19.08%
-0.36%
21.02%
37.44%
31.86%
26.92%
23.13%
Advances
46945
63427
98883
125831
159983
195420
234243
279141
331982
35.11%
55.90%
27.25%
27.14%
22.15%
19.87%
19.17%
18.93%
1175
1707
2123
2171
2347
2644
2927
3251
ASSETS:
Cash & Balances with RBI
Balances with Banks & money at
Call
Fixed Assets
Other Assets
TOTAL ASSETS
967
3713
4403
6357
5955
14601
21722
21722
21722
21722
91236
133177
183271
222459
277353
337909
405280
481668
572236
Appendix 3 C: Financial Ratios

2012
NIM
2013(E)
2014(E)
2015(E)
4.20%
4.06%
4.20%
4.29%
Deposits
18.28%
20.29%
18.42%
18.76%
Loans
22.15%
19.87%
19.17%
18.93%
Net interest Income
16.63%
21.01%
25.80%
22.73%
Fee Based income
18.87%
15.00%
15.00%
10.00%
Non interest income
31.04%
60.43%
21.50%
21.39%
Operating Revenue
17.89%
21.72%
23.00%
19.89%
Operating Expense
20.09%
24.14%
21.29%
21.31%
Pre provisioning operating Profit
15.86%
19.39%
24.70%
18.51%
Pre Tax Profit
31.60%
20.54%
21.00%
19.62%
PAT
31.60%
20.54%
21.00%
19.62%
EPS
22.11
26.42
31.70
37.61
DPS
4.30
5.28
6.34
7.52
ROA
1.68%
1.54%
1.56%
1.58%
YOY Growth
Tier I leverage ratio
11.29
11.61
11.77
11.88
18.69%
17.84%
18.41%
18.72%
GNPA (%)
1.02%
1.05%
1.14%
1.19%
NNPA (%)
0.18%
0.21%
0.24%
0.25%
Slippage Ratio (%)
0.81%
0.91%
1.00%
1.00%
NPA reduction rate (%)
38.84%
39.67%
39.28%
39.09%
Write off rate (%)
28.79%
30.00%
30.00%
30.00%
Upgradations (%)
0.10%
0.10%
0.10%
0.10%
CAR (%)
16.52%
15.48%
15.33%
15.22%
Tier 1 (%)
11.60%
11.48%
11.33%
11.22%
Tier 2 (%)
4.92%
4.00%
4.00%
4.00%
11.3
11.6
11.8
11.9
76.34%
75.00%
75.00%
75.00%
0.18%
0.21%
0.24%
0.25%
82.38%
80.48%
79.51%
78.76%
48.40%
46.47%
45.82%
45.31%
0.85
0.86
0.86
0.86
41.28%
38.24%
38.43%
38.00%
3.64%
3.67%
3.89%
4.01%
1.55%
1.60%
1.57%
1.49%
669
7.82
719
772
850
8.43
9.23
10.22
ROE
Asset Quality
Capital Adequacy Ratio
Leverage (x)
Risk weighted assets / Total Assets
(%)
Solvency Ratios
Net NPA
Provision Coverage Ratio
Liquidity Ratios
CASA Ratio
Funding volatility Ratio
liquid Asset to Total Asset
Profitability Ratios
NII/Working Funds
Non Interest Income / Working
Funds
Productivity
Business per employee (in lakhs)
Profit per employee (in lakhs)
Appendix 4A: Residual Income Model

Cost Of Equity Calculation:
Risk free rate
8.20%
Market Risk Premium
9.00%
Beta
0.95
Cost of Equity
16.75%
Year of Valuation
2012
Terminal growth rate
3%
Source:Team Estimates
Residual Income Calculation :
Cost of Equity
Net Income
FY
FY
FY
FY
2012
2013(E)
2014(E)
2015(E)
16.75%
5,167.02
6,228.49
7,536.57
9,015.28
- Equity Cost (see below)
5012.4
5847.0
6856.9
8064.9
Excess Equity Return
154.64
381.49
679.66
950.33
Beginning BV of Equity
29,924.7
34,907.5
40,936.7
48,148.9
Cost of Equity [%]
16.75%
16.75%
16.75%
16.75%
Equity Cost on Book Value
5012.4
5847.0
6856.9
8064.9
Intrinsic value of HDFC Bank on March

2012
Value per share as on March 2013
39,645.9
588.7
Intrinsic value of HDFC securities
2.2
Intrinsic value of HDB per share
2.1
Expected value per share
593
Source: Annual Report,

Team Estimates
Appendix 4B: Gordon Growth Model: Derivation
Since D0 = Payout *EPS,
We see that
is akin to the
formula:
Where a=1 and r=

Substituting we get,
of a Finite Geometric Progression, which follows the
Appendix 4C: Valuation of Subsidiaries:

We have used discounted cash flow method to value HDFC securities LTD it being a stable generator of cash and
Gordon growth Model for HDB financial services Ltd. The value we arrived at Rs. 2.17 and Rs. 2.13 for HDFC securities
and HDB financial services ltd respectively.
Assumptions:
HDFC Securities Ltd:
Revenue Growth: Growing at 10% for first four years and then declining linearly to 3%.
Terminal Growth: 3% p.a.
For calculating WACC, we have used CAPM model in which beta has been taken of comparable brokerage houses
(edelweiss) i.e. 1.1
HDB Financial Services Ltd:
Loan Book Growth: Over the past couple of years it has grown substantially at over 100%, but because of higher base
effect we have factored a growth of 50%, 40% and 30% for the next three years.
Valuation Based on Current Market Price of 62 8
Valuation Based on current Market

Price
CMP
2012
2013(E)
2014(E)
628
2015(E)
P/E
28.40
23.77
19.81
16.70
P/BV
4.90
4.24
3.65
3.13
BVPS
128.06
148.08
172.20
200.85
DPS
4.30
5.28
6.34
7.52
Appendix 4D: Estimates

