Canara Bank Reliance - Markets Mojo

1

CMP* (Rs) 248

Upside/ (Downside) (%) 7

Bloomberg Ticker CBK IN

Market Cap. (Rs bn) 187

Free Float (%) 29

Shares O/S (mn) 753 1QFY20 Result Update | July 25, 2019

Target Price: Rs265

HOLDCanara BankBFSI | India

Institutional Equity Research

Margin Declines Sharply; Retail Asset Quality Steady

Canara Bank has missed our estimate on NII front led by sharp decline in yield on advances (both on QoQ and YoY comparison) and continued pressure on cost of deposits, which resulted in subdued NIM at 2.3% (down 46bps QoQ and 23bps YoY). However, its profit came in-line with our estimate led by lower provisioning. Gross NPA ratio improved marginally by 6bps QoQ driven by higher recoveries even though the fresh slippages were somewhat higher than our expectation. Growth in domestic advances moderated to 12% YoY from 14% in 1QFY19. Advances growth during the quarter was primarily driven by retail and MSME loans. Fee-based income grew by a healthy 38% YoY led by a lower base. CASA ratio declined by a sharp ~300bps YoY with a sequential decline in CASA deposits.

MSME Slippages Rise; Retail Asset Quality Remains SteadySlippage ratio at 3.4% includes the Bank’s exposure to Jet Airways. Despite this, corporate slippages were largely contained though MSME slippages increased sharply. The rise in NPAs in the MSME segment was led by elevated slippages from loans restructured under the June 2018 RBI circular. Additionally, agri slippages were also higher, with 70bps YoY rise in Agri GNPA to 5.7%. However, retail NPAs (at 1.5%) was contained with ~10% YoY decline in retail NPAs. Notably, there was a sharp rise in MSME loans restructured under January 1, 2019 circular (up 88% QoQ to Rs14bn). Looking ahead, though we expect slippages ratio to moderate to 3.3% in FY20E from 4.1% in FY19, it is likely to remain above the industry average.

Margin Declines; Capital Position Remains WeakMargin contracted by 46bps QoQ and 23bps YoY to 2.3% led by sharp decline in yield on advances (high interest reversals from restructured MSME portfolio) and increased cost of deposits. One-offs both sequentially (high interest on IT refund in 4QFY19) and over previous year (Bhushan Steel recovery aided margin in 1QFY19) also impacted its margin. Though we expect improvement in CD ratio and lower share of sub-standard assets to aid the Bank’s margin, we believe NIM expansion is likely to be restricted led by sustained pressure on cost of deposits. CET1 ratio at 8.2% as of Jun’19 remains close to minimum regulatory requirements, with the risk of dilution in case equity is raised at the current levels.

Outlook & ValuationWe expect operating metrics to continue to remain sub-par with PPoP CAGR of 12% over FY19-21E, despite a low base. We tweak our estimates to factor in slightly higher slippages and arrive at RoA of 0.4%/0.7% for FY20E/FY21E, maintaining our HOLD recommendation on the stock with an unrevised Target Price of Rs265, valuing the stock at 0.8x FY21E ABV.

Share price (%) 1 mth 3 mth 12 mthAbsolute performance (8.3) (9.3) (1.9)

Relative to Nifty (4.5) (5.4) (3.1)

Shareholding Pattern (%) Mar-19 Jun-19Promoters 70.6 70.6 Institutions 21.9 21.9 Retail 6.2 6.2 Others 1.2 1.3 Total 100.0 100.0

1 Year Stock Price Performance

Note: * CMP as on July 24, 2019

Key Financials

(Rs mn) FY19 FY20E FY21ELoan & Adv. 42,77,273 47,69,159 53,41,458

NII 1,44,781 1,59,902 1,78,033

PPP ex Expt. Items 1,05,909 1,18,782 1,31,838

Reported Profits 3,470 32,353 51,475

P/E (x) 53.8 5.8 3.6

Adj. BV (Rs) 78.9 226.5 339.0

P/ABV (x) 3.1 1.1 0.7

Research Analyst : Mona KhetanContact : (022) 3303 4634Email : [email protected]

D. Vijiya RaoContact : (022) 3303 4633Email : [email protected]

Change of Estimates (%) FY20E FY21ENet Operating Revenue (0.9) (0.7)Pre Provision Profits (1.8) (1.4)PAT (4.8) (5.5)

