INDIA DAILY

August 22, 2022 India 19-Aug 1-day 1-mo 3-mo

Sensex 59,646 (1.1) 6.4 9.8
Nifty 17,758 (1.1) 6.2 9.2

Contents Global/Regional indices

Dow Jones 33,707 (0.9) 5.7 7.8
Daily Alerts Nasdaq Composite 12,705 (2.0) 7.4 11.9

Company alerts FTSE 7,550 0.1 3.8 2.2

Nikkei 28,628 (1.0) 2.6 7.1
ICICI Bank: The Indian redwood
Hang Seng 19,572 (1.0) (5.0) (5.5)
 Provisions have started to decline in retail business; corporate segment KOSPI 2,474 (0.7) 3.4 (6.3)
seeing business recovery
Value traded – India
 Strong upgrade and recovery show that we have fewer concerns on asset Cash (NSE+BSE) 678 370 127
quality Derivatives (NSE) 260,969 68,893
113,1
13
 Maintain BUY: playing to its strength Deri. open interest 17,123 9,685
10,91
2
GAIL (India): Triple whammy of gas allocation, tariff cut and spread reduction

 Transmission: gas allocation cut to impact near-term earnings; tariff Forex/money market
adjustment can take longer Change, basis points

 New regulator, but no change in methodology yet; sharp 41-98% tariff 19-Aug 1-day 1-mo 3-mo

Rs/US$ 79.8 10 (17) 206

cuts worrisome
10yr govt bond, % 7.3 2 (17) (6)
Sector alerts
Net investment (US$ mn)
Banks: Capex led loan demand is not visible, as yet 17-Aug MTD CYTD

 Sanctions up ~90% yoy from FY2021 trough, but well below pre-pandemic FIIs 542 6,096 23,258
(1,054
levels MFs 14 (6,435)
)
Top movers
 Infrastructure is the preferred destination for bank funding; mega projects
Change, %
remain out of favor
Best performers 19-Aug 1-day 1-mo 3-mo

 Still in early stages of corporate re-leveraging cycle; expect retail/MSME to TVSL in Equity 959 (1.6) 8.9 41.2

drive bank credit MM in Equity 1,239 (1.7) 4.5 40.4

Economy alerts BJFIN in Equity 16,288 (3.1) 30.9 31.2

INFOE in Equity 4,454 (0.3) 7.9 30.9

Economy: MPC minutes restate the need for further rate hikes
BOS in Equity 17,376 (1.3) 5.9 30.5

 MPC members wary of elevated inflation and near-term risks to inflation Worst performers

NMDC in Equity 116 (0.8) 11.7 (17.2)

 Members cautious on global growth; optimistic on domestic growth
ONGC in Equity 135 (0.7) 5.2 (15.9)
 Need for aggressive rate hikes lower; rate hikes to continue VEDL in Equity 262 (1.3) 9.7 (13.7)

GAIL in Equity 133 (1.8) (5.1) (13.4)

RBK in Equity 100 (3.1) 9.4 (12.2)

[email protected]
Contact: +91 22 6218 6427

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES.
REFER TO THE END OF THIS MATERIAL.
 BUY
ICICI Bank (ICICIBC)
https://ultraviewer.et/en/own AUGUST 19, 2022
Banks
load.html
UPDATE
Sector view: Attractive

The Indian redwood. The annual report and 20F filings give strong support to the CMP (`): 870
argument that ICICI Bank is one of the best-positioned banks that is standing tall and Fair Value (`): 1,025
strong by leading recovery in earnings, loan growth and profitability metrics post Covid.
BSE-30: 59,646
Provisions in retail division have declined yoy while it is pre-FY2015 for the corporate
book. The bank is focusing on a broad-based loan growth building on SME and business
banking. ICICI Bank remains our top pick; we revise FV to Rs1,025 (from Rs975 earlier).

ICICI Bank
Stock data Forecasts/valuations 2022 2023E 2024E
CMP(Rs)/FV(Rs)/Rating 870/1,025/BUY EPS (Rs) 33.6 44.7 45.9
52-week range (Rs) (high-low) 888-642 EPS growth (%) 43.5 33.0 2.9
Mcap (bn) (Rs/US$) 6,059/76 P/E (X) 25.9 19.5 18.9 QUICK NUMBERS
ADTV-3M (bn) (Rs/US$) 9.2/0.2 P/B (X) 3.7 3.3 2.8
Shareholding pattern (%) BVPS 232.9 267.2 305.7
 Strong recovery in
Promoters 0.0 RoE (%) 14.9 17.0 15.4
FPIs/MFs/BFIs 53.1/24.3/10.9 Div. yield (%) 0.6 1.0 1.1 corporate profits
Price performance (%) 1M 3M 12M NII (Rs bn) 475 560 597 with provisions
Absolute 11.5 26.1 26.5 PPOP (Rs bn) 393 458 486
closer to FY2014
Rel. to BSE-30 2.6 13.1 19.2 Net profits (Rs bn) 233 310 319
levels
Source: Bloomberg, Kotak Institutional Equities estimates

 Recovery and
Provisions have started to decline in retail business; corporate segment seeing business recovery upgradation
The key takeaways from the annual report and 20F filings of the bank: (1) Provisions declined leading the
~20% yoy in the retail business and 40% yoy in the corporate division, (2) revenue growth in reduction in gross
the corporate and retail businesses was similar at 18% yoy, (3) stress levels, which had NPL ratios
increased post-Covid in the retail business, have declined in FY2022 while the corporate
business showed further improvement yoy, (4) capital market-related subsidiaries had a strong  Maintain BUY with
year and (5) there has been repatriation of capital from the UK subsidiary. FV at Rs1,025 (from
Rs975 earlier)
Strong upgrade and recovery show that we have fewer concerns on asset quality

The disclosures on asset quality metrics are richer in the annual report and 20F filings than those
are available in the quarterly releases. (1) Strongest year in terms of recovery and upgrades for
the bank largely led by the retail division, suggesting that the risk in underwriting is quite
limited despite higher stress reported in recent years as the borrowers have started to regularize
their overdue or have entered into settlement. (2) Slippage in the corporate book was at 1.2%
while retail was at 3%. The retail division continued to see higher slippages but we should M B Mahesh, CFA
expect recovery from FY2023. (3) Coverage ratio is at ~60% in the retail book and ~90% in the
corporate portfolio. Within the retail book, coverage in the mortgage is ~50% while other
unsecured loans at 80% levels. We have reached a point where we would be comfortable to Nischint Chawathe
argue that there is further headroom available to reduce our credit costs estimates. Healthy
investments in business continue, which imply that we should see better-than-industry average
on loan growth as well. Abhijeet Sakhare

Maintain BUY: playing to its strength

Ashlesh Sonje, CFA
ICICI Bank has come out of Covid exceptionally well and we see this as an important outcome
when we look at the rationale to command premium multiples. The bank’s liability franchise is
strong, has made fewer mistakes in this brief but yet deep Covid cycle, which implies that it is Varun Palacharla
ready to capitalize on any growth opportunities that lie ahead. The bank is focusing on building
working capital and a more granular business to de-risk the portfolio against any unexpected
economic shocks. We maintain BUY rating with FV revised to Rs1,025 (from Rs975 earlier),
valuing the bank at 2.7X book and 20X June 2023E EPS for RoEs moving closer to 15% levels.

[email protected]
Contact: +91 22 6218 6427

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
 ICICI Bank Banks

Exhibit 1: The lending business contributes ~90% of the consolidated profits of the bank
Contribution of profits from individual business to consolidated profits, March fiscal year-ends, 2007-22 (Rs bn)
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Lending business
ICICI standalone adjusted 27 30 34 37 47 57 74 85 97 82 84 56 23 67 150 215
ICICI Bank UK 2 2 — 2 2 1 1 2 1 — (1) (2) (4) 2 1 1
ICICI Bank Canada — 1 1 1 2 2 3 3 2 1 (2) 2 3 3 — 2
ICICI Bank Eurasia (0) — (0) 1 — — — —
ICICI Home Finance 0 1 1 2 2 3 2 2 2 2 2 1 — — — 2
Total lending business 29 33 37 42 53 63 80 92 102 85 83 57 22 72 151 219
Insurance
ICICI Prudential Life (7) (14) (8) 3 8 14 15 16 16 17 17 16 11 11 10 8
ICICI Lombard 1 1 — 1 (1) (4) 3 5 5 5 7 9 10 12 15 13
Total insurance business (6) (13) (8) 4 7 10 18 21 22 22 24 25 22 23 24 20
Capital Markets
ICICI Securities 1 2 — 1 1 1 1 1 2 2 3 5 5 5 11 14
ICICI Securities PD 1 1 3 1 1 1 1 1 2 2 4 1 1 3 6 3
ICICI Prudentual AMC — 1 — 1 1 1 1 2 2 3 5 6 7 10 10 10
ICICI Venture Funds 1 1 1 1 1 1 — — — (0) — — 1 — — —
Total capital market 3 5 4 4 3 3 3 4 7 7 12 13 13 19 27 28
Conslidated profits 28 34 36 47 61 76 96 110 122 102 102 77 43 96 184 251
Consolidated net worth 243 451 471 513 553 613 688 764 847 941 1,046 1,106 1,143 1,230 1,576 1,821
Consolidated assets 3,943 4,856 4,827 4,983 5,338 6,042 6,748 7,475 8,261 9,188 9,860 11,243 12,388 13,773 15,738 17,526
Notes:
(a) Intra group adjustments have not been fully factored and hence, would be not be exactly at 100%.