1. Number of
Branches and ATMs
Number of
Employees
FY 07
FY 08
21,477
37,836
52,687
16,359
14,851
-799
3,864
37.3
30.1
28.1
761
1,412
1,725
77
651
Addition
Branch Addition
1,605
ATM Addition
2,289
Growth
FY 12
FY 13(E)
51,888
55,752
66,076
73,876
FY 14(E)
FY 15(E)
7,800
7,800
6,500
26.0
26.00
26.00
1,986
2,544
2,844
3,144
313
261
558
300.00
300.00
250.00
85.55%
22.17%
15.13%
28.10%
11.79%
10.55%
7.95%
1,977
3,295
4,232
5,471
8,913
372
1,318
937
1,239
3,442
2,738
4,707
5,957
7,457
71.9%
26.6%
25.2%
11.26%
ATM
FY 11
88,176
49.7
684
FY 10
81,676
Branch Wise
Branches
FY 09
19.6%
10,324
11,457
53.6%
12,413
3500.00
15,257
33.2%
2. Deposits
16,413
4000.00
19,557
28.2%
26.00
3,394
20,413
4000.00
23,807
21.7%
(Rs in cr)
Demand deposit
19,811.8
From Banks
695.4
From Others
19,116.5
Growth %
Savings Depo
19,584.8
Growth %
CASA Depo
39,396.7
Growth %
Proportion%
57.7%
28,901.3
Term Depo
1,505.3
27,396.0
Growth %
Proportion%
TOTAL DEPOSIT
Growth
42.3%
68,298
28,444.9
759.2
27,915.0
27,685.7
45.2%
-1.1%
26,153.9
34,914.7
33.5%
33.5%
54,913.6
63,359.7
39.4%
15.4%
44.4%
54.5%
45,855.0
1,519.6
0.9%
Growth %
From Others
844.7
58.7%
Growth %
From Banks
28,759.7
44,335.4
79,451.9
73.3%
1,630.5
7.3%
77,821.4
37,227.1
46,460.5
1,055.5
1,018.5
36,171.6
45,442.0
30.9%
49,876.8
42.9%
24.8%
63,447.8
45,407.8
912.2
44,495.6
-2.3%
73,998.0
52,082.2
912.2
51,170.0
15.0%
85,837.7
912.2
58,845.5
15.0%
1,01,288.5
27.2%
16.6%
1,09,908.3
1,19,405.9
37.5%
26.2%
8.6%
15.5%
16.8%
52.0%
52.7%
48.4%
46.5%
45.8%
87,103.9
16%
59,757.7
1,37,920
18.0%
1,61,046.2
80,300.6
98,678.1
1,27,300.6
1,58,849
1,90,400.7
1.1%
22.9%
29.0%
24.8%
19.9%
1,382.4
1,426.8
1,384.0
1,453.2
-15.2%
3.2%
-3.0%
5.0%
5.0%
78,918.1
97,251.4
1,25,916.6
1,57,396
1,88,874.9
1,525.8
68,584.5
912.2
67,672.3
15.0%
1,20,533.3
19.0%
1,89,117.8
17.4%
45.3%
2,28,252.0
19.9%
1,602.1
5.0%
2,26,649.8
61.8%
75.5%
1.4%
23.2%
29.5%
25.0%
20.0%
20.0%
45.5%
55.6%
48.0%
47.3%
51.6%
53.5%
54.2%
54.7%
1,67,404
2,08,586
2,46,706
2,96,769
3,51,447
1,00,769
47.5%
1,42,812
41.7%
17.2%
24.6%
18.3%
20.3%
18.4%
4,17,370
18.8%
3. Borrowings
(Rs in cr)
In India
2,815.4
RBI
Other Banks
4,478.9
925.6
9,163.6
-
886.8
Other Insti
155.7
Growth %
Sub-ordinated debts
0.2
14,394.1
1,043.9
-4.20%
12,915.7
17.72%
5,645.1
120.0
1,908.0
82.78%
7,526.3
2565844.7%
33.3%
48.4
-66.67%
10.0%
10.0%
-63.05%
23.30%
6,947.1
36,953.6
44.0
869.3
-87.7%
30,160.3
40.0
705.1
927.0
-99.9%
23,846.5
2,818.2
204.0%
10,596.9
1,043.2
20.0%
3,241.0
15.0%
1,251.8
20.0%
3,727.1
15.0%
46,299.6
53.2
10.0%
1,502.2
20.0%
4,286.2
15.0%
10,596.9
10,596.9
10,596.9
15,235.3
21,329.4
29,861.1
52.54%
Outside India
1,734.1
3,591.9
107.1%
Total Borrowing
2,815.4
4,478.9
2,474.6
-31.1%
9,163.6
3,481.4
40.7%
12,915.7
5,694.9
63.6%
14,394.1
9,522.0
67.2%
23,846.5
60.0%
30,160.3
4. Other Liabilities
and Provision
Bills Payable
36,953.6
40.0%
46,299.6
(Rs in cr)
3,678.1
Growth %
Interest Accrued
% of Term Deposit
and Borrowing
Others (including
provisions)
40.0%
3,157.2
-14.2%
1,703.8
1,674.8
2,922.4
-7.4%
3,323.9
2.4%
1.6%
2.2%
8,307.2
11,600.0
9,996.5
8.7%
5.5%
16,431.9
16,242.8
% of total assets
13,689.1
Growth %
-1.2%
5,925.7
102.8%
1,996.8
1.1%
12,693.4
5.7%
20,615.9
26.9%
5,636.1
-4.9%
2,793.7
1.3%
20,563.0
7.4%
28,992.9
40.6%
5,465.7
-3.0%
5,207.1
1.9%
26,759.1
7.9%
37,431.9
29.1%
5,739.0
5.0%
5,281.5
1.4%
32,422.4
8.0%
43,442.9
16.1%
5. Fixed Assets
A. Premises (
including land)
6,026.0
5.0%
5,362.5
1.5%
40,941.8
8.5%
52,330.3
20.5%
6,327.3
5.0%
5,449.9
1.6%
48,640.1
8.5%
60,417.3
15.5%
(Rs in cr)
Gross Block
Opening
314.5
367.7
524.4
716.1
979.7
Additions/Deductions
53.2
156.7
191.6
263.7
47.6
24.7
% of opening
16.92%
36.54%
36.83%
4.86%
2.40%
42.62%
Total
367.7
524.4
716.0
979.8
Depreciation
65.3
81.5
141.7
177.8
210.7
248.9
19.80%
18.15%
20.51%
574.2
802.0
816.7
% of gross block
Net Block
17.76%
302.4
15.54%
442.9
1,027.3
1,027.3
1,052.0
1,052.0
1,073.0
1,094.5
21.0
21.5
21.9
2.0%
2.0%
1,073.0
2.0%
1,094.5
1,116.4
253.9
259.0
264.1
23.66%
23.7%
23.7%
803.1
819.2
835.5
23.7%
852.2
B. Other Fixed
Asset (including
furniture and
fixture)
Gross Block
Opening
Additions/Deletions
1,231.1
274.9
22.33%
Total
Depreciation
% of gross block
Net Block
1,506.0
842
55.89%
1,506.0
312.7
20.76%
1,818.7
1,087
59.74%
664.3
732.2
43.8
43.8
1,818.8
2,779
960.4
494.4
488.7
661.4
52.81%
17.79%
14.93%
17.58%
2,779.2
3,273.6
3,273.6
3,762.2
3,762.3
4,423.6
4,423.6
1,648
1,961
2,408
2,879
59.30%
59.89%
64.01%
65.09%
1,131.1
1,313.1
1,354.1
1,544.2
5,087.2
5,850.2
663.5
763.1
877.5
15.0%
15.0%
15.0%
5,087.2
5,850.2
6,727.8
3,306.7
3,802.7
4,373.1
65.0%
1,780.5
65.0%
65.0%
2,047.6
2,354.7
454.7
454.7
454.7
C. Assets on
Lease(Plant and
machinery)
Gross Block
Opening
Additions
Total
43.8
461.4
417.5
-7
454.7
454.7
43.8
43.8
461.4
454.7
454.7
454.7
11.8
11.8
11.7
409.3
402.6
410.4
397.6
-6.7
7.8
409.3
402.6
410.4
410.4
44.25
Depreciation
Opening
charge for the year
Total
11.8
Lease adjustment
account
32.08
32.08
52.07
52.07
44.25
44.25
44.25
44.25
1917.58
2386.96
3956.51
4708.06
5244.27
5930.31
6614.90
7399.43
8298.86
998.77
1207.18
1757.38
2167.14
2214.96
2391.51
2643.91
2927.37
3251.22
Gross Block
Net Block
11.8
6. Investments
Government Sec
(Rs in cr)
22,544
31,666
40.5%
Approved Sec
Shares
64.7%
51,050
53,651
76,218
1,02,894
1,33,762
-2.1%
5.1%
42.1%
35.0%
30.0%
1,67,203
25.0%
0.7
0.6
1.3
0.5
0.5
0.5
0.5
0.5
0.5
58.3
34.5
39.7
103.5
93.5
83.6
92.0
110.4
132.4
160.56%
-9.69%
-10.57%
10.0%
20.0%
534.8
962.8
-40.90%
Debentures/Bonds
52,157
7,389.9
6,251.7
-15.4%
15.30%
1,942.8
1,139.3
1,444.3
1,660.9
-68.9%
-41.4%
-53.1%
80.0%
50.0%
15.0%
155.1
155.1
745.1
754.8
754.8
754.8
Subsidiaries/JV
21.6
123.8
Others
550.0
11,317.2
4,521.8
1957.8%
-60.0%
6,112.1
35.2%
15,815.8
158.8%
19,462.7
23.1%
23,355.2
20.0%
26,858.5
15.0%
20.0%
1,910.0
15.0%
754.8
30,887.3
15.0%
Net value of
investments
30,565
Growth %
Held to Maturity
Available for sale
Held for trading
49,393
58,817
58,560
70,841
97,482
1,28,541
1,63,147
2,00,888
61.6%
19.1%
-0.4%
21.0%
37.6%
31.9%
26.9%
23.1%
19493.79
26010.11
39919.68
41754.32
41936.49
60424.25
77125
97888
120533
64%
53%
68%
71%
59%
62%
60%
60%
60%
10642.80
12407.46
12888.25
12125.58
26504.97
27775.37
38562.26
48944.23
60266.40
35%
25%
22%
21%
37%
28%
30%
30%
30%
428.21
10975.97
6009.62
4727.72
2487.91
9283.29
12854.09
16314.74
20088.80
1%
22%
10%
8%
4%
10%
10%
10%
10%
0.6
0.6
0.6
0.6
0.6
OUTSIDE INDIA
Shares
Debentures/Bonds
Net value of
investments
Total value of
investments
0.2
0.2
0.2
47.2
87.8
0.2
0.2
0.2
47.2
88.4
0.6
0.6
0.6
0.6
1,28,541.5
1,63,148.0
2,00,888.6
30,564.8
49,393.5
58,817.5
58,607.6
70,929.4
97,482.9
7. Advances
(Rs in cr)
TYPE
Bills Purchased
804.8
1,637.4
4,855.3
6,361.5
9,711.2
12,212.4
14,523.1
17,306.7
20,582.9
Growth %
103.5%
196.5%
31.0%
52.7%
25.8%
18.9%
19.2%
18.9%
Share %
2.6%
4.9%
5.1%
6.1%
6.2%
6.2%
6.2%
6.2%
15,437.7
21,597.2
Growth %
49.2%
39.9%
11.1%
123.2%
28.2%
20.1%
19.2%
18.9%
Share %
24.3%
21.8%
19.1%
33.5%
35.1%
35.2%
35.2%
35.2%
46,351.8
72,430.5
1,14,580.4
1,37,266.6
1,63,576.4
Growth %
29.5%
56.3%
31.8%
1.3%
18.5%
19.8%
19.2%
18.9%
Share %
73.1%
73.2%
75.9%
60.5%
58.6%
58.6%
58.6%
58.6%
42,662.9
73,467.8
1,17,492.9
1,42,059.8
1,70,294.9
2,02,935.3
Growth %
29.9%
72.2%
21.5%
31.7%
20.9%
19.9%
19.2%
18.9%
Share %
Covered by Bank/
govt guarantee
67.3%
74.3%
70.9%
73.4%
72.7%
72.7%
72.7%
72.7%
Cash Credits
Term Loans
Secured by
Tangible Assets
10,344.5
35,795.5
32,845.4
522.4
1,752.5
2,495.6
23,985.3
95,483.9
89,232.8
2,946.2
53,541.9
96,729.6
3,313.7
68,627.2
5,555.3
82,453.6
6,558.8
98,257.5
7,815.9
1,16,857.7
1,94,541.5
2,41,350.9
9,295.5
Growth %
235.5%
42.4%
18.1%
12.5%
67.6%
18.1%
19.2%
18.9%
Share %
2.8%
2.5%
2.3%
2.1%
2.8%
2.8%
2.8%
2.8%
19,011.5
22,919.6
Growth %
40.0%
20.6%
46.8%
16.4%
22.0%
20.0%
19.2%
18.9%
Share %
SECTOR (
Advances in India)
30.0%
23.2%
26.7%
24.5%
24.5%
24.5%
24.5%
24.5%
17,426.3
29,781.6
Growth %
-1.5%
70.9%
48.3%
24.1%
16.6%
22.5%
20.0%
19.0%
Share %
37.1%
47.0%
44.7%
43.5%
39.9%
40.0%
40.1%
40.0%
Unsecured
13,577.0
Priority Sector
Public Sector
Banks
17,683.1
205.2
477.2
3,083.1
33,651.6
44,157.6
5,263.5
39,176.0
54,781.2
5,400.1
47,805.0
63,863.0
7,053.9
57,389.6
78,232.2
7,759.2
68,389.5
93,878.6
8,535.2
81,335.6
1,11,715.5
9,388.7
Growth %
132.6%
546.1%
70.7%
2.6%
30.6%
10.0%
10.0%
10.0%
Share %
0.8%
3.1%
4.2%
3.4%
3.6%
3.3%
3.1%
2.8%
366.7
622.9
28.6
371.4
375.1
378.9
38.3
8.8
382.7
Growth %
-77.2%
4090.5%
69.9%
-95.4%
1198.5%
1.0%
1.0%
1.0%
Share %
0.0%
0.4%
0.5%
0.0%
0.2%
0.2%
0.1%
0.1%
45,514.7
64,818.3
1,18,210.2
1,41,852.2
1,70,222.7
Growth %
56.8%
42.4%
13.9%
28.9%
24.3%
20.0%
20.0%
20.0%
Share %
Total Advances
from India
Advances outside
India
71.8%
65.6%
58.7%
59.5%
60.5%
60.6%
61.0%
61.5%
46,944.8
63,426.9
98,049.7
1,23,852.2
1,55,329.1
1,89,498.5
2,28,218.8
2,73,015.3
0.00
0.00
0.00
0.00
1380.99
1841.86
1859.18
1876.65
1894.29
0.86%
0.94%
0.94%
0.94%
0.94%
3272.55
4079.70
4165.37
4248.68
4333.65
2.0%
2.1%
2.1%
2.0%
2.0%
Others
29,018.2
Due from banks
Due from others
Total advances
0.00
46,944.8
Growth %
Credit Deposit Ratio
8. Cash and
Balances with RBI
Cash in hand
(including foreign
currency)
68.7%
639.28
0.00
833.38
73,808.2
1978.43
95,119.2
2,04,267.2
3,25,754.1
63,426.9
98,883.0
1,25,830.6
1,59,982.7
1,95,420.0
2,34,243.3
2,79,140.7
35.1%
55.9%
27.3%
27.1%
22.2%
19.9%
19.2%
18.9%
62.9%
69.2%
75.2%
76.7%
79.2%
78.9%
79.4%
79.5%
940.09
1,586.19
2,435.26
2,997.95
4,306.96
4,684.9
2,791.4
3,31,982.0
3,319.8
% of Advances
1.5%
1.6%
1.9%
1.9%
2.2%
2.00%
1.00%
1.00%
Growth %
47.1%
68.7%
53.5%
23.1%
43.7%
8.8%
-40.4%
18.9%
12948
22002.86
10484.13
Balances with RBI