Quarterly Performance (Rs mn) 1Q FY20 1Q FY19 % yoy / bps 4Q FY19 % qoq / bps

Net Interest Income 32,406 38,829 (16.5) 35,002 (7.4)

Adjusted NII 32,406 31,059 4.3 30,948 4.7

Non Core Other Income 11,019 12,839 (14.2) 13,490 (18.3)

Other Income - Total 18,619 18,329 1.6 18,620 (0.0)

Net Operating Revenue 51,025 57,158 (10.7) 53,621 (4.8)

Total Opex 26,625 27,830 (4.3) 23,886 11.5

Pre Provision Profits 24,400 29,328 (16.8) 29,735 (17.9)

Provisions & Contingencies - Total 18,991 25,823 (26.5) 55,235 (65.6)

Profit Before Tax 5,409 3,505 54.3 (25,500) (121.2)

Reported Profits 3,291 2,815 16.9 (5,515) (159.7)

Source: Company, RSec Research

190

210

230

250

270

290

310

Jul-

18

Aug

-18

Sep-

18

Oct

-18

Nov

-18

Dec

-18

Jan-

19

Feb-

19

Mar

-19

Apr

-19

May

-19

Jun-

19

Jul-

19

2

CMP* (Rs) 248



Canara BankBFSI | India


Target Price: Rs265

HOLD

Risks to View

f Downside Risks: Weaker-than-expected performance on asset quality front; lower-than-expected growth in loan book; and likely amalgamation with a weaker PSB.

f Upside Risks: Sharp improvement in asset quality; and better-than-expected loan growth.

Exhibit 1: Income Statement Analysis(Rs mn) 1Q FY20 1Q FY19 % yoy / bps 4Q FY19 % qoq / bps FY19 FY18 % yoy / bps Interest Inc. 1,22,005 1,13,596 7.4 1,21,385 0.5 4,68,103 4,12,521 13.5

Yield on Advances (%) 8.16 8.54 (38) 8.39 (23) 8.39 8.12 27

Yield on Invt. (%) 7.54 7.63 (9) 7.62 (8) 7.62 7.63 (1)

Yield on Assets (%) 7.19 7.73 (54) 7.59 (40) 7.59 7.34 25

Interest Expenses 89,599 74,767 19.8 86,383 3.7 3,23,322 2,90,888 11.2 Cost of Dep. (%) 5.75 5.49 26 5.66 9 5.66 5.60 6

Cost of Fund (%) 5.28 5.09 19 5.24 4 5.24 5.17 7

Net Interest Income 32,406 38,829 (16.5) 35,002 (7.4) 1,44,781 1,21,633 19.0 NII to Net Operative Income 63.51 67.93 (442) 65.28 (177) 68.77 63.66 511

NIM (%) 2.29 2.52 (23) 2.76 (47) 2.63 2.42 21

Dom. NIM (%) - 2.75 - 2.59 - - 2.65 -

Adjusted NII 32,406 31,059 4.3 30,948 4.7 1,37,526 1,10,668 24.3 Fee Income 7,600 5,490 38.4 5,130 48.1 19,590 18,890 3.7

Trading Profit 1,560 610 155.7 2,420 (35.5) 4,020 19,230 (79.1)

Recovery in w/off A/cs 3,270 5,000 (34.6) 1,110 194.6 13,040 9,360 39.3

Other Misc. Income 6,180 7,229 (14.5) 9,960 (38.0) 29,102 21,949 32.6

Non Core Other Income 11,019 12,839 (14.2) 13,490 (18.3) 46,162 50,539 (8.7) Other Income - Total 18,619 18,329 1.6 18,620 (0.0) 65,750 69,429 (5.3)

Other Inc to Net Oper. Income (%) 36.5 32.1 442 34.7 177 31.2 36.3 (511)

Net Operating Revenue 51,025 57,158 (10.7) 53,621 (4.8) 2,10,531 1,91,062 10.2

Employee Expenses 15,598 15,169 2.8 10,399 50.0 56,751 54,441 4.2

Empl. Cost/Oper. Exps. (%) 30.6 26.5 403 19.4 1,118 27.0 28.5 (154)