Source: Company, Kotak Institutional Equities

Exhibit 2: We are seeing a gradual normalcy in business Exhibit 3: RoEs likely to increase in FY2023E and then stabilize
Revenue and earnings growth, March fiscal year-ends, 2008-25E (%) RoE (core), March fiscal year-ends, 2008-25E (%)

Revenue growth (LHS) Earnings growth (RHS) 17

24 400

14
18 300

10
12 200

7
6 100

- - 3

(6) (100) 0
2023E
2024E
2025E
2017
2008
2009
2010
2011
2012
2013
2014
2015
2016

2018
2019
2020
2021
2022
2025E
2023E
2024E
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

Source: Company, Kotak Institutional Equities estimates Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3

 Banks ICICI Bank

Exhibit 4: Retail banking contributes majority of profits before tax; corporate book’s contribution has turned meaningfully positive
Segmental break-up of income, growth and contribution, March fiscal year-ends, 2015-22 (Rs bn)

Income (Rs bn) Growth (%, yoy) Proportion (%)

2015 2016 2017 2018 2019 2020 2021 2022 2015 2016 2017 2018 2019 2020 2021 2022 2015 2016 2017 2018 2019 2020 2021 2022
Retail banking
Net interest income 71 92 113 134 158 194 223 259 24 29 23 19 18 23 15 16 38 43 52 58 59 58 57 55
Non-interest income 43 49 58 66 76 90 84 104 18 15 17 14 16 18 (6) 24 35 32 29 38 52 55 45 56
Third party products 9 10 13 15 14 12 13 11 41 8 30 13 (4) (18) 9 (11) 8 7 7 9 10 7 7 6
Total revenues 114 141 171 200 234 284 308 363 22 23 21 17 17 21 9 18 37 39 41 49 56 57 53 55
Total expenses 86 98 112 121 141 166 161 195 13 14 15 8 16 18 (3) 21 75 77 76 77 78 77 75 73
Operating profit 28 43 59 79 93 117 147 169 61 53 36 35 18 26 26 15
Provisions 1 4 5 7 11 27 70 55 NM 401 18 59 48 146 156 (21) 2 3 3 4 6 19 43 63
PBT 27 39 54 71 82 90 77 114 49 43 38 33 15 9 (14) 47 17 32 48 96 218 64 38 37
Corporate banking
Net interest income 84 84 66 61 73 99 111 126 12 (1) (21) (7) 20 35 12 14 44 39 30 26 27 30 28 27
Non-interest income 39 38 35 36 40 44 36 48 (4) (3) (7) 2 12 9 (18) 32 32 25 18 21 28 27 19 26
Total revenues 123 122 101 97 114 143 147 174 6 (2) (17) (4) 17 26 3 18 40 33 24 24 27 29 25 26
Total expenses 28 26 32 33 35 40 44 55 16 (7) 25 2 5 14 10 27 24 20 22 21 19 18 20 21
Operating profit 96 96 69 64 79 103 103 118 4 0 (28) (7) 24 30 (0) 15
Provisions 33 108 143 147 182 94 45 28 28 225 32 3 24 (48) (52) (38) 88 93 94 85 92 67 28 32
PBT 62 (12) (74) (83) (102) 9 58 91 (6) NM NM NM NM NM 528 56 39 (10) (66) (111) (271) 7 29 30
Treasury and others
Net interest income 35 37 38 35 39 40 56 89 9 6 5 (9) 11 4 40 60 18 17 18 15 14 12 14 19
Non-interest income 40 66 102 73 29 31 69 33 45 66 54 (29) (61) 8 125 (52) 33 43 52 42 20 19 37 18
Dividend from subs 16 15 14 12 11 13 12 18 20 (2) (8) (14) (11) 18 (3) 48 13 10 7 7 7 8 7 10
Investment gains 15 38 86 63 13 16 52 7 13 25 44 36 9 10 27 4
Others 9 13 2 (3) 4 2 5 8 7 8 1 (2) 3 1 3 4
Total revenues 74 103 141 107 67 71 125 123 26 38 37 (24) (38) 5 77 (2) 24 28 34 27 16 14 22 19
Total expenses 1 2 (1) (6) (17) 9 54 17 (64) 129 (166) 386 170 (153) 509 (68) 1 2 (1) (4) (9) 4 25 6
Provisions 4 6 9 28 26 21 4 4
PBT 70 95 133 86 58 41 66 102 26 37 40 (36) (32) (29) 60 53 44 78 118 115 153 29 33 33
Total
Net interest income 190 212 217 230 270 333 390 475 16 11 2 6 17 23 17 22
Non-interest income 122 153 195 174 145 164 190 185 17 26 27 (11) (17) 13 15 (2)
- Bancassurance 9 10 13 15 14 12 13 11 41 8 30 13 (4) (18) 9 (11)
Total revenues 312 365 412 404 415 497 580 660 16 17 13 (2) 3 20 17 14
Total expenses 115 127 148 157 181 216 216 267 12 10 16 6 15 19 (0) 24
Provisions 38 117 152 173 197 141 162 86 44 209 30 14 14 (29) 15 (47)
PBT 159 122 113 74 38 140 202 306 14 (23) (8) (34) (49) 272 44 52

Source: Company, Kotak Institutional Equities

Decline in provisions and recovery in operating profits aid a strong recovery in PAT

Net profits grew ~50% yoy on the back of 15% yoy operating profit growth and ~20% yoy
decline in provisions. Operating profits grew 15% yoy on the back of ~18% yoy revenue
growth and 20% yoy growth in operating expenses. NII grew ~15% yoy while non-interest
income increased 24% yoy primarily as there is a recovery in nearly all the key fee income
lines. The sharp increase in operating expenses can be attributed to the recovery in loan
origination expenses (direct marketing expenses). Provisions declined 20% yoy as the bank’s
slippages have started to ease and with better trends on recovery and upgradation. Note
that the bank had a relatively higher coverage on the retail portfolio while the slippages
have come mostly from the secured loan portfolio, where the risk of a high credit cost is
quite negligible. The bank has been growing its revenues quite steadily in the past decade,
suggesting that the stress in this cycle should be far lower.

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH

ICICI Bank Banks

Exhibit 5: Net profit grew ~50% yoy on the back of healthy Exhibit 6: ICICI Bank has grown its loan book by ~20% CAGR in
operating profit growth and decline in provisions the past decade
Net profit and growth-retail, March fiscal year-ends, 2010-22 (Rs bn) Loan and growth-retail, March fiscal year-ends, 2010-22 (Rs bn)

(Rs bn) PBT Net profit growth (%) (Rs bn) Loans Loan growth (%)
5,500 48
120 150

90 75 4,400 36

60 0 3,300 24

30 -75 2,200 12

- -150 1,100 0

(30) -225 - -12

2015

2011
2012
2010
2011
2012
2013
2014

2016
2017
2018
2019
2020
2021
2022

2010

2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Source: Company, Kotak Institutional Equities Source: Company, Kotak Institutional Equities

Exhibit 7: NII has grown ~20% CAGR while non-interest income Exhibit 8: While there has been a decline in long-term cost-
grew 15% CAGR in the past decade income ratio, it increased primarily with higher lending activity
NII and non-interest income-retail, March fiscal year-ends, 2010-22 (Rs Operating expenses and cost-income ratio - retail, March fiscal year-
bn) ends, 2010-22

(Rs bn) Total expenses Cost-income ratio (%)

Net interest income Non-interest income
400 200 100

320 160 80

240 120 60

160 80 40

80 40 20

- - -
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

2021
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020

2022

Source: Company, Kotak Institutional Equities Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 5

Banks ICICI Bank

Exhibit 9: ICICI Bank reported 25% yoy increase in non-interest income with solid growth in
transaction banking and increase in lending-related activity
Break-up of non-interest income in the retail business, March fiscal year-ends, 2019-22 (%)

Transaction banking Lending Third party Others

100

80

60

40

20

0
2019 2020 2021 2022

Source: Company, Kotak Institutional Equities

Exhibit 10: Operating profit has grown by ~35% CAGR in the Exhibit 11: Provisions declined ~20% yoy after a sharp increase
past decade and 15% yoy post Covid
Net profit and growth-retail, March fiscal year-ends, 2010-22 (Rs bn) Loan and growth-retail, March fiscal year-ends, 2010-22 (Rs bn)

(Rs bn) Operating profit Operating profit growth (%) (Rs bn) Provisions LLP (%)
180 120 80 6.0

144 80 60 4.5

108 40 40 3.0

72 0 20 1.5

36 -40 - 0.0

- -80 (20) -1.5

2013

2021

2022
2010
2011
2012

2014
2015
2016
2017
2018
2019
2020

2022

2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021

Source: Company, Kotak Institutional Equities Source: Company, Kotak Institutional Equities

Provisions in wholesale segment back to FY2014 levels and declining sharply

PBT in the wholesale banking, after nearly five years of weak performance, has recovered
sharply and reported the best earnings print in its history. The earnings growth has not only
been driven by lower provisions but also driven by solid loan growth. The bank has reported
55% yoy earnings growth on the back of 15% yoy operating profit growth. NII grew 14%
yoy while non-interest income grew ~30% yoy with most of the growth coming from
transactional banking revenues. LLP is at 0.8% of loans (FY2015-19 was at 5.5% average
annually) and we should expect further decline in this ratio in FY2023 as we see the bank
shifting its corporate loan portfolio towards better rated assets and there is negligible stress
pending to be recognized in this portfolio as well.