In current account
4335.97
11513.09
11841.02
% of Advances
9.24%
18.15%
11.97%
10.29%
13.75%
5.36%
In other account
100.00
100.00
100.00
100.00
100.00
200.00
200.00
200.00
5075.25
12553.18
13527.21
15483.28
25100.82
14991.09
14254.60
11365.63
Total
10. Interest
Received
Interest On
Advances
% of Advances
% of Net
Investments
Growth %
Interest on
investment with RBI
and Banks
Growth %
Total Interest
Received
4.00%
8374.22
3.00%
8299.55
2.50%
200.00
11819.37
(Rs in cr)
4,334.15
6,966.73
9.2%
11.0%
12.3%
60.7%
74.2%
Growth %
Income on
investments
9369.73
12,136.75
15,085.01
20,536.60
9.6%
9.4%
10.5%
10.25%
10.00%
10.00%
-0.3%
24.7%
36.1%
16.9%
16.3%
18.9%
5.81%
6.81%
6.80%
6.60%
6.67%
6.60%
6.60%
6.60%
39.6%
39.6%
-0.7%
17.4%
39.1%
30.4%
26.9%
23.1%
6,644.6
7.69%
-32.35%
10,111.2
16,329.0
80.96
-56.06%
16,160.5
148.08
82.91%
19,908.5
6,504.50
137.10
8,483.70
10,767.73
33,198.2
6.73%
184.26
4,675.44
27,914.1
2,872.04
272.39
3,981.29
24,009.9
2,057.53
252.94
4,007.96
12,098.28
137.10
137.10
32,630.7
38,818.9
13,258.61
137.10
-7.41%
27,178.2
46,593.9
11. Other Income