Other Opex 11,027 12,661 (12.9) 13,488 (18.2) 47,871 41,138 16.4

Other Opex/ Assets (%) 0.2 0.2 (5) 0.2 (5) 0.7 0.7 4

Total Opex 26,625 27,830 (4.3) 23,886 11.5 1,04,622 95,579 9.5 Cost to Income Ratio (%) 52.2 48.7 349 44.5 763 49.7 50.0 (33)

Pre Provision Profits 24,400 29,328 (16.8) 29,735 (17.9) 1,05,909 95,482 10.9 Provision towards NPAs 20,853 24,660 (15.4) 51,209 (59.3) 127,227 148,830 (14.5)

Provisions & Contingencies - Total 18,991 25,823 (26.5) 55,235 (65.6) 1,29,183 1,61,091 (19.8)NPA Provisions as % PPP 77.8 88.0 (1,022) 185.8 (10,793) 122.0 168.7 (4,674)

Profit Before Tax 5,409 3,505 54.3 (25,500) (121.2) (23,274) (65,609) (64.5) Tax 2,118 690 207.0 (19,985) (110.6) (26,744) (23,386) 14.4

Effective Tax Rate (%) 39.2 19.7 1,947 78.4 (3,921.1) 114.9 35.6 7,927

Reported Profits 3,291 2,815 16.9 (5,515) (159.7) 3,470 (42,222) (108.2)RoA (%) 0.19 0.19 - (0.36) 55.0 0.06 (0.74) 80

Basic EPS (Rs) 4.37 3.84 13.8 (7.40) (159.1) (7.40) (70.47) (89.5)

Diluted EPS (Rs) 4.37 3.84 13.8 (7.40) (159.1) (7.40) (70.47) (89.5)


3

CMP* (Rs) 248





Target Price: Rs265

HOLD

Exhibit 6: Loan Book Trend Exhibit 7: CASA Deposit Trend


Exhibit 4: Total OPEX Trend Exhibit 5: Provisions / Assets Trend


Exhibit 2: NII Trend Exhibit 3: Other Income Trend


2.2

2.2 2.2 2.3

2.3 2.4

2.4 2.5 2.6

3.0

2.8

2.3

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2Q F

Y17

3Q F

Y17

4Q F

Y17

1Q F

Y18

2Q F

Y18

3Q F

Y18

4Q F

Y18

1Q F

Y19

2Q F

Y19

3Q F

Y19

4Q F

Y19

1Q F

Y20

(%)(Rs mn)

Net Interest Income NIM (%)

1.3 1.3

1.7

1.4

1.3

1.1

0.9

1.2

1.0

0.8

1.1 1.1

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

0

5,000

10,000

15,000

20,000

25,000

30,000

2Q F

Y17

3Q F

Y17

4Q F

Y17

1Q F

Y18

2Q F

Y18

3Q F

Y18

4Q F

Y18

1Q F

Y19

2Q F

Y19

3Q F

Y19

4Q F

Y19

1Q F

Y20

(%)(Rs mn)

Other Income - Total Other Income / Assets

49.3 52

.9

41.8 48

.7

47.5

46.0

59.1

48.7 51.9 54

.1

44.5 52

.2

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

0

5,000

10,000

15,000

20,000

25,000

30,000

2Q F

Y17

3Q F

Y17

4Q F

Y17

1Q F

Y18

2Q F

Y18

3Q F

Y18

4Q F

Y18

1Q F

Y19

2Q F

Y19

3Q F

Y19

4Q F

Y19

1Q F

Y20

(%)(Rs mn)

Total Opex Cost to Income Ratio (%)

1.1 1.0

1.9

1.5 1.5

1.8

6.0

1.7 1.8

1.2

3.4

1.1

0

1

2

3

4

5

6

7

2Q F

Y17

3Q F

Y17

4Q F

Y17

1Q F

Y18

2Q F

Y18

3Q F

Y18

4Q F

Y18

1Q F

Y19

2Q F

Y19

3Q F

Y19

4Q F

Y19

1Q F

Y20

(%)

Provisions / Assets

-

1.4

3.1

0.2

4.5

4.1

2.3

1.2

6.0

1.9 2.