6 KOTAK INSTITUTIONAL EQUITIES RESEARCH

ICICI Bank Banks

Exhibit 12: Wholesale banking profits, after ~5 years of weak Exhibit 13: Wholesale loans grew 8% in the past decade and
performance is recovering sharply recovering well from the NPL cycle currently
Net profit and growth-wholesale, March fiscal year-ends, 2010-22 (Rs Loan and growth-wholesale, March fiscal year-ends, 2010-22 (Rs bn)
bn)
(Rs bn) Loans Loan growth (%)
(Rs bn) PBT Net profit growth (%) 4,500 48
100 600

3,600 36
50 300

2,700 24
- 0

1,800 12
(50) -300

900 0
(100) -600

- -12

2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
(150) -900
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

Source: Company, Kotak Institutional Equities

Source: Company, Kotak Institutional Equities

Exhibit 14: NII has grown ~10% CAGR while non-interest income Exhibit 15: Operating expenses grew 10% in the past decade
was flat in the past decade but is recovering well currently but currently seeing higher investments with recovery underway
NII and non-interest income-wholesale, March fiscal year-ends, 2010- Operating expenses and cost-income ratio -wholesale, March fiscal
22 (Rs bn) year-ends, 2010-22

Net interest income Non-interest income

(Rs bn) Total expenses Cost-income ratio (%)
200 60 40

160 48 32

120 36 24

80 24 16

40 12 8

-
- -
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

Source: Company, Kotak Institutional Equities Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 7

Banks ICICI Bank

Exhibit 16: After a prolonged slowdown, we are currently witnessing recovery in fees in both
transaction banking as well as lending-related fees
Break-up of non-interest income in the corporate banking business, March fiscal year-ends, 2019-22 (%)

Transaction banking Lending linked fee Others

35

28

21

14

0
2019 2020 2021 2022

Source: Company, Kotak Institutional Equities

Exhibit 17: Operating profit has grown at ~5% CAGR since 2012 Exhibit 18: Provisions falling sharply and LLP is at 0.8%
Net profit and growth-wholesale, March fiscal year-ends, 2010-22 (Rs Loan and growth-wholesale, March fiscal year-ends, 2010-22 (Rs bn)
bn)
(Rs bn) Provisions LLP (%)
(Rs bn) Operating profit Operating profit growth (%) 200 8.0
120 60

160 6.4
96 40

120 4.8
72 20

80 3.2
48 0

40 1.6
24 -20

- 0.0
2015
2010
2011
2012
2013
2014

2016
2017
2018
2019
2020
2021
2022

- -40
2022
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021

Source: Company, Kotak Institutional Equities

Source: Company, Kotak Institutional Equities

8 KOTAK INSTITUTIONAL EQUITIES RESEARCH

ICICI Bank Banks

LOAN GROWTH – BALANCED PERFORMANCE WITH RECOVERY IN CORPORATE SEGMENT

The transition towards low-risk and granular assets, which began in FY2013, has continued over the years and
the trend continues even today. Overall retail loans contribute ~70% of the loan book but the texture of
growth within retail has expanded with segments like SME and business banking growing much faster.
Within the corporate book, the bank had been cautious on project finance and corporate finance, with
greater focus on building working capital loans. Further, after a long period of cautious outlook, we see
growth in the corporate segment as well.

ICICI Bank’s loan growth in FY2022 (up 17% yoy) was stronger as compared to the previous
year (up ~14% yoy in FY2021). Within overall advances, domestic advances grew 18% yoy
while overseas loan has increased off a low base. Retail advances grew 20% yoy, with
mortgages growing ~20% yoy, auto loans growing ~11% yoy and unsecured loans (credit
cards and personal loans) growing ~30% yoy.

ICICI Bank has been rebalancing its portfolio given the high share of lending in the riskier
segment in earlier years by shifting the composition of assets towards retail loans and less
risky corporate loan portfolio. The shift to the retail segment started sometime in FY2013
and the book has been growing quite strongly at ~18-20% CAGR. While the initial years of
loan growth in the retail segment was led by the housing sector, we are now seeing a shift
in lending towards the unsecured loan portfolio as the contribution from this segment has
more than doubled from ~4.5% in 2016 to >10% in FY2022.

The SME portfolio grew ~33% yoy, while the business banking portfolio grew ~45% yoy.
The bank’s focus in this segment is granular collateralized exposures.

The corporate loans portfolio (including SME borrowers with turnover >Rs2.5 bn) consists of
project finance, corporate finance and working capital credit. The domestic corporate
portfolio for the bank grew ~10% yoy in FY2022. We continue to see the exposure in some
of the stressed sectors like power and iron and steel declining.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 9

Banks ICICI Bank

Exhibit 19: Strong growth continues in the retail segment while the bank is gradually lowering its exposure in its stressed sectors
Break-up of loan portfolio, March fiscal year-ends, 2009-22 (%)

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Retail loans 48.7 43.7 38.8 39.3 37.7 40.8 43.5 47.3 50.6 54.7 58.5 61.5 67.4 69.3
Home loans 25.8 25.3 24.1 18.7 19.4 20.4 22.4 24.4 26.6 28.0 28.8 29.7 33.2 34.1
Auto loans 5.9 4.5 3.8 3.6 3.9 4.5 4.8 5.0 5.3 5.5 5.2 4.8 5.1 4.9
Commercial vehicles 7.4 7.3 6.8 6.9 5.1 3.6 2.7 2.8 3.1 3.2 3.7 3.4 3.2 2.8
Two wheeler loans 0.8 0.2 0.1 — — — — — — — 0.2 0.2 0.2 0.2
Personal loans 4.9 3.1 1.8 1.1 1.1 1.4 1.8 2.3 3.0 3.9 5.1 6.8 6.7 7.3
Credit cards 4.0 3.2 2.2 1.8 1.2 1.0 1.0 1.2 1.6 1.8 2.1 2.4 2.4 2.9
Others 7.2 7.0 10.0 10.8 11.6 11.0 12.2 13.5 14.1 16.5 17.1
Loans against FCNR deposits — — — — — 1.9 1.7 1.5 1.4 1.3 1.1 1.0 0.9 0.8
Non retail loans 51.3 56.3 61.2 60.7 62.3 59.2 56.5 52.7 49.4 45.3 41.5 38.5 32.6 30.7
Power 2.4 3.0 4.4 5.4 6.2 6.4 6.2 6.1 6.3 5.1 3.3
Infrastructure ex power 4.2 5.5 5.8 6.9 7.3 7.3 6.1 6.0 4.7 3.8 4.6
Services - Non finance 7.5 7.2 7.7 7.4 6.8 6.3 5.8 5.1 3.7 3.2 2.4
Iron and steel 4.4 4.6 4.2 4.7 5.4 5.4 5.5 5.7 4.9 3.8 2.7
Services - Finance 3.5 3.4 7.2 6.0 5.3 3.5 3.2 3.2 5.7 6.4 7.4
Wholesale/retail trade 1.2 2.4 2.3 1.9 1.9 1.9 2.9 2.8 2.4 2.3 2.5
Crude/refining 6.4 7.1 6.3 2.7 3.0 3.0 2.9 1.7 1.4 2.5 2.5
Construction 1.1 1.0 1.6 2.2 2.4 2.4 2.5 2.3 2.0 2.2 1.9
Mining — 0.2 1.8 3.2 2.7 1.8 1.8 1.6 2.2 2.0 1.3
Electronics and engineering 1.6 1.7 2.0 2.2 2.2 2.3 1.7 1.5 1.5 1.5 1.6
Food and beverages 2.4 3.3 3.1 2.6 2.3 2.1 1.5 1.5 1.5 1.1 0.9
Cement — — — — — — — 1.9 1.6 1.2 0.5
Other industries 13.5 13.4 12.4 14.2 15.5 16.8 16.1 13.3 11.5 10.3 9.9

Source: Company, Kotak Institutional Equities

Lending in overseas branches have restarted, though it appears to be short term

After nearly six years, FY2022 saw an increase in foreign currency loans. Foreign currency
loans increased by ~10% yoy on rupee basis. The bank has progressed well in its strategy to
reduce the non-India linked corporate portfolio. The growth here appears to be mostly
driven by transactional nature and short term towards better rated corporates.