Commission
Exchange
(Rs in cr)
1,292.4
Growth %
P/L Investments
1,714.5
32.7%
-68.4
241.8
% of Investments
P/L Assets
P/L Exchange
transaction
0.5%
-1.1
190.4
Growth %
0.7
283.1
48.74%
2,457.3
2,830.6
15.2%
382.6
345.1
0.7%
0.6%
4.2
4.0
598.6
610.2
920.8
111.43%
1.94%
50.91%
37.41%
0.4
1.2
Total
0.8
-0.1%
-
103.0
Growth %
Non interest Income
27.1%
52.6
43.0
-58.2%
223.9
1,516.2
Growth %
568.7
2,283.2
50.6%
4,275.5
43.3%
Dividend Income
Misc Income
3,596.7
129.4
18.9%
4,916.8
15.00%
5,654.3
15.00%
6,219.8
10.00%
-195.9
134.4
163.1
-0.2%
0.10%
0.10%
1.5
1.5
1.5
1.5
1,822.1
2,186.6
1,265.4
20.00%
20.00%
1.2
102.9
1.2
101.9
0.10%
20.00%
1.2
-152.0
17.7
-453.3%
111.7%
-830.3%
19.7%
1.00%
1.00%
1.00%
833.30
977.02
737.99
967.03
1551.41
1884.89
2288.08
3,290.6
44.1%
3,807.6
15.7%
-104.0
1,518.5
200.9
4,335.2
13.9%
5,243.7
21.0%
6,469.4
23.4%
-100.9
7,540.4
16.6%
8,509.0
12.8%
12. Interest Paid

Interest on Deposits
2,695.3
4,382.7
8,015.5
6,997.7
8,028.3
12,689.7
15,309.0
17,450.4
20,742.8
% of Deposits
4.5%
5.7%
4.2%
3.9%
5.2%
5.20%
5.00%
5.00%
Growth %
62.6%
82.9%
-12.7%
14.7%
58.1%
20.6%
14.0%
18.9%
884.76
745.5
Interest on RBI and