5

1.2

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

0 500

1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000

2Q F

Y17

3Q F

Y17

4Q F

Y17

1Q F

Y18

2Q F

Y18

3Q F

Y18

4Q F

Y18

1Q F

Y19

2Q F

Y19

3Q F

Y19

4Q F

Y19

1Q F

Y20

(%)(Rs bn)

Advances - Total Growth (qoq %)

29.1

32.1 32

.9

33.1 33

.8

33.8

34.3

32.4

32.3

32.2

30.9

29.5

26.027.028.029.030.031.032.033.034.035.0

0 200 400 600 800

1,000 1,200 1,400 1,600 1,800 2,000

2Q F

Y17

3Q F

Y17

4Q F

Y17

1Q F

Y18

2Q F

Y18

3Q F

Y18

4Q F

Y18

1Q F

Y19

2Q F

Y19

3Q F

Y19

4Q F

Y19

1Q F

Y20

(%)(Rs bn)

CASA Deposits CASA Ratio (%)

4

CMP* (Rs) 248





Target Price: Rs265

HOLD

Exhibit 8: Balance Sheet Analysis

(Rs mn) 4Q FY18 1Q FY19 2Q FY19 3Q FY19 4Q FY19 1Q FY20 QoQ % / bps YoY % / bps

Net Worth 3,56,048 3,59,152 3,63,003 3,65,347 3,61,772 3,66,056 1.2 1.9

CET1 (%) 9.5 9.4 9.1 8.8 8.3 8.2 (11) (115)

Tier 1 (%) 10.3 10.1 9.9 9.5 9.0 8.9 (12) (120)

Total CAR (%) 13.2 13.0 12.6 12.2 11.9 11.7 (20) (130)

RWA - Total 35,16,980 35,84,880 36,90,980 38,05,100 35,24,550 36,30,530 3.0 1.3

Advances - Total 38,17,030 38,62,527 40,95,286 41,72,274 42,77,273 43,27,681 1.2 12.0

Investments 14,40,537 14,44,632 15,16,882 15,26,945 15,29,853 15,39,233 0.6 6.5

Total Assets 61,68,861 62,02,980 65,08,221 67,21,304 69,47,667 70,03,226 0.8 12.9

RoA (%) (0.75) 0.19 0.20 0.21 (0.36) 0.19 55 -

Deposits 52,47,719 53,32,737 55,19,260 57,55,247 59,90,333 61,06,738 1.9 14.5

Saving Deposit 14,20,510 14,14,660 14,64,460 14,96,890 15,15,350 14,85,290 (2.0) 5.0

Current Deposit 2,49,839 2,11,850 2,32,120 2,47,020 2,32,740 2,17,900 (6.4) 2.9

CASA Deposits 16,70,349 16,26,510 16,96,590 17,43,910 17,48,090 17,03,190 (2.6) 4.7

CASA Ratio (%) 34.3 32.4 32.3 32.2 30.9 29.5 (136) (293)

Term Deposits 31,89,590 33,82,147 35,42,880 36,58,220 39,11,083 44,03,548 12.6 30.2

Interest Bearing Liabilities - Total 56,35,804 56,77,871 60,12,158 61,74,315 64,00,256 64,93,296 1.5 14.4


Exhibit 9: Loan Book/ AUM Analysis (Rs mn)(Rs mn) 4Q FY18 1Q FY19 2Q FY19 3Q FY19 4Q FY19 1Q FY20 QoQ % / bps YoY % / bps

Advances (Net) 38,17,030 38,62,530 40,95,290 41,72,270 42,77,270 43,27,680 1.2 12.0

Agriculture 8,40,120 8,48,840 8,79,470 9,12,210 9,18,251 9,26,890 0.9 9.2

MSME 8,20,980 8,30,830 8,81,430 9,08,060 8,51,680 8,88,510 4.3 6.9

Retail Credit 6,50,860 6,84,160 7,60,530 7,62,120 8,78,856 9,08,223 3.3 32.8

Corporate Advances 15,05,070 14,98,700 15,73,860 15,89,880 16,28,486 16,04,059 (1.5) 7.0

Advances - Total 38,17,030 38,62,527 40,95,286 41,72,274 42,77,273 43,27,681 1.2 12.0


5

CMP* (Rs) 248





Target Price: Rs265

HOLD

Exhibit 10: Funding Mix & Incremental Contribution(Rs mn) As on (Rs mn) As % of

Total Credit

YoY/ YTD growth Incremental Contribution YoY/ YTD Growth (%)

FY17 FY18 FY19 1Q FY20 FY18 FY19 1Q FY20 FY18 FY19 1Q FY20

Deposits 49,52,752 52,47,719 59,90,333 61,06,738 89.0 6.0 14.2 1.9 96.0 96.4 119.6