Exhibit 20: Foreign currency loans showed an increase of 10% yoy after six years of decline
Foreign currency loans, March fiscal year-ends, 2010-22
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Loans from overseas branches (US$ bn) 10.1 12.4 13.6 13.5 15.0 15.1 14.2 NA NA NA NA NA NA
Growth YoY (%) (5.6) 22.8 9.7 (0.7) 11.1 0.7 (6.0)
Loans from overseas branches (Rs bn) 453 552 694 734 897 941 938 750 644 630 540 376 413
Growth YoY (%) (16.6) 21.8 25.8 5.7 22.3 4.9 (0.3) (20.1) (14.1) (2.2) (14.4) (30.3) 9.8
Currency impact (%) (11.0) (1.0) 16.1 6.4 11.2 4.3 5.6

Source: Company, Kotak Institutional Equities

Growth in PSL loans was strong in FY2022

Growth in PSL loans was strong at ~23% yoy in FY2022. ICICI Bank’s total PSL portfolio
stood at ~41% of Adjusted Net Bank Credit (ANBC) and similar to FY2021. Importantly, the
bank’s agricultural portfolio constituted ~18% of ANBC in FY2021, up from ~17% in
FY2021 – against the requirement of 18%. Loans to weaker section constituted ~11% of
ANBC in FY2021 (up from ~10% in FY2021) against the requirement of ~10%. The bank’s
investment in RIDF bonds was 15% lower than the previous year.

10 KOTAK INSTITUTIONAL EQUITIES RESEARCH

 ICICI Bank Banks

Exhibit 21: Strong growth in PSL loans in 2022

PSL loans and investments, March fiscal year-ends (Rs bn)

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
PSL loans 593 598 646 1,130 1,312 1,399 1,501 1,892 1,909 2,032 2,492
Growth yoy (%) 11.0 0.9 8.0 75.1 16.1 6.7 7.2 26.0 0.9 6.4 22.6
PSL (% of opening loans) 36.8 32.4 29.8 45.4 44.7 41.0 38.6 42.2 36.5 34.4 35.8
Agriculture 176 192 251 333 546 547 588 750 835 1,020 1,227
(% of ANBC) 10.0 10.8 12.1 17.0 15.6 14.8 16.5 15.6 17.0 17.8
Direct agriculture 146 209 126 142 171 308 322
(% of requirement) 46.4 56.1 55.7 51.3 53.8 85.0 75.0
Weaker section 42 49 63 95 204 221 247 403 444 642 762
(% of requirement) 39.0 25.2 27.0 34.5 63.0 63.0 62.0 89.0 89.0 107.0 100.9
Micro enterprises 218 241 266 360 409 448 551
(% of requirement) 97.1 92.0 89.3 105.3 102.7 100.0 106.7
Total loans (domestic) 1,843 2,169 2,490 2,934 3,415 3,892 4,480 5,236 5,913 6,961 8,177
RIDF and related investments 181 202 248 285 281 241 269 293 288 312 264
Notes:
(a) With effect from fiscal 2013, the targets on PSL for ICICI Bank were at par with other banks.
(b) PSL loan has undergone a change in definition. FY2015-16 are not fully comparable but not for earlier years. Direct agriculture has been replaced
with small and marginal farmers.

Source: Company, Kotak Institutional Equities

Share of off-balance sheet items has increased mostly through less risky instruments
Overall contingent liabilities to loans stood at 4.5X of loans, which is a sharp increase from
3.6X level in FY2021. This is the highest level that we have seen since FY2011. There has
been an increase in the past few years but most of the increase is on account derivative
contracts (which are generally hedged in the inter-bank market) rather than riskier off
balance sheet items. The share of high credit risk items like guarantees and an acceptance
have been steadily declining or has been stable yoy.

Exhibit 22: Share of contingent liabilities to balance sheet decreased marginally; share of guarantees continue to trend downward
Contingent liabilities and its composition, March fiscal year-ends, 2013-22 (Rs bn)
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Claims against the bank, not acknowledged as debts 36 42 40 35 47 63 55 63 74 83
Liability for partly paid investments — — — — — — — — — —
Notional principal of outstanding forward exchnage 2,839 2,691 2,899 3,568 4,272 4,327 4,701 7,441 8,153 10,645
Guarantees given on behalf of constituents 944 1,022 993 1,005 930 945 1,067 1,088 995 1,038
Acceptances, endorsements and obligations 621 506 497 473 478 410 434 347 324 463
Notional principal of currency swaps 565 594 514 460 411 417 423 510 482 498
Notional principal of IRS and futures, currency options 2,856 2,919 3,538 3,414 4,131 6,593 12,442 15,699 16,428 25,912
Others 38 40 39 53 41 138 99 90 31 37
Total contigent liabilties (Rs bn) 7,900 7,814 8,520 9,008 10,310 12,892 19,220 25,238 26,486 38,677
Total contigent liabilties (% of loans) 272 231 220 207 222 252 328 391 361 450
Break-up of contigent liabilities (%)
Claims against the bank, not acknowledged as debts 0.5 0.5 0.5 0.4 0.5 0.5 0.3 0.3 0.3 0.2
Liability for partly paid investments — — — — — — — — — —
Notional principal of outstanding forward exchange 35.9 34.4 34.0 39.6 41.4 33.6 24.5 29.5 30.8 27.5
Guarantees given on behalf of constituents 12.0 13.1 11.7 11.2 9.0 7.3 5.5 4.3 3.8 2.7
Acceptances, endorsements and obligations 7.9 6.5 5.8 5.2 4.6 3.2 2.3 1.4 1.2 1.2
Notional principal of currency swaps 7.2 7.6 6.0 5.1 4.0 3.2 2.2 2.0 1.8 1.3
Notional principal of IRS/futures and currency options 36.2 37.4 41.5 37.9 40.1 51.1 64.7 62.2 62.0 67.0
Others 0.5 0.5 0.5 0.6 0.4 1.1 0.5 0.4 0.1 0.1

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 11

Banks ICICI Bank

Exhibit 23: Share of working capital lending has been rising Exhibit 24: Working capital loans is growing at ~20% CAGR
Break-up of term and working capital loans in the corporate sector, Growth in working capital and term loans in the corporate sector,
March fiscal year-ends, 2010-22 (%) March fiscal year-ends, 2011-22 (%)

Term loans Working capital Term loans Working capital

100 40

21 20 19 22 23
27 28 30
80 35
43 45 47 47
53
20
60
10
40 79 80 81 78 77
73 72 0
65
57 55 53 53
47
20
-10

0 -20
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022
Source: Company 20F filings, Kotak Institutional Equities Source: Company 20F filings, Kotak Institutional Equities

Exhibit 25: Most of the lending in the corporate loan portfolio is in the investment grade book
Break-up of rating of the corporate/overall loan book, March fiscal year-ends, 2011-22 (%)

AAA AA+ AA AA- 1 2A-C A+ A A- 3 A-C BBB+ BBB and BBB- 4A-C
Below investment grade Unrated
100 4 3
10 11 11 14 9 12 8
9 12 19
28 26
80 24
28 25
29 34 36 29
37 35 28
60
22 26
20
19 36
28 34
40 20 21
29 24 23

20 42 45 44
38
29 28 30 32 28 31
25 25

0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Notes:
(a) Beginning from 2021, the bank has changed the rating profile by giving only for the corporate loan and
not for the overall loans.

Source: Company 20F filings, Kotak Institutional Equities

12 KOTAK INSTITUTIONAL EQUITIES RESEARCH

ICICI Bank Banks

Exhibit 26: The focus of the bank continues to be towards the investment grade portfolio in the corporate banking business
Growth in loan book in each rating profile, March fiscal year-ends, 2012-22 (%)
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Investment grade 16.0 12.5 17.3 11.7 5.8 10.5 16.1 20.5 10.4 19.2
AAA AA+ AA AA- 1 2A-C 0.4 13.0 30.4 22.2 19.3 23.1 22.5 21.2 7.9 25.3
A+ A A- 3 A-C 14.8 (3.6) 9.0 1.4 15.8 (6.0) 18.0 25.5 26.0 20.2
BBB+ BBB and BBB- 4A-C 32.7 25.8 13.8 10.0 (11.7) 8.2 6.3 16.0 2.1 11.2
Below investment grade 27.6 23.8 18.6 23.1 71.3 (21.5) (28.2) (45.5) (20.8) (19.1)
Unrated (46.3) (17.6) 13.1 26.1 (60.6) (15.8) 34.5 (43.1) 52.8 100.7
Net loans 14.1 13.0 17.4 13.2 12.6 4.4 10.0 14.1 9.2 15.2
Notes:
(a) Beginning from 2021, the bank has changed the rating profile by giving only for the corporate loan and not for the overall loans.

Source: Company 20F filings, Kotak Institutional Equities

Exhibits 27 and 28 show the break-up of the maturity profile of the bank’s retail and
corporate loan portfolio. The duration of the book is longer in the retail portfolio over the
corporate portfolio. The corporate loan book, given that ~50% of the loans is working
capital, is mostly <1 year. On the other hand, the retail book has a very large portfolio in
mortgages, which carry a significantly higher duration and this is reflected with the share of
5-15 years being higher in this book.