other banks
274.05
242.43
1,336.4
2,252.9
2,433.1
2,627.7
2,838.0
% of Deposits
27.3%
37.0%
30.6%
54.7%
98.1%
102.9%
107.8%
112.9%
Growth %
-11.5%
265.0%
-15.7%
79.3%
68.6%
8.00%
8.00%
8.00%
10.89
43.1
20.3
47.0
58.1
71.3
7.3%
0.1%
0.4%
0.1%
0.2%
0.20%
0.20%
-95.8%
295.6%
-52.8%
131.4%
23.6%
22.6%
25.5%
4887.12
8911.10
7786.30
9385.08
14989.58
17800.22
20149.49
23670.22
Other Interest
210.08
% of Deposits
261.96
Growth %
Total
3179.45
13. Operating
Expense
Payment to
Employees
776.9
Growth %
Depreciation
67.5%
219.6
% of Gross Block
Other Opex
1424.30
Growth %
2,420.8
Growth %
1,301.4
2,238.2
2,289.2
2,836.0
3,399.9
4,079.9
4,895.9
89.5
0.20%
5,875.0
72.0%
2.3%
23.9%
19.9%
20.00%
20.00%
359.9
394.4
497.4
542.5
595.3
665.9
11.4%
9.1%
8.4%
9.5%
9.1%
9.00%
9.00%
9.00%
2172.52
2934.70
3080.88
3984.54
4864.71
5988.46
7371.79
9067.30
52.5%
35.1%
5.0%
29.3%
23.1%
23.10%
23.10%
23.00%
271.7
3,745.6
54.7%
5,532.8
47.7%
5,764.4
4.2%
7,318.0
27.0%
8,807.1
20.3%
10,663.7
21.1%
12,933.6
21.3%
20.00%
746.9
15,689.2
21.3%
14.Provisions and
Contingencies
Provision for wealth
tax
Provision for NPA
% of Net Advances
Provision for
diminution in value of
non performing
investment
Provision for
standard assets
other provisions and
contingencies
Total
Provision for Income
tax
0.40
0.45
0.61
0.55
0.60
0.55
0.55
0.55
0.55
691.15
1026.37
1605.80
1938.93
763.02
651.58
936.97
1674.84
1991.89
1.62%
1.62%
1.54%
0.48%
0.33%
0.40%
0.60%
0.60%
0.00
0.00
0.00
93.40
0.00
0.00
0.00
169.86
189.66
120.48
0.00
0.00
150.50
150.50
150.50
150.50
63.75
268.30
152.82
201.11
1143.09
541.22
541.22
541.22
541.22
925.16
1484.78
1879.71
2140.59
1906.71
1437.25
1629.24
2367.11
2684.16
497.30
690.45
1054.31
1340.44
1892.26
2346.07
2828.50
3422.52
4094.04
30.27%
31.96%
31.25%
32.52%
31.23%
31.23%
31.23%
31.23%
2175.23
2934.02
3481.03
3798.97
3783.32
4457.74
5789.64
6778.20
1.41%
1.95%
1.41%
1.05%
1.02%
1.05%
1.14%
1.19%
0.47%
0.63%
0.31%
0.19%
0.18%
0.21%
0.24%
0.25%
% of Operating Profit
Total Provisioning
1422.46
15. Asset Quality Non Performing

Assets (NPAs)
Gross NPA to
Gross Advances
(%)
Net NPAs to Net
Advances (%)
Opening balance
Additions during the
year
% of Advances
Sub Total
508.9
657.8
778.6
1,202.8
1.66%
1,287.5
1.90%
1,860.5
907.0
1,951.5
1,816.8
1,694.3
1,999.4
2,492.2
3,208.1
3,413.3
2,610.9
1,451.0
1,574.9
2,131.6
2,791.4
3,319.8
3.45%
4,320.3
2.07%
4,562.4
0.91%
3,267.7
0.81%
3,269.2
0.91%
4,131.0
1.00%
5,283.6
1.00%
6,527.9
Less:
Upgradations
66.21
252.35
197.08
234.24
279.14
331.98
0.1%
0.2%
0.1%
0.10%
0.10%
0.10%
144.83
430.76
152.53
131.45
165.24
211.35
261.11
3.4%
9.4%
4.7%
4.0%
4.00%
4.00%
4.00%
2187.37
2248.67
1168.52
941.32
1239.30
1585.09
1958.36
50.6%
49.3%
35.8%
28.8%
30.0%
30.0%
30.0%
% of Advances
Recoveries
% of Gross NPA
Write Offs
% of Gross NPA
Reductions during
the year (including
technical write off)
Closing balance
Provision Coverage
GNPAs to Total
Advances (%)
Movement of NPAs
(NET)
Opening balance
Net Additions during
the year
% of Gross NPA
Addition
(629.73)
(953.55)
(2332.20)
(2745.64)
(1573.40)
(1269.85)
(1638.78)
(2075.57)
(2551.46)
48.9%
51.3%
54.0%
60.2%
48.1%
38.8%
39.7%
39.3%
39.1%
657.8
1.38%
907.0
1,988.1
1,816.8
1,694.3
1,999.4
2,492.2
3,208.1
3,976.4
37.89%
119.20%
-8.62%
-6.74%
18.00%
24.65%
28.72%
24.0%
67.09%
68.43%
78.42%
82.51%
82.38%
80.48%
79.51%
78.76%
1.41%
1.95%
1.41%
1.05%
1.02%
1.05%
1.14%
1.19%
155.2
202.9
298.5
627.6
392.1
296.4
352.3
486.5
657.2
54.7
98.1
400.4
35.1
176.5
255.8
335.0
398.4
2.42%
11.21%
12.00%
12.00%
7.02%
8.16%
11.73%
0.00%
12.00%
Reductions during
the year (including
technical write off)
% of Net NPA
Addition
Closing balance
NNPAs to Net
Advances (%)
6.97
202.9
0.43%
2.47
298.5
0.47%
71.32
235.57
130.76
120.55
121.62
164.29
211.11
10.20%
37.53%
30.61%
25.49%
20.00%
20.00%
20.00%
627.6
392.1
296.4
352.3
486.5
657.2
0.63%
0.31%
0.19%
0.18%
0.21%
0.24%
844.4
0.25%
Movement of
provision for NPAs
Opening balance
Provision made
during the year
353.7
454.9
723.9
1,104.7
% of advances
Write offs/ Write
backs
% of Total provision
for NPA
1.5%
1.7%
3.0%
2.1%
0.9%
0.7%
0.90%
0.90%
0.90%
622.76
951.08
2260.87
2550.45
1442.64
1149.30
1502.10
1906.17
2338.84
57.8%
61.0%
62.4%
64.2%
50.8%
41.1%
40.00%
40.00%
40.00%
Closing balance
454.9
608.5
608.5
1,323.9
1,424.7
1,397.9
1,647.1
2,253.2
2,859.3
3,012.9
2,651.3
1,415.9
1,398.4
2,108.2
2,512.3
2,987.8
1,360.5
1,424.7
1,397.9
1,647.1
2,253.2
2,859.3
3,508.3
Appendix 4E: Valuation of Subsidiaries I - HDFC Securities