Saving Deposit 12,71,676 14,20,510 15,15,350 14,85,290 21.7 11.7 6.7 (2.0) 48.4 12.3 (30.9)

Current Deposit 2,25,810 2,49,839 2,32,740 2,17,900 3.2 10.6 (6.8) (6.4) 7.8 (2.2) (15.2)

CASA Deposits 14,97,486 16,70,349 17,48,090 17,03,190 24.8 11.5 4.7 (2.6) 56.3 10.1 (46.1)

Term Deposits 30,48,611 31,89,590 39,11,083 44,03,548 64.2 4.6 22.6 12.6 45.9 93.7 506.0

Deposit - Outside India 4,06,655 3,87,780 3,31,160 3,32,350 4.8 (4.6) (14.6) 0.4 (6.1) (7.4) 1.2

Borrowings 3,95,036 3,88,085 4,09,923 3,86,558 5.6 (1.8) 5.6 (5.7) (2.3) 2.8 (24.0)

Int. Bearing Liabi.- Total 53,47,788 56,35,804 64,00,256 64,93,296 94.7 5.4 13.6 1.5 93.8 99.3 95.6

Net Worth 3,36,855 3,56,048 3,61,772 3,66,056 5.3 5.7 1.6 1.2 6.2 0.7 4.4

Working Fund 56,84,643 59,91,852 67,62,028 68,59,353 100.0 5.4 12.9 1.4 100.0 100.0 100.0

Cost of Fund (%) 5.6 5.2 5.2 5.3 (42) 7 4


Exhibit 11: Asset Quality Analysis (Rs mn) 4Q FY18 1Q FY19 2Q FY19 3Q FY19 4Q FY19 1Q FY20 QoQ % / bps YoY % / bps

Total Slippages 1,32,420 42,050 36,970 51,090 24,690 36,760 48.9 (12.6)

Slippages Ratio (%) 3.87 1.10 0.97 1.34 0.65 0.86 21 (24)

Gross NPA 4,74,685 4,46,596 4,52,332 4,46,213 3,92,241 3,93,990 0.4 (11.8)

Gross NPAs Ratio (%) 11.84 11.05 10.56 10.25 8.83 8.77 (6) (228)

PCR - Calculated (%) 39.9 40.2 40.8 40.4 41.5 41.2 (23) 101

PCR - Inc. Tech w/o (%) 58.1 60.7 61.4 62.5 68.1 68.6 49 793

Net NPA 2,85,424 2,66,935 2,67,776 2,65,911 2,29,551 2,31,496 0.8 (13.3)

Net NPAs Ratio (%) 7.48 6.91 6.54 6.37 5.37 5.35 (2) (156)

Standard Restructured 36,884 43,649 40,693 41,356 44,160 48,519 9.9 11.2

Std. Rest. Adv. as % of Advances 1.0 1.1 0.95 0.94 0.99 1.08 9 -


6

CMP* (Rs) 248





Target Price: Rs265

HOLD

Profit & Loss StatementY/E Mar (Rs mn) FY18 FY19 FY20E FY21E

Int. Income / Opr. Revenue 4,12,521 4,68,103 5,22,709 5,76,380

Interest Expenses 2,90,888 3,23,322 3,62,807 3,98,347

Net Interest Income 1,21,633 1,44,781 1,59,902 1,78,033 NIM (%) 2.16 2.37 2.38 2.42