Exhibit 27: Maturity profile of corporate loans is mostly short Exhibit 28: Led by housing loans, which has a higher maturity,
term and transactional in nature the retail book has a higher maturity
Break-up of maturity profile in the corporate sector, March fiscal year- Break-up of maturity profile in the retail sector, March fiscal year-
ends, 2021-22 (%) ends, 2021-22 (%)

<1 year 1-5 years 5-15 years >15 years <1 year 1-5 years 5-15 years >15 years
100 100

80 80

60 60

40 40

20 20

0 0
2021 2022 2021 2022

Source: Company 20F filings, Kotak Institutional Equities Source: Company 20F filings, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 13

Banks ICICI Bank

IMPAIRMENT: COVID TEST UNDERWAY AND BANK IS COMING OUT WITH LIMITED STRESS
The Covid period is probably the first time where we are able to demonstrate the strength of the bank’s asset
quality being superior. The corporate book has held up exceedingly well with slippages at ~1% of loans,
cushioning the impact of the stress that has emerged in retail where the slippages were at >3%. Unlike the
corporate NPL cycle, we expected the pace of recovery and write-off rates to be lower and we are already
seeing it play through in FY2022. ICICI Bank is showing promising trends that its underwriting standard, in
this leg of the cycle, is holding up closer to the best-in-class players.

Year 2 of Covid and the bank has come out well but not unscathed
We believe ICICI Bank has navigated through the Covid impact relatively well. The previous
two years was a good testing period of the bank’s underwriting. The association of the bank
to be pro-cyclical in underwriting has been an area of contention but the results on asset
quality have been satisfactory. While the NPL ratios are still on the higher side, we should
expect this to decline sharply as we go forward, as the economic conditions continues to
remain quite solid despite some warnings emerging in the global economy.

FY2022 saw diverging trends between the corporate and the retail book continuing despite
slippage ratio remaining largely unchanged yoy. The corporate book has held up well.
Slippages have been at normalized levels (1.2% of loans) while the stress in retail loans
increased sharply (>3% of loans). While the headline impairment ratios have increased in the
secured loan portfolio, provisions have been much higher in the unsecured portfolio. We are
not unduly worried on these ratios considering the recovery rate and the loss – given default
rate is far lower as compared to the corporate portfolio.

On the reduction of NPLs, we saw performance in FY2022 being much higher to the
previous years. The first quarter of FY2022 saw Covid-related lockdowns again being
imposed in most parts of the country, which resulted in higher restructuring. Also, most of
the NPL recognition for FY2021 happened in 4QFY21, which implied that the pool of
delinquent loans available for upgrade was much higher. This probably explains one of the
highest recoveries and upgrades that the bank has reported in FY2022.
The bank has built a healthy coverage ratio of ~80% on its NPL book and has an additional
~100 bps of provisions, which is still unutilized. The bank continues to have a write-off
policy at ~1.5% of loans, though this year witnessed a higher write-off from the retail
portfolio while it is declining sharply in the corporate portfolio.

14 KOTAK INSTITUTIONAL EQUITIES RESEARCH

ICICI Bank Banks

Exhibit 29: Strong decline in NPL ratios for the bank in FY2022
Movement and break-up of NPLs (gross) and contribution of top 4 NPLs, March fiscal year-ends, 2013-22 (%)

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Movement of gross NPLs (% of opening loans)
Gross NPL 3.5 3.2 3.0 3.7 5.7 8.5 9.5 7.0 5.8 5.1
Slippages 1.4 1.6 2.4 4.3 7.7 6.2 2.1 2.4 2.5 2.6
Reductions 1.4 1.3 1.0 1.4 4.0 3.8 3.5 3.2 2.5 3.7
Upgradations 0.3 0.1 0.2 0.3 0.2 0.8 0.2 0.2 0.3 1.4
Recoveries 0.5 0.4 0.3 0.4 1.0 1.1 1.1 1.1 0.7 0.9
Write-off 0.6 0.8 0.5 0.8 2.8 1.8 2.3 1.9 1.5 1.4
Closing gross NPL (% of closing loans) 3.2 3.0 3.7 5.7 8.5 9.5 7.0 5.8 5.1 3.7
Break-up of gross NPLs in consolidated entity (%)
Sub-standard 19.5 21.3 17.4 15.6 34.4 14.2 11.6 17.4 32.5 27.1
Doubtful 70.7 59.7 66.7 74.7 61.5 84.5 84.3 79.2 60.6 55.5
Loss 10.2 19.4 16.9 11.6 5.1 2.8 5.4 10.8 11.4 21.2
Coverage ratio for consolidated entity (%)
Sub-standard 23.1 20.1 25.7 22.6 23.0 26.2 31.5 34.7 43.2 44.4
Doubtful 84.0 72.7 55.2 48.3 46.4 58.4 75.2 81.0 90.3 85.8
Doubtful 1 60.5 58.8 43.9 35.7 34.2 43.9 69.2 64.8 69.7 63.4
Doubtful 2 90.0 67.5 60.2 53.8 58.3 62.4 70.4 79.4 86.3 82.9
Doubtful 3 98.7 96.7 98.9 97.4 72.9 97.1 98.3 97.9 98.8 98.9
Loss 99.8 97.5 99.5 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Coverage ratio 72.7 63.6 55.6 49.9 41.1 54.3 70.8 75.4 76.7 77.9
Contribution of top 4 NPLs
Amount (Rs mn) 12,511 17,487 62,016 108,419 149,247 154,385 126,059 96,545 178,152 175,707
(% of NPLs) 13.0 16.6 41.1 41.3 35.4 29.0 27.6 23.6 35.7 42.3
Notes:
(a) Normalized slippages = normalized slippages/(opening loans-below investment grade-opening restructured loans).

Source: Company, Kotak Institutional Equities

Exhibits 28, 29 and 30 show the stress across the various sub-segments for the bank. We
have seen a marked decline in the corporate book and an increase in the retail NPL book.
We have used the 20F filings to look at the early warning indicators as well. The corporate
book is not showing any form of stress that we had seen in the previous cycle. It appears to
have had limited impact on account of Covid. Retail, however, had seen an increase in
FY2021 but this has started to trend down in FY2022. Note that the higher restructuring is
primarily on account of the second wave of Covid during 1HFY22. There is a decline in the
early warning buckets (30-90 DPD) as well as a decline in the NPL ratios.

The coverage ratio stands comfortable at ~90% levels in the corporate book while it is at
60% levels in the retail portfolio. We should see a marked decline in provisions in the
corporate book given the construct of the loan portfolio where the book is primarily towards
better rated companies and another year of high provisions in the retail portfolio.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 15

Banks ICICI Bank

Exhibit 30: Corporate NPLs have declined while we saw an increase in retail NPL ratios
Break-up of NPL, March fiscal year-ends, 2014-22 (%)

2014 2015 2016 2017 2018 2019 2020 2021 2022

Priority sector
Agriculture and allied 3.6 3.0 3.2 3.1 3.1 3.7 4.2 4.3 5.3
Industries 3.4 3.2 3.3 3.0 1.9 1.1 1.1 1.6 1.2
Construction 8.6 — — — — — — — —
Services 1.4 1.7 2.0 1.6 2.1 1.7 3.1 5.3 2.2
Transport operators 1.5 2.1 1.6 1.2 1.1 1.3 4.4 7.7 3.4
Wholesale trade — 3.4 2.6 2.0 2.6 2.3 1.8 2.3 1.2
Personal loans 1.3 1.3 1.2 1.2 1.0 1.3 1.5 3.4 2.6
Housing 1.4 1.2 1.0 0.9 1.0 0.9 1.1 2.7 2.3
Vehicle loan 1.1 1.2 1.6 1.7 1.0 2.5 3.0 7.2 4.6
Total 2.3 2.1 2.2 2.2 2.2 1.9 2.3 3.4 2.7
Non Priority sector
Agriculture and allied
Industries 3.0 4.8 10.3 19.8 25.5 21.3 15.8 13.3 10.9
Infrastructure 1.7 3.5 7.7 16.2 26.3 19.7 16.5 12.3 9.5
Metal and metal products 1.3 3.7 18.7 24.9 25.2 19.2 6.8 4.5 3.2
Services 3.8 5.9 7.2 7.3 6.8 5.7 6.8 4.2 2.7
Commercial real estate 2.1 1.9 2.1 2.9 3.8 4.8 5.4 5.0 3.0
Wholesale trade 4.9 3.4 4.4 5.5 4.4 6.5 11.9 3.7 3.5
Personal loans 3.0 1.3 1.0 0.9 1.3 1.3 1.5 2.6 1.5
Housing 0.8 0.6 0.6 0.6 0.8 0.9 1.1 2.1 1.4
Total 3.2 4.2 6.8 10.6 11.5 9.5 7.5 6.1 4.2
Total 3.0 3.8 5.8 8.7 9.9 7.4 6.0 5.3 3.8

Source: Company, Kotak Institutional Equities

Exhibit 31: Negligible restructuring and NPLs declining in Exhibit 32: We have already started to witness a decline in NPL
corporate loans ratios in the retail portfolio
Stressed loans in commercial loans, March fiscal year-ends, 2010-22 Stressed loans in retail loans, March fiscal year-ends, 2010-22 (%)
(%)
NPL Restructured loans
NPL Restructured loans 31-60 days 61-90 days
31-60 days 61-90 days Above 90 days Coverage ratio (RHS)100
14
30 Above 90 days Coverage ratio (RHS)100