Assumptions:
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Year
Revenue
Growth
10
10.0%
10.0%
10.0%
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
Opeating
Expense/Sales
48.2%
48.2%
48.2%
48.2%
48.2%
48.2%
48.2%
48.2%
48.2%
48.2%
33.9%
33.9%
33.9%
33.9%
33.9%
33.9%
33.9%
33.9%
33.9%
33.9%
62.2%
62.2%
62.2%
62.2%
62.2%
62.2%
62.2%
62.2%
62.2%
62.2%
75.8%
75.8%
75.8%
75.8%
75.8%
75.8%
75.8%
75.8%
75.8%
75.8%
Tax Rate
Current
Assets/Sales
Current
Liabilities/Sales
Cost of Capital
Terminal
Growth Rate
19.0%
3.0%
Discounted
Cash Flow
Sales
231.011
254.1121
279.52331
307.47564
335.14845
361.96032
387.29755
410.5354
431.06217
448.304657
COGS + S&A
111.24078
122.36486
134.60135
148.06148
161.38701
174.29797
186.49883
197.68876
207.5732
215.876128
Operating Profit
119.77022
131.74724
144.92196
159.41416
173.76144
187.66235
200.79872
212.84664
223.48897
232.428529
Taxes
40.602104
44.662315
49.128546
54.041401
58.905127
63.617537
68.070764
72.15501
75.762761
78.7932712
NOPAT
79.168115
87.084926
95.793419
105.37276
114.85631
124.04481
132.72795
140.69163
147.72621
153.635258
Change in NWC
-31.38661
-34.52527
-37.97779
-41.77557
-45.53537
-49.1782
-52.62068
-55.77792
-58.56682
-60.909489
Free Cash Flow
110.55472
121.61019
133.77121
147.14833
160.39168
173.22302
185.34863
196.46955
206.29303
214.544746
Capex, net of
Dep.
Terminal Value
1381.1318
Total Flows
110.55472
121.61019
133.77121
147.14833
160.39168
173.22302
185.34863
196.46955
206.29303
1595.67655
PV
92.903127
85.87684
79.381953
73.378276
67.212034
60.999157
54.847982
48.856185
43.108399
280.204592
Enterprise Value
as on 31 March
2011
886.76855
Less: Current
Debt
Equity Value as
on 31 March
886.76855
Equity Value on
30 September
2012
812.89939
HDFC Bank's
holding
0.6302
Value of HDFC
holding
512.2892
Intrinsic value
per share

2.17
Appendix 4F: Valuation of Subsidiaries II - HDB Financial Services

Components of Two Stage Model
High growth period
Payout
25
0.00%
Growth in EPS
20.00%
Stable Firm
Growth till perpetuity
3%
Payout ratio
82%
ROE
17%
cost of equity
21.65%
Final P/BV
0.5
Book value on FY13
915
No of Shares trading in HDFC bank

HDFC Bank stake in HDB
236
97.03%
Bv per share
4.00
Price based on Gordon growth model
2.13
Appendix 5: Corporate Governance and CSR Grading

The various parameters used to assess the quality of corporate governance are explained below:
Independent Committees : The composition of all committees and their roles are disclosed very
effectively
Transparency and Accountability: The cardinal principles such as independence, accountability,
responsibility, transparency, fair and timely disclosures, credibility, etc. serve as the means for
implementing the philosophy of corporate Governance.
Whistle Blower Policy: The Bank has adopted the Whistle Blower Policy pursuant to which
employees of the Bank can raise their concerns relating to fraud, malpractice or any other activity
or event which is against the interest of the Bank or society as a whole
Compensation Structure: The Compensation structure is disclosed adequately
Means of communication: Half yearly reports, Quarterly reports, Annual report are made available.
Governance
Parameters considered for CSR ranking

Community
Employees
Environment
Board
Product
Compensation
and benefits
Policy and
Reporting
Leadership
ethics
Human Rights
and Supply Chain
Diversity and
Labor Rights
Resource
Management
Transparency
and Reporting
Training, health
and safety
Community
development
Overall
Community
Employees
Environment
Governance
HDFC Bank Ltd.
46
47
52
37
48
ICICI Bank Ltd
41
48
42
34
40
Axis Bank Limited.
47
49
57
35
50
Kotak Mahindra Bank
49
51
50
45
50
State Bank of India Group
41
47
48
36
35
Source: CSR hub, Team estimates
Appendix 6: Basel III Co mpliance
Transitional guidelines for Basel III implimenttion as suggested by RBI

2012-13(E)
2013-14(E)
2014-15(E)
2015-16(E)
2016-17(E)
Minimum Tier I
6.000%
6.500%
7.000%
7.000%
7.000%
Minimum Tier II
3.000%
2.500%
2.000%
2.000%
2.000%
CCB (Capital Conversion Buffer)
0.000%
0.625%
1.250%
1.875%
2.500%
Tier I + CCB
6.000%
7.125%
8.250%
8.875%
9.500%
Total
9.000%
9.625%
10.250%
10.875%
11.500%
Expected RWA's (Growing @ 21%)
3,12,147.19
3,77,698.10
4,57,014.70
5,52,987.79
6,69,115.22
Tier I capital (Estimates growth @ 18%)
34,898.38
40,866.68
48,134.63
56,695.13
66,778.09
Tier II capital - Maturities (Assuming no

new borrowings)
12,270.78
12,270.78
11,856.78
10,654.78
10,244.78
Tier I Capital to RWA

Tier II Capital to RWA
Total
11.18%
10.82%
10.53%
10.25%
9.98%
3.93%
3.25%
2.59%
1.93%
1.53%
15.11%
14.07%
13.13%
12.18%
11.51%
Source: RBI, Team Estimates
APPENDIX 7: CAMELS Methodology
The rating A indicates that the institution is basically sound in every respect and it gives no
cause for supervising concern
The rating B indicates that although the insitution is fundamentally sound and its operation are
satisfactory, it does reflect modest weakness for which the supervisory response is limited to
minor adjustments.
The rating C exhibits a combination of financial, operational and compliance weakness ranging
from moderately severe to unsatisfactory
HDFC BANK
Ratios for CAMELS
CRAR
C
L
S
D/E
Weights
70%
Total
Weight
18%
15%
COVERAGE RATIO
15%
NNPA
10%
GSEC/Total Investments
HDFC
Score
Score
16.52%
B1
B2
9.04
8.75%
B2
0.18%
A1
10
30%
78.19%
A3
Standard Adv / Total Advances
60%
98.30%
A2
Business per employee
25%
6.54
C2
Profit per employee
25%
0.08
B3
CDR
50%
0.33%
A3
ROA
25%
1.53
A3
NII/Total Assets
25%
3.60%
A3
Operating Profit / Total Assets
25%
2.65%
A3
Cost / Income
25%
49%
A3
Cash / Total Assets
25%
4.40%
A2
Gsec/ Total Assets
25%
22.60%
A3
Liquid Assets / Total Deposit
50%
8.49%
B2
System and Control
100%
A3
18%
18%
10%
18%
18%
W*IS
Ind
Score
W*S
6.7
B2
1.206
8.8
A3
1.584
B2
1.08
A3
0.8
7.25
B1
1.305
A3
1.44
7.5
7.4
Rating
B1
Rating
B1
Adjusted
B1
Adjusted
B1
ICICI BANK
Ratios for CAMELS
CRAR
C
D/E
70%
Total
Weight
18%
15%
ICICI
Score
Score
19.60%
A2
A3
B1
7.23
9.70%
COVERAGE RATIO
15%
NNPA
10%
0.92%
B3
Standard Adv / Total
Advances
30%
41.42%
B3
60%
95.54%
B2
25%
7.08
C2
Profit per employee
25%
0.09
B3
CDR
50%
1.25%
C2
B1
B3
ROA
E
Weights
25%
18%
18%
10%
NII/Total Assets
Operating Profit / Total
Assets
25%
1.47
2.15%
25%
2.00%
B2
Cost / Income
25%
70.96%
B3
Cash / Total Assets
25%
3.43%
B1
Gsec/ Total Assets