Fee Income 18,890 19,590 22,920 26,358 Trading Profit 19,230 4,020 6,432 7,718

Recovery in w/off A/cs 9,360 13,040 14,996 16,496

Other Misc. Income 21,949 29,100 32,010 35,211

Other Income - Total 69,429 65,750 76,358 85,783

Net Operating Revenue 1,91,062 2,10,531 2,36,260 2,63,817

Employee Exp. 54,441 56,751 62,426 68,669

Other Opex 41,138 47,871 55,052 63,309

Total Opex 95,579 1,04,622 1,17,478 1,31,978

C/I Ratio (%) 50.03 49.69 49.72 50.03

Pre Provision Profits 95,482 1,05,909 1,18,782 1,31,838

PPP Growth (yoy %) 7.1 10.9 12.2 11.0

Core PPP 84,517 98,654 1,18,782 1,31,838

Total Stress Loan Provision 1,45,611 1,18,116 67,332 52,527

Standard Assets Provision 50 2,960 1,968 2,289

Investment Depreciation 15,430 8,107 3,265 3,487

Provisions & Contingencies - Total 1,61,091 1,29,183 72,564 58,303

Credit Cost (As % of Op. AUM) 4.26 3.09 1.57 1.10

Profit Before Tax (65,609) (23,274) 46,219 73,536

Tax (23,386) (26,744) 13,866 22,061

Effective Tax Rate (%) 35.6 114.9 30.0 30.0

Reported Profits (42,222) 3,470 32,353 51,475

PAT Growth (yoy %) (476.3) (108.2) 832.3 59.1

Balance SheetY/E March (Rs mn) FY18 FY19 FY20E FY21E

Equity Share Capital 7,332 7,532 7,532 7,532

Reserves (ex Revel. Reserve) 2,83,469 2,89,758 3,22,111 3,72,679

Net Worth - Ex Revaluation 2,90,801 2,97,291 3,29,644 3,80,212 Revaluation Reserve 65,247 64,482 62,681 61,031

Deposits 52,47,719 59,90,333 64,85,181 71,71,236

Borrowings 3,88,085 4,09,923 4,13,948 4,57,738

Interest Bearing Liabilities 56,35,804 64,00,256 68,99,129 76,28,975 Other Lia. & Prov. 1,77,009 1,85,639 1,98,815 1,96,792

Total Liabilities 61,68,861 69,47,667 74,90,269 82,67,009

Assets Cash & Cash Equivalent 4,99,123 6,61,527 5,76,141 6,37,633

Investments 14,40,537 15,29,853 16,32,407 17,43,356

Loan & Advances (Rs mn) 38,17,030 42,77,273 47,69,159 53,41,458

Growth (yoy %) 11.6 12.1 11.5 12.0

Fixed Assets 83,186 84,102 86,057 88,201

Other Assets 3,28,985 3,94,912 4,26,505 4,56,360

Total Assets 61,68,861 69,47,667 74,90,269 82,67,009

7

CMP* (Rs) 248





Target Price: Rs265

HOLD

Per Share DataY/E Mar FY18 FY19 FY20E FY21E

Face Value (Rs) 10 10 10 10

Adjusted Share O/S (mn) 733 753 753 753

Earnings Per Share (Rs) (57.6) 4.6 43.0 68.3

EPS (% YoY) (406.6) (108.0) 832.3 59.1

P/E (x) (4.3) 53.8 5.8 3.6

Book Value (Rs) 396.6 394.7 437.6 504.8

BVPS (% YoY) (16.3) (0.5) 10.9 15.3

P/BV (x) 0.6 0.6 0.6 0.5

Adj. BV (Rs) (2.7) 78.9 226.5 339.0

Adj. BV (% YoY) (103.5) (2,996.1) 186.9 49.6

P/ABV (x) -91.0 3.1 1.1 0.7

Detail RoA Tree AnalysisY/E Mar (%) FY18 FY19 FY20E FY21E Yields / Margins

Yield on Advance 8.0 8.5 8.6 8.6 Yield on Funds 7.3 7.7 7.8 7.8 Cost of Funds (CoF) 5.3 5.4 5.5 5.5

Interest Spread 2.0 2.3 2.3 2.4

NIM's 2.2 2.4 2.4 2.4

Interest Income / Assets 6.9 7.1 7.2 7.3

Interest Exp. / Assets 4.8 4.9 5.0 5.1 NII / Assets 2.0 2.2 2.2 2.3

Fee Income / Assets 0.3 0.3 0.3 0.3

Other Non Core Income / Assets 0.2 0.2 0.2 0.2

Other Income / Assets 1.2 1.0 1.1 1.1

Net Operating Income / Assets 3.2 3.2 3.3 3.3

Operating Ratios

NII to Net Operative Income 63.7 68.8 67.7 67.5

Other Income to Net Operative Inc. 36.3 31.2 32.3 32.5

Empl. Cost/Oper. Exps. 57.0 54.2 53.1 52.0

Other Op. Exps./Oper. Exps. 43.0 45.8 46.9 48.0

C/I Ratio (%) 50.0 49.7 49.7 50.0

Provisions as % PPP 84.3 61.4 30.7 22.1

Credit Cost (As % of Op. AUM) 4.3 3.1 1.6 1.1


Employee Exp. / Assets 0.9 0.9 0.9 0.9 Other Opex/ Assets 0.7 0.7 0.8 0.8

Total Opex / Assets 1.6 1.6 1.6 1.7 Operating Profits / Assets 1.6 1.6 1.6 1.7

Provisions / Assets 2.7 2.0 1.0 0.7

Profit Before Tax / Assets (1.1) (0.4) 0.6 0.9 Tax Expenses / Assets (0.4) (0.4) 0.2 0.3