11 80
24 80
8 60
18 60
6 40
12 40
3 20
6 20
0 0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

0 0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

Source: Company, Kotak Institutional Equities

Source: Company, Kotak Institutional Equities

16 KOTAK INSTITUTIONAL EQUITIES RESEARCH

ICICI Bank Banks

Exhibit 33: Slippages have been at ~2.5% in the second year of Exhibit 34: Recovery and upgradation were the highest in
Covid FY2022 partly due to nature of recognition in 4QFY21
Slippages and slippage ratio for the whole bank, March fiscal year- Recovery and upgradation to opening NPLs for the whole bank,
ends, 2011-22 March fiscal year-ends, 2011-22

Slippages Slippages ratio

(Rs bn) (%) Upgrade Recovery
400 12.0 50.0

320 9.6 40.0

240 7.2 30.0

160 4.8 20.0

80 2.4 10.0

0 0.0 0.0
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

2011

2013

2014

2015

2016

2018

2019

2020

2021
2012

2017

2022
Source: Company, Kotak Institutional Equities Source: Company, Kotak Institutional Equities

Exhibit 35: The bank has written off 2% of NPLs each year Exhibit 36: Overall coverage ratio stable at ~80% levels
Write-off and write-off to loans in retail loans, March fiscal year-ends, Provision coverage ratio for the bank, March fiscal year-ends, 2011-22
2011-22
100
Write-off Write-off to loans
(Rs bn) (%)
140 3.0
80

112 2.4
60

84 1.8
40
56 1.2
20
28 0.6

0
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

0 0.0
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

Source: Company, Kotak Institutional Equities

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 17

Banks ICICI Bank

The corporate NPL cycle is firmly behind the bank

With the benefit of hindsight of ~5 years, we can now conclude the corporate NPL cycle is
firmly behind the bank. We have evidence of this decline in both the headline NPL ratios as
well as the reduction in fresh slippages for the bank. It has been a very long and painful
cycle for banks, which had a disproportionately large corporate book that backed the capex
cycle. We can plot the journey of stress creation for the bank in FY2012 with slippages
steadily increasing each year. While we saw the stress in the early warning indicators, it was
largely contained in initial years through restructuring or the various regulatory dispensations
available at that point in time (SDR, S4A, 5:25, etc.). ICICI Bank had challenges in both the
term loans as well as the working capital book in this period as we can see from Exhibits 35
and 36. Most of it eventually slipped into NPLs from FY2016-18.

Exhibit 37: NPL ratio declined ~350 bps yoy and ~1,100 bps from Exhibit 38: NPL ratio declined ~150 bps yoy and ~650 bps from
peak levels peak levels
Stressed loans in commercial term loans, March fiscal year-ends, Stressed loans in commercial loans, March fiscal year-ends, 2010-22
2010-22 (%) (%)

NPL Restructured loans NPL Restructured loans

31-60 days 61-90 days 31-60 days 61-90 days
30 Above 90 days Coverage ratio (RHS)100 20 Above 90 days Coverage ratio (RHS)100

24 80 16 80

18 60 12 60

12 40 8 40

6 20 4 20

0 0 0 0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Source: Company, Kotak Institutional Equities Source: Company, Kotak Institutional Equities

Exhibit 39: We have seen a reduction in NPL ratios in most of the large sectors that the bank has an exposure in the corporate segment
Break-up of NPL ratios in the various corporate and services segment, March fiscal year-ends, 2011-22 (%)
Gross NPL - 20 F filings

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Power 0.0 0.1 0.0 0.3 0.3 6.2 20.5 36.8 34.6 24.2 21.6
Mining - 0.7 1.0 1.4 2.0 0.9 36.4 85.2 80.2 44.1 17.3
Iron and steel 0.1 0.7 1.1 1.9 4.2 24.1 34.3 34.8 23.7 10.4 6.7
Construction 1.4 1.5 3.0 5.4 12.9 20.7 35.7 52.6 48.1 53.5 47.4
Services - non finance 0.3 0.2 3.8 5.9 9.0 13.0 18.7 23.7 15.9 13.0 9.8
Services - finance 0.8 0.8 0.0 0.4 0.4 0.3 - - 0.7 2.2 1.3
Other infrastructure 0.0 0.1 0.1 3.6 8.7 10.8 9.6 12.4 9.4 11.2 7.3
Crude petrol/others 0.0 3.6 2.6 2.1 2.0 2.8 4.4 15.2 13.4 16.8 18.0
Electronics and eng`ing 0.6 2.8 4.1 3.5 10.8 4.6 3.3 15.1 14.1 17.1 17.8
Shipping 5.1 1.0 0.8 1.1 22.2 31.8 45.4 44.6 46.0 42.0 -
Food and beverages 5.1 4.7 5.0 8.7 7.9 8.1 9.4 11.7 25.7 19.1 7.9
Wholesale/retail trade 5.1 2.1 5.9 4.9 3.5 4.0 5.3 4.2 5.3 10.0 4.3
Cement 1.4 - - 0.4 0.3 - 70.7 - - - 1.8
Chemicals and fertilizers 5.9 3.5 4.1 4.5 5.7 4.6 2.1 2.4 4.3 4.5 5.9
Metal & products 2.9 2.0 2.1 1.4 1.5 1.8 1.1 2.0 2.1 1.8 0.3

Source: Company, Kotak Institutional Equities

18 KOTAK INSTITUTIONAL EQUITIES RESEARCH

ICICI Bank Banks

Unlike the previous cycle, we have not seen a meaningful recovery from these NPLs till now.
While the NPL cycle is yet to bottom out as we would expect the bank to see further
reduction to this ratio in the next few years. So far, the reduction has been higher on
account of write-offs, with the bank writing off ~3.5% of corporate loans each year, but
this has started to decline with FY2022 witnessing a sharp decline in this ratio as most of the
stress is already off their books.

Exhibit 40: Slippages is closer to 2014 levels at ~1.5% of loans Exhibit 41: Recovery and upgradation were stable in recent
Slippages and slippage ratio for the wholesale bank, March fiscal year- years
ends, 2011-22 Recovery and upgradation to opening NPLs wholesale bank, March
fiscal year-ends, 2011-22
Slippages Slippages ratio
(Rs bn) (%)
350 12.0 Upgrade Recovery
30.0

280 9.6
24.0

210 7.2
18.0

140 4.8
12.0

70 2.4
6.0

0 0.0
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

0.0
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022
Source: Company, Kotak Institutional Equities
Source: Company, Kotak Institutional Equities

Exhibit 42: After several years of higher write-offs, FY2022 saw a Exhibit 43: Coverage ratio is at ~90% levels, suggesting
sharp decline in this ratio negligible risk
Write-off and write-off to loans in wholesale loans, March fiscal year- Provision coverage ratio wholesale bank, March fiscal year-ends,
ends, 2011-22 2011-22

Write-off Write-off to loans 100

(Rs bn) (%)
140 4.5

80
112 3.6

60
84 2.7

40
56 1.8

28 0.9 20

0 0.0 0
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

Source: Company, Kotak Institutional Equities Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 19

Banks ICICI Bank

Strong recovery and upgradation trends in the retail portfolio

We see two interesting trends in the retail portfolio in FY2022 for the bank. On one hand, it
was another year of high slippages and restructuring. While the slippages were high over
the course of all the four quarters, the restructuring was mostly in the first half as we were
in the second wave of Covid, which required some degree of handholding to the borrowers
who were impacted by the slowdown. However, we also saw extremely high levels of
recovery and upgradation as well in the bank. The upgradation was one of the highest that
we have seen since we have this data, suggesting that the impact of these higher slippages
is not too painful for the bank from a credit cost perspective. Note that most of this is a
function of the reporting that we had in FY2021 and FY2022 where the bank had reported
the bulk of the stress in 4QFY21 but had started to recover in 1HFY22.

We are not too worried on the slippage trends as the early warning indicators are holding
up well or showing improvement. Also, most of the stress is now in the retail portfolio,
where the probability of resolution with lower credit costs is higher than we see in the
corporate portfolio. The lower stress does give comfort that the bank should pass through
this challenge with much lower stress as compared to the corporate NPL cycle. We have
seen an increase in slippages to ~3% (marginally higher than FY2021). Stress has come
through in nearly all segments of the retail portfolio.

The bank has written off a higher share of retail loans in FY2022 as well and we believe that
this is mostly from the unsecured portfolio. The mortgage book has historically seen much
lower write-off given the nature of the underlying product.