Liquid Assets / Total
Deposit
25%
16.44%
B2
50%
14.60%
A1
10
System and Control
100%
18%
18%
A3
W*IS
Ind Score
W*S
8.55
A3
1.539
5.6
B3
1.008
3.5
C2
0.63
5.75
B3
0.575
8.25
A3
1.485
A3
1.44
6.6
6.7
Rating
B2
Rating
B2
Adjusted
C1
Adjusted
C1
AXIS BANK
Ratios for CAMELS
CRAR
C
D/E
70%
Total
Weight
18%
15%
Axis
Score
Score
13.66%
B3
B3
B3
11.20
7.78%
COVERAGE RATIO
15%
NNPA
10%
0.28%
A2
Advances
30%
62.87%
B1
60%
97.97%
A3
25%
12.76
B2
Profit per employee
25%
0.14
A3
CDR
50%
0.77%
B3
A3
B2
ROA
E
Weights
25%
18%
18%
10%
NII/Total Assets
Assets
25%
1.61
2.81%
25%
2.60%
A3
Cost / Income
25%
45.14%
A3
Cash / Total Assets
25%
3.75%
A3
Gsec/ Total Assets

Deposit
25%
20.47%
B1
50%
6.33%
B3
System and Control
100%
18%
18%
A3
W*IS
Ind
Score
W*S
B3
0.9
7.8
B1
1.404
B2
1.08
7.5
B1
0.75
6.25
B2
1.125
A3
1.44
6.76
6.70
Rating
B2
Rating
B2
Adjusted
B2
Adjusted
B2
YES BANK
Ratios for CAMELS
CRAR
C
D/E
70%
Total
Weight
18%
15%
Yes
Score
Score
17.90%
A3
C2
C1
0.05%
A1
10
13.54
6.33%
COVERAGE RATIO
15%
NNPA
10%
Advances
30%
58.29%
B2
60%
99.62%
A1
10
25%
17.48
A3
Profit per employee
25%
0.2
A2
CDR
50%
0.22%
A2
B1
B3
ROA
E
Weights
25%
18%
18%
10%
NII/Total Assets
Assets
25%
1.42
2.19%
25%
2.09%
B2
Cost / Income
25%
37.71%
A2
Cash / Total Assets
25%
3.17%
B1
Gsec/ Total Assets

Deposit
25%
21.96%
A3
50%
7.29%
B3
System and Control
100%
A3
18%
18%
W*IS
Ind Score
W*S
6.65
B2
1.197
8.8
A3
1.584
8.75
A3
1.575
6.75
B2
0.675
6.25
B2
1.125
A3
1.44
7.53
7.60
Rating
B1
Rating
B1
Adjusted
B1
Adjusted
B1
KOTAK BANK
Ratios for CAMELS
CRAR
C
D/E
70%
Total
Weight
18%
15%
Kotak
Score
Score
17.92%
A3
A2
A1
10
0.51%
B2
5.08
13.71%
COVERAGE RATIO
15%
NNPA
10%
Advances
30%
57.14%
B2
60%
98.29%
A2
25%
6.13
C2
Profit per employee
25%
0.09
B2
CDR
50%
0.02%
A1
10
B2
A2
ROA
E
Weights
25%
18%
18%
10%
NII/Total Assets
Assets
25%
1.22
4.25%
25%
2.98%
A2
Cost / Income
25%
67.48%
B2
Cash / Total Assets
25%
2.20%
B3
Gsec/ Total Assets

Deposit
25%
19.59%
B1
50%
9.81%
A3
System and Control
100%
A3
18%
18%
W*IS
Ind Score
W*S
8.45
A3
1.521
7.8
B1
1.404
7.25
B1
1.305
7.5
B1
0.75
B1
1.26
A3
1.44
7.67
7.68
Rating
B1
Rating
B1
Adjusted
B1
Adjusted
B1
SBI
Ratios for CAMELS

CRAR
C
D/E
70%
Total
Weight
18%
15%
SBI
Score
Score
13.68%
B3
C3
C3
1.81%
C3
14.80
4.65%
COVERAGE RATIO
15%
NNPA
10%
Advances
30%
78.11%
A3
60%
94.37%
B3
25%
7.98
C1
Profit per employee
25%
0.05
B3
CDR
50%
0.80%
B3
C3
B1
ROA
E
Weights
25%
18%
18%
10%
NII/Total Assets
Assets
25%
0.91
3.16%
25%
2.23%
B2
Cost / Income
25%
53.42%
B1
Cash / Total Assets
25%
4.33%
A2
Gsec/ Total Assets

Deposit
25%
19.68%
B1
50%
9.02%
B1
System and Control
100%
A3
18%
18%
W*IS
Ind
Score
W*S
4.1
C1
0.738
5.6
B3
1.008
4.75
C1
0.855
5.5
B3
0.55
7.5
B1
1.35
A3
1.44
5.91
5.94
Rating
B3
Rating
B3
Adjusted
C1
Adjusted
C1
Appendix 8A
MONTE CARLO SIMULATION - P/BV estimate
For arriving at the estimated P/BV we have taken the historical and the one year average P/BV and
calculated the weighted average of it. The one year average P/BV was given a weight of 60% and the
historical average P/BV has been given a weight of 40%. This is done mainly because HDFC Bank has
always commanded a premium over the other banks due to its superior business quality. Further to
mitigate the risk the below Monte Carlo simulation was done with estimated P/BV and the weights
assigned as the variable parameter assuming log normal distribution and it was found that there is no
major variation in the calculated target price. The mean and median values being Rs 590 and Rs 583
respectively.
Forecast: Target Price
Statistics:
Trials
Mean
Standard Deviation
Coeff. of Variability
Minimum
Maximum
Forecast
values
10,000
590.47
27.04
0.0458
536.77
991.81
Appendix 8B: Monte Carlo Simulation: Sensitivity of Target Price

In order to understand the impact of various risks presented in the report on the valuation and hence the
target price, we performed a Monte Carlo simulation by assigning probability distributions to each risk
affected parameter. Normal distribution and lognormal distribution are used to model each of the risk
affected parameter. For upside and downside risk log normal distributions were considered and for all
other parameter a normal distribution was considered as these would be random in nature. The variance
on each distribution is calculated from a combination of historical data and assumptions on the maximum
variance the parameter can get subjected to in the event the risk becomes operational. Only those risks
are considered which can be modeled with a certain level of confidence. The principal assumptions of the
Monte Carlo analysis are given in the following table.
Risk
Affected parameter
Distribution
St Dev
Comments
Retail Loan Growth
Retail loan book

growth above 20%
Log Normal
2%
Upside risk from strategic

success
GNPA improvement
GNPA Improvement
from 0.9%
Normal
0.3%
Downside risk from strategic

success
Growth in Non Interest

Income
NII Growth
expectation
Normal
2%
Upside risk from strategic

success
Term Deposit Growth

estimate
Log normal
2%
Upside risk from economical

revival
CASA
estimate
growth
Log normal
2%

revival
Advances growth
Advances
estimate
Growth
Log Normal
2%

revival
Moderate Inflation
Reduced
funds
of
Normal
0.5%

revival
Forex
Normal
2%
Upside risk from currency

instability
Strategic Risk
above
Macro Risk
Deposits growth
cost
Financial Risk
Increased Forex gains
Increase
Gains
in
Statistics:
Trials
Mean
Forecast values
10,000
583
Median
585
Mode
Standard Deviation
---
Variance
406
-0.4761
3.51
0.0345
Skewness
Kurtosis
Coeff. of Variability
Minimum
20
482
Maximum
644
Range Width
162
Mean Std. Error
Appendix 8C: Other Risks