RoA (0.7) 0.1 0.4 0.7 Leverage (x) 21.2 23.4 22.7 21.7

RoE (12.2) 1.0 8.6 12.4

8

CMP* (Rs) 248





Target Price: Rs265

HOLD

Balance Sheet RatioY/E Mar (%) FY18 FY19 FY20E FY21E

Credit / Deposit Ratio 72.7 71.4 73.5 74.5

Incremental C/D Ratio 134.6 62.0 99.4 83.4

Investment Deposit Ratio 27.5 25.5 25.2 24.3

Dom. SLR Investment / Deposits 26.3 23.8 23.4 22.5

CASA Ratio 34.4 30.9 29.0 30.0

Credit QualityY/E Mar (Rs mn) FY18 FY19 FY20E FY21E

Slippage Ratio (%) 7.2 4.1 3.3 2.2

Gross NPA 4,74,685 3,92,245 2,74,103 2,24,268

Gross NPAs Ratio (%) 11.8 8.8 5.5 4.0

PCR (%) 39.9 41.5 45.0 48.0

PCR - Inc. Tech w/o (%) 58.1 68.1 - -

Net NPA 2,85,424 2,29,551 1,50,756 1,16,619

Net NPAs Ratio (%) 7.5 5.4 3.2 2.2

Capital and Asset-Liability Profile Y/E Mar (%) FY18 FY19 FY20E FY21E

Total RWAs (Rs mn) 35,16,980 35,24,550 39,63,338 43,78,628 RWA as % of Total Assets 57.0 50.7 52.9 53.0

Total Shareholders’ Equity to Assets (x) 4.7 4.3 4.4 4.6 CET 1 Ratio 9.5 8.3 8.1 8.4

AT 1 Ratio 0.8 0.7 0.6 0.6

Tier 1 Ratio 10.3 9.0 8.8 9.0

Tier 2 Ratio 2.9 2.9 2.8 2.8

Total CRAR Ratio 13.2 11.9 11.6 11.8

Key Assumptions & ForecastsY/E Mar (%) FY18 FY19 FY20E FY21E

Loan & Advances (Rs mn) 38,17,030 42,77,273 47,69,159 53,41,458

Growth (yoy %) 11.6 12.1 11.5 12.0

Interest Bearing Liabilities (Rs mn) 56,35,804 64,00,256 68,99,129 76,28,975

Growth (yoy %) 11.6 12.1 11.5 12.0

Yield on Funds 7.3 7.7 7.8 7.8

Cost of Funds (CoF) 5.3 5.4 5.5 5.5

Interest Spread 2.0 2.3 2.3 2.4

NIM's 2.2 2.4 2.4 2.4

Other Income Growth (8.1) (5.3) 16.1 12.3

C/I Ratio (%) 50.0 49.7 49.7 50.0


Return Ratios Adj. RoA (0.7) 0.1 0.4 0.7

Adj. RoE (12.2) 1.0 8.6 12.4

Asset Quality Metrics Credit Cost (As % of Op. AUM) 4.3 3.1 1.6 1.1

Gross NPAs Ratio (%) 11.8 8.8 5.5 4.0

Net NPAs Ratio (%) 7.5 5.4 3.2 2.2

9

CMP* (Rs) 248





Target Price: Rs265

HOLD

Reliance Securities Limited (RSL), the broking arm of Reliance Capital is one of the India’s leading retail broking houses. Reliance Capital is amongst India’s leading and most valuable financial services

companies in the private sector. Reliance Capital has interests in asset management and mutual funds, life and general insurance, commercial finance, equities and commodities broking, wealth

management services, distribution of financial products, private equity, asset reconstruction, proprietary investments and other activities in financial services. The list of associates of RSL is available on

the website www.reliancecapital.co.in. RSL is registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014

General Disclaimers: This Research Report (hereinafter called ‘Report’) is prepared and distributed by RSL for information purposes only. The recommendations, if any, made herein are expression of

views and/or opinions and should not be deemed or construed to be neither advice for the purpose of purchase or sale of any security, derivatives or any other security through RSL nor any solicitation

or offering of any investment /trading opportunity on behalf of the issuer(s) of the respective security(ies) referred to herein. These information / opinions / views are not meant to serve as a professional

investment guide for the readers. No action is solicited based upon the information provided herein. Recipients of this Report should rely on information/data arising out of their own investigations.