Exhibit 44: Slippages doubled to 3% in the second year of Covid Exhibit 45: Recovery and upgradation were the highest in
Slippages and slippage ratio in retail book, March fiscal year-ends, FY2022
2011-22 Recovery and upgradation to opening NPLs in retail book, March fiscal
year-ends, 2011-22
Slippages Slippages ratio
(Rs bn) (%)
200 3.5 Upgrade Recovery
100.0

160 2.8
80.0

120 2.1
60.0

80 1.4
40.0

40 0.7
20.0

0 0.0
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

0.0
2011

2012

2013

2014

2016

2017

2018

2019

2021

2022
2015

2020

Source: Company, Kotak Institutional Equities

Source: Company, Kotak Institutional Equities

20 KOTAK INSTITUTIONAL EQUITIES RESEARCH

ICICI Bank Banks

Exhibit 46: Write-off was sharply higher at ~1.5% of retail loans Exhibit 47: Coverage ratio has been stable at ~60% levels
Write-off and write-off to loans in retail loans, March fiscal year-ends, Provision coverage ratio for retail loans, March fiscal year-ends, 2011-
2011-22 22

Write-off Write-off to loans 100

(Rs bn) (%)
80 2.0

80
64 1.6

60
48 1.2

40
32 0.8

16 0.4 20

0 0.0 0
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

2011

2012

2013

2014

2015

2016

2017

2018

2020

2021

2022
2019
Source: Company, Kotak Institutional Equities Source: Company, Kotak Institutional Equities

Within retail asset products, the coverage ratio is significantly higher in the unsecured loan
portfolio while mortgage is at ~50% levels, other secured is at 60% levels. We should
expect further decline in the NPL ratios over the next two years as we are witnessing a faster
recovery in the normalization in economic conditions.

Exhibit 48: Mortgage book took a much higher impact in the Exhibit 49: There is decline in NPL and restructured loans in non-
second wave of Covid and mostly through restructuring mortgage secured loans
Stressed loans in mortgage loans, March fiscal year-ends, 2010-22 Stressed loans in other secured loans, March fiscal year-ends, 2010-22
(%) (%)

NPL Restructured loans NPL Restructured loans

31-60 days 61-90 days 31-60 days 61-90 days
5.0 Above 90 days Coverage ratio (RHS)100 12 Above 90 days Coverage ratio (RHS)100

4.0 80 10 80

3.0 60 7 60

2.0 40 5 40

1.0 20 2 20

0.0 0 0 0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

Source: Company, Kotak Institutional Equities Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 21

Banks ICICI Bank

Exhibit 50: Headline ratios has held up in credit cards and we Exhibit 51: There is a sharp decline in NPL ratios in non-credit
see this partly led by lower slippages card unsecured loans
Stressed loans in credit cards loans, March fiscal year-ends, 2010-22 Stressed loans in other unsecured loans, March fiscal year-ends, 2010-
(%) 22 (%)

NPL Restructured loans NPL Restructured loans

31-60 days 61-90 days 31-60 days 61-90 days
60 Above 90 days Coverage ratio (RHS)100 60 Above 90 days Coverage ratio (RHS)100

48 80 48 80

36 60 36 60

24 40 24 40

12 20 12 20

0 0 0 0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Source: Company, Kotak Institutional Equities Source: Company, Kotak Institutional Equities

22 KOTAK INSTITUTIONAL EQUITIES RESEARCH

ICICI Bank Banks

LIABILITY FRANCHISE: MARGINS AT HEALTHY LEVEL, PRODUCT MIX IS KEY

We have seen a healthy expansion in NIM in recent years. It has been driven primarily by a decline in cost of
funds for the bank, a better yielding mix and relatively benign competitive environment outside of the
frontline banks post Covid. The sharp increase in repo rates is likely to act as a key tailwind for NIM to remain
elevated, but we should see this coming under pressure in FY2024-25.

Healthy performance on NIM; smaller levers to improve available

FY2021 saw NIM increasing 30 bps to ~4% led by lower contraction in investment yields.
NIM was also supported by lower cost of funds but most of it was passed on to the
borrower as reflected in lower lending yields as well. A comparatively benign competitive
environment outside of the largest few banks also helped to keep yields at healthy level.
NIM in the domestic business increased to ~4.1% from ~3.8% yoy, while NIM in the
international business was almost flat yoy at ~0.3%. The expansion in domestic NIM was
primarily because investment yields contracted lower (down ~30 bps yoy) than cost of funds
(down ~60 bps yoy) while lending yields declined 50 bps yoy. This was mainly driven by
central bank interventions through a cut in benchmark rates and infusion of liquidity (which
also depressed yields on investments).

NII grew 22% yoy, higher than ~17% yoy loan growth. Margins would be a function of loan
mix changes and a shift, in our view, would take some time given that we are passing
through an uncertain environment. However, there would be some medium-term tailwind
from further improvement given that the recent increases in policy rates has a direct impact
on the lending yields as it is sensitive to external benchmark.

Exhibit 52: NIM is likely to improve for another year before we Exhibit 53: NII growth has levers for FY2023 led by loan re-
should see a contraction pricing
Net interest margin, March fiscal year-ends (%) NII growth, March fiscal year-ends (%)

NIM (LHS) NII growth (RHS) 30 27 27

4.0 40 26 25
24 23
29 24 21 21
3.5 30 20
19 23 18
22 17 16 16 17
19 18 18
17 17
3.0 15 16 20 12
11 11 12
10 12 9
2.5 6 6 10
2
6
2.0 (3) - 1
2.0
2.1
2.2
2.3
2.4
2.7
2.9

2.9
3.2
3.3
3.6
3.8
3.6
3.5
3.1
3.1
3.0
2.8

-
4QFY18

2QFY19

4QFY19

2QFY20

4QFY20

2QFY21

4QFY21

4QFY22
2QFY22

1.5 (10)
2023E
2024E
2025E
2008
2009
2010
2011
2012
2013
2014

2019
2020
2021
2022
2015
2016
2017
2018

Source: Company, Kotak Institutional Equities Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 23

Banks ICICI Bank

Exhibit 54: Yield on assets declined ~30 bps yoy, while cost of funds declined by ~60 bps yoy
Reported yields and costs across various segments, March fiscal year-ends (%)

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Yield on interest earning assets 7.9 7.6 8.5 9.0 8.9 9.0 8.7 8.1 7.7 8.0 8.4 7.5 7.2
On loans 9.1 8.5 9.6 9.9 10.0 10.0 9.5 8.9 8.6 9.0 9.5 8.8 8.3
Domestic business 11.9 11.1 10.1 9.5 9.6 10.0 9.2 8.6
International business 4.4 4.3 4.1 3.7 4.4 4.0 2.5 1.5
On investments 6.2 6.4 7.2 7.7 7.5 7.9 7.6 7.2 6.8 7.1 7.1 6.3 6.0
On SLR investments 6.4 6.3 7.3 7.8 7.8 8.0 7.8 7.5 7.1 7.2 7.1 6.3 6.2
On other investments 5.8 6.6 7.1 7.6 6.9 7.5 6.8 6.6 6.1 6.6 7.2 6.0 4.7
On other interest earnings assets 6.3 6.5 6.2 6.0 4.6 5.1 5.5 4.8 3.6 3.6 3.3 3.9 4.0
Cost of interest-bearing liabilities 5.8 5.4 6.3 6.4 6.2 6.2 5.9 5.5 5.0 5.1 5.1 4.3 3.7
Cost of deposits 5.8 4.9 6.1 6.4 6.1 6.2 5.9 5.4 4.9 4.9 5.0 4.1 3.5
CASA deposits 2.0 2.5 2.9 3.0 3.0 3.0 3.0 3.0 2.8 2.7 2.7 2.3 2.3
Term deposits 7.7 6.5 8.2 8.5 8.2 8.3 7.9 7.3 6.6 6.7 6.6 5.4 4.5
Cost of borrowings 5.6 6.1 6.7 6.5 6.4 6.2 5.8 5.6 5.4 5.9 5.7 5.0 5.4
Spread 2.1 2.3 2.2 2.5 2.7 2.8 2.8 2.6 2.7 2.9 3.3 3.2 3.5
NIM 2.5 2.6 2.7 3.1 3.3 3.5 3.5 3.3 3.2 3.4 3.7 3.7 4.0
Domestic business 3.0 3.0 3.5 3.7 3.9 3.8 3.6 3.6 3.8 4.0 3.8 4.1
International business 0.9 1.2 1.3 1.7 1.7 1.9 1.3 0.5 0.3 0.4 0.3 0.3

Source: Company, Kotak Institutional Equities

Robust growth in deposits giving strong levers on cost of deposits

FY2022 saw another strong performance for the bank on the mobilization of low-cost
deposits. ICICI Bank saw ~250 bps improvement in CASA ratio from ~49% to ~46% yoy,
primarily led by improvement in SA ratio. However, in terms of absolute net accretions, even
SA balances with ICICI Bank registered strong growth in FY2021 after relatively sluggish
performance in FY2020. The impact of Covid for the bank on the deposits side has been
quite positive with solid growth in CASA balances for the bank, which is reflective of the
customer segments that the bank caters to.

Overall deposits grew ~14% yoy, lower than ~20% growth in the previous year. This
growth was led by strong growth in CA balances (up ~15% yoy). Saving account balances
grew ~22% yoy, while term deposits grew 9% yoy. However, we note that the bank has
seen its SA accretions (on a period ending basis) to be relatively lower than HDFC Bank,
which saw another solid year. On the other hand, ICICI Bank is fast catching up, while Axis
Bank continues to lag behind. We also note that the cost of deposits for ICICI Bank is almost
comparable with that of HDFC Bank, while Axis Bank is marginally behind.