Senior Management Attrition - Execution risk would arise if the bank observes significant attrition at the
senior management level. This would have a negative impact on the prices and would pull down the prices
further down.
No area for diversification: The biggest limiting factor for the bank is that it is under the ambit of HDFC Ltd
which carries out all the related financial business, where a bank can venture into. So the scope for
diversifying its business into other related areas is not present which is there with its other peers. However,
this gives a bank an opportunity to efficiently utilize its banking business and maintaining its performance
going forward.
Operational Risk - Risk arising due to disruption of banking services on account of IT and Core Banking
failure, or on account of reputation loss due to internal or external fraud or on account of natural calamity
or other unforeseen circumstances would impact the projected growth numbers of the bank and in turn will
have a negative impact on the price. HDFC bank has a prudent operational risk management in place
which include DRS ( disaster recovery sites ), internal and external fraud management and control
mechanisms and business continuity plan put in place in case of eventuality of above operational risk.
Appendix 9
SWOT Analysis
Strength
Enjoying a well established brand name across the country.

Strength and support of parent.
Good and desirable composition of board, well qualified and independent directors.
Continuity of top management - their intimate knowledge about organizational culture as well as
personal knowledge about the field functionaries.
Loyalty of employees and banks ability to retain its pool of trained manpower.
Implicit faith of the public in the bank.
Substantially Wide network of branches
Weakness
Less presence in rural and semi urban areas

Profit per employee is low
Less aggressive bank image and shrinking CASA ratio.
Opportunities
Favourable market perception aiding ability to access capital markets

CRAR much above regulatory minimum offering opportunities for expansion of business.
Large deposit base( in absolute numbers) especially low cost deposit offering opportunities for
business expansion.
Threats
Competition from new branches of banks which are more aggressive.

New entrants in banks own niche segments
"Excellent Past performance in your future enemy" - moderation in growth numbers which might
hamper the banks image.
Appendix 10: BETA Calculatio n
1y
2y
3y
1Y
2Y
3Y
1.2
Beta Values
Monthly
Weekly
1.056591
0.943765
0.726818
0.8051
0.768971
0.86445
R2 Value
Monthly
Weekly
0.88972
0.58492
0.063762
0.066837
0.086893
0.026377
Beta Values
1
0.8
0.6
Monthly
0.4
Weekly
0.2
0
1y
2y
3y
R sq Values
0.8
0.6
Monthly
0.4
Weekly
0.2
0
1Y
2Y
3Y
Disclosures:
Ownership and material conflicts of interest:
The author(s), or a member of their household, of this report does not hold a financial interest in the
securities of this company.
The author(s), or a member of their household, of this report does not know of the existence of any
conflicts of interest that might bias the content or publication of this report.
Receipt of compensation:
Compensation of the author(s) of this report is not based on investment banking revenue.
Position as a officer or director:
The author(s), or a member of their household, does not serve as an officer, director or advisory
board member of the subject company.
Market making:
The author(s) does not act as a market maker in the subject companys securities.
Disclaimer:
The information set forth herein has been obtained or derived from sources generally available to
the public and believed by the author(s) to be reliable, but the author(s) does not make any
representation or warranty, express or implied, as to its accuracy or completeness. The information
is not intended to be used as the basis of any investment decisions by any person or entity. This
information does not constitute investment advice, nor is it an offer or a solicitation of an offer to
buy or sell any security. This report should not be considered to be a recommendation by any
individual affiliated with IAIP, CFA Institute or the CFA Institute Research Challenge with regard to
this companys stock.
CFA Institute Research Challenge

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CFA Institute Research Challenge

IAIP (Indian Association of Investment Professionals)

Sector: Private Sector Banks

Ticker Symbol: HDFCBANK

HDFC BANK : PRETTY BUT PRICEY

Dividend per share

Avg. Vol. (3 m avg)

Free float (%)

Face Value (Rs.)

BSE Scrip Code

Source: NSE, Team Estimates

HDFC and BANK NIFTY

We initiate coverage of HDFC bank with a sell rating and an end-of-the

Incorporated in the year 1994, HDFC Bank commenced operations as

Source: NSE India, Team Estimates

Source: Annual Report

HDFC Bank offers a wide range of commercial and transactional

Source: RBI website,

The Bank at present has an enviable network of 2,544 branches

All Pvt Banks Avg

All SCB Avg

New Pvt Banks Avg

HDFC securities Limited - a leading AAA / Stable (CRISIL) rated

Banking in India is resilient, however, under extreme shocks, some

Demographics - boost to Retail Banking

Source: Census of India, Team Estimates

Favourable Demographic trends point towards an increase in demand

Bank credit (as a % of GDP)

Source: Google Public Data

Increased pressure on NIMs is anticipated by the banking sector due

Sectoral Impacts: In Power, The CCEA has approved a restructuring

Source: BSE, Team Estimates

HDFC Bank is highly valued by the markets on account of (1) consistent

Source: Annual Report, Team Estimates

Source: Annual Report, Team Estimates

Porter's 5 Forces Model

The five forces

HDFC is a leading bank providing world

There are high regulatory barriers to

The industry sees a tough competition

NII & PAT

Robust Revenues - FY12 has been characterized by strong growth in revenues

-Interest on advances will grow at 10-10.25% of Net Advances, in comparison

Source: Annual Report, Team Estimates

Non Performing Assets

We expect a growth of 20% in Interest earned during FY13 to FY 15 on account

1.05% 1.02% 1.05%

Source: Annual Report, Team Estimates

-Growth in income from inve stment will be in line with F Y12 at

Bank's exposure to sensitive sectors (as of March 31, 2012)

Kotak Mahindra Bank

CASA & Term Deposits

Term Deposit (%)

Source: Annual Report, Team Estimates

Loan Book Mix

Balance sheet and financing:

58.18% 61.01% 56.79% 49.65% 54.41%

(see Appendix 3 and 4)

Growth in Deposits & Advances

Source: Annual Report, Team estimates

SOTP Valuation Methodology

Res idual Income method:

COMPONENTS OF A TWO STAGE GORDON

High growth period