Readers are advised to seek independent professional advice and arrive at an informed trading/investment decision before executing any trades or making any investments. This Report has been

prepared on the basis of publicly available information, internally developed data and other sources believed by RSL to be reliable. RSL or its directors, employees, affiliates or representatives do not

assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information / opinions / views. While due care has been taken to ensure that the disclosures and

opinions given are fair and reasonable, none of the directors, employees, affiliates or representatives of RSL shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary

damages, including lost profits arising in any way whatsoever from the information / opinions / views contained in this Report.

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investments referred to herein may not be suitable to all categories of traders/investors. The names of securities mentioned herein do not in any manner indicate their prospects or returns. The value

of securities referred to herein may be adversely affected by the performance or otherwise of the respective issuer companies, changes in the market conditions, micro and macro factors and forces

affecting capital markets like interest rate risk, credit risk, liquidity risk and reinvestment risk. Derivative products may also be affected by various risks including but not limited to counter party risk, market

risk, valuation risk, liquidity risk and other risks. Besides the price of the underlying asset, volatility, tenor and interest rates may affect the pricing of derivatives.

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Disclosure of Interest: The research analysts who have prepared this Report hereby certify that the views /opinions expressed in this Report are their personal independent views/opinions in respect of

the securities and their respective issuers. None of RSL, research analysts, or their relatives had any known direct /indirect material conflict of interest including any long/short position(s) in any specific

security on which views/opinions have been made in this Report, during its preparation. RSL’s Associates may have other potential/material conflict of interest with respect to any recommendation and

related information and opinions at the time of publication of research report. RSL, its Associates, the research analysts, or their relatives might have financial interest in the issuer company(ies) of the

said securities. RSL or its Associates may have received a compensation from the said issuer company(ies) in last 12 months for the brokerage or non brokerage services.RSL, its Associates, the research

analysts or their relatives have not received any compensation or other benefits directly or indirectly from the said issuer company(ies) or any third party in last 12 months in any respect whatsoever for

preparation of this report.

The research analysts has served as an officer, director or employee of the said issuer company(ies)?: No

RSL, its Associates, the research analysts or their relatives holds ownership of 1% or more, in respect of the said issuer company(ies).?: No

Copyright: The copyright in this Report belongs exclusively to RSL. This Report shall only be read by those persons to whom it has been delivered. No reprinting, reproduction, copying, distribution of this

Report in any manner whatsoever, in whole or in part, is permitted without the prior express written consent of RSL.

RSL’s activities were neither suspended nor have defaulted with any stock exchange with whom RSL is registered. Further, there does not exist any material adverse order/judgments/strictures assessed

by any regulatory, government or public authority or agency or any law enforcing agency in last three years. Further, there does not exist any material enquiry of whatsoever nature instituted or pending

against RSL as on the date of this Report.

Important These disclaimers, risks and other disclosures must be read in conjunction with the information / opinions / views of which they form part of.

RSL CIN: U65990MH2005PLC154052. SEBI registration no. ( Stock Brokers: NSE - INB / INF / INE 231234833; BSE - INB / INF / INE 011234839, Depository Participants: CDSL IN-DP-257-2016 IN-DP-

NSDL-363-2013, Research Analyst: INH000002384); AMFI ARN No.29889.

Rating GuidesRating Expected absolute returns (%) over 12 monthsBUY >10%

HOLD -5% to 10%

REDUCE >-5%

Date Reco CMP TP

14-May-19 HOLD 243 265

29-Jan-19 HOLD 240 220

26-July-18 HOLD 279 273

16-May-18 HOLD 241 260

25-Jan-18 HOLD 361 390

31-Oct-17 HOLD 406 390

20-Jul-17 HOLD 353 348

10-May-17 HOLD 369 384

20-Jan-17 BUY 273 360

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Rating History

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