24 KOTAK INSTITUTIONAL EQUITIES RESEARCH

ICICI Bank Banks

Exhibit 55: Accretion to savings account balances has been slower for ICICI Bank than HDFC Bank in the last couple of years
Growth (absolute) in savings account balances, March fiscal year-ends (Rs bn)

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Absolute accretion of savings account balances (Rs bn, yoy)
Axis Bank 80 70 108 121 140 105 175 203 222 59 195 309 380
HDFC Bank 150 136 106 142 149 218 230 457 302 249 617 931 747
ICICI Bank 122 137 92 96 135 157 194 376 291 267 179 499 645
IndusInd Bank 6 11 16 23 29 30 43 98 189 86 (14) 179 178
Branches (#)
Axis Bank 1,035 1,390 1,622 1,947 2,402 2,589 2,904 3,304 3,703 4,050 4,528 4,594 4,758
HDFC Bank 1,725 1,986 2,544 3,062 3,403 4,014 4,520 4,715 4,787 5,103 5,416 5,608 5,958
ICICI Bank 1,741 2,529 2,752 3,100 3,753 4,050 4,450 4,850 4,867 4,874 5,324 5,266 5,418
IndusInd Bank 210 300 400 500 602 801 1,000 1,200 1,408 1,658 1,858 1,918 2,118
Cost of funds
Axis Bank 4.4 4.5 6.0 6.4 5.8 5.7 5.4 5.1 4.4 4.7 4.9 4.2 3.7
HDFC Bank 4.5 4.3 5.6 6.0 5.7 5.7 5.9 5.3 4.6 4.8 4.9 4.0 3.5
ICICI Bank 5.5 4.7 5.9 6.2 5.7 5.9 5.5 5.0 4.5 4.4 4.6 4.1 3.5
IndusInd Bank 6.4 6.1 8.0 8.2 7.7 7.3 6.6 6.2 5.8 6.2 6.6 5.4 4.9

Source: Company, Kotak Institutional Equities

Exhibit 56: CASA ratio (period ending) at ~46%

Break-up of CASA across savings and current to total deposits, March fiscal year-ends, 2010-22 (%)

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Axis Bank
Current 22.8 19.5 18.1 19.1 17.3 17.4 17.8 21.0 21.1 16.3 14.1 16.0 15.5
Savings 24.0 21.6 23.5 25.2 27.7 27.4 29.6 30.4 32.7 28.1 27.1 28.9 29.5
HDFC Bank
Current 22.2 22.3 18.4 17.7 16.7 16.3 16.2 18.0 15.1 15.4 15.2 15.9 18.0
Savings 29.8 30.4 30.0 29.8 28.1 27.7 27.1 30.1 28.4 26.9 27.0 30.2 30.7
ICICI Bank
Current 15.3 15.4 13.7 12.6 13.0 13.7 14.0 15.3 15.9 14.7 13.3 14.6 14.9
Savings 26.3 29.6 29.8 29.3 29.9 31.8 31.9 35.1 35.8 34.9 31.9 31.7 33.8
IndusInd Bank
Current 16.5 18.3 16.2 16.3 16.2 16.7 16.6 15.5 15.5 15.9 16.3 16.7 17.1
Savings 7.2 8.9 11.1 13.0 16.4 17.5 18.5 21.4 25.1 25.6 26.1 26.6 27.1
Yes Bank
Current 9.1 8.6 9.9 10.0 9.5 9.3 9.8 13.4 14.4 12.5 9.0 11.7 13.4
Savings 1.5 1.8 5.1 9.0 12.6 13.8 18.3 22.9 22.1 20.5 17.6 14.5 17.7

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 25

Banks ICICI Bank

COST RATIOS LARGELY UNCHANGED BUT INVESTMENTS IN TECHNOLOGY CONTINUE

FY2022 saw cost-income ratio at 42% as compared to 38% in FY2021 with increase in expenses led by
recovery in business and higher staff costs. Opex to assets ratio stood relatively more stable at ~2%. Note that
FY2021 also saw some benefit from stake sales in the life insurance subsidiary, general insurance subsidiary
and securities subsidiary, where the bank netted a total gain of Rs36.7 bn, which is not there in FY2022. Also
note that treasury income was negligible for the year.

Operating expenses grew 24% yoy as compared to income growth 18% yoy. Employee
expenses increased ~20% yoy primarily though headcount additions were negligible for the
year. The employee base for the company includes sales executives, employees on fixed term
contracts and interns.

Non-staff expenses grew marginally by ~27% yoy and the growth was sharply higher due to
recovery in business volumes (sales promotion and direct marketing expenses, for example)
post the lockdown period. Direct Marketing Agency expenses (DMA) increased ~35% yoy
after a sharp slowdown last year (see the exhibit below). This contributes to ~13% of the
non-staff expenses. This appears to be the best proxy to understand disbursements given the
limited information that we have and the limited decline in this expense item gives us
comfort that the underlying business momentum in retail remains strong.

Exhibit 57: DMA expenses increased sharply in FY2022 led by recovery in disbursements in the retail business
Growth and contribution of DMA to overall expenses, March fiscal year-ends, 2010-22 (Rs bn)

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Total operating expenses 59 66 79 90 103 115 127 148 157 181 216 216 267
Employee expenses 19 28 35 39 42 47 50 57 59 68 83 81 97
Non-staff expenses 39 38 43 51 61 67 77 90 98 113 133 135 171
Direct marketing agency expenses 1 2 2 3 6 8 9 11 13 16 18 17 23
(YoY %) (76) 25 2 116 66 38 18 19 18 23 12 (6) 34
(% of non-staff expenses) 3 4 4 7 9 12 12 12 13 14 13 12 13

Source: Company, Kotak Institutional Equities

Exhibit 58: Headcount increase was lower compared to peers while average cost/employee increased ~15% yoy
Break-up of staff costs, March fiscal year-ends, 2011-21

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2021
Employee costs (Rs mn) 28,169 35,153 38,933 42,201 47,499 50,023 57,337 59,140 68,082 82,712 80,918 96,727
Growth yoy (%) 46.3 24.8 10.8 8.4 12.6 5.3 14.6 3.1 15.1 21.5 (2.2) 19.5
Total employees (#) 56,969 58,276 62,065 72,226 67,857 74,096 82,841 82,724 86,500 99,319 98,750 103,010
Growth yoy (%) 38.7 2.3 6.5 16.4 (6.0) 9.2 11.8 (0.1) 4.6 14.8 (0.6) 4.3
Cost/ employee (Rs mn) 0.5 0.6 0.6 0.6 0.7 0.7 0.7 0.7 0.8 0.8 0.8 0.9
Growth yoy (%) 5.4 22.0 4.0 (6.9) 19.8 (3.6) 2.5 3.3 10.1 5.8 (1.6) 14.6
Total employees/branch (#) 23 21 20 19 17 17 17 17 18 19 19 19
Growth yoy (%) (4.5) (6.0) (5.5) (3.9) (12.9) (0.6) 2.6 (0.5) 4.4 5.1 0.5 1.4

Source: Company, Kotak Institutional Equities

From a segmental perspective, operating expenses in the retail division grew ~20% yoy and
contributed ~75% to overall expenses. However, revenue in this business grew at ~18% yoy
as we are gradually seeing a recovery in business along with higher investments to
strengthen the franchise. The operating cost ratios (per branch basis) in the retail division
increased 18% yoy in FY2022. Note that a large part of incremental costs in recent years
could be attributed to the increase in compliance costs, especially purchase of PSLC.

26 KOTAK INSTITUTIONAL EQUITIES RESEARCH

ICICI Bank Banks

Exhibit 59: Led by higher disbursements and investments, we have seen a sharp increase in operating expenses for the bank
Break-up of operating costs across business segments, March fiscal year-ends, 2011-22 (Rs mn)

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Retail banking
Operating expenses 45,694 56,520 63,216 76,583 86,147 97,972 112,260 121,340 141,157 166,470 160,852 194,668
Growth (%) 4.9 23.7 11.8 21.1 12.5 13.7 14.6 8.1 16.3 17.9 (3.4) 21.0
(% of costs) 69.0 72.0 70.1 74.3 74.9 77.2 76.1 77.3 78.0 77.0 74.6 72.8
Branches 2,529 2,752 3,100 3,753 4,050 4,450 4,850 4,867 4,874 5,324 5,266 5,418
Growth (%) 45.3 8.8 12.6 21.1 7.9 9.9 9.0 0.4 0.1 9.2 (1.1) 2.9
Average cost/branch (Rs mn) 18.1 20.5 20.4 20.4 21.3 22.0 23.1 24.9 29.0 31.3 30.5 35.9
Growth (%) (27.8) 13.7 (0.7) 0.1 4.2 3.5 5.1 7.7 16.2 8.0 (2.3) 17.6
Corporate banking
Operating expenses 18,231 19,965 24,843 24,057 25,846 25,981 32,414 33,013 34,637 39,606 43,504 55,357
Growth (%) 47.6 9.5 24.4 (3.2) 7.4 0.5 24.8 1.8 4.9 14.3 9.8 27.2
(% of costs) 27.5 25.8 27.6 23.4 24.3 20.4 22.0 21.0 19.1 18.3 20.2 20.7
Treasury and others
Operating expenses 1,544 1,690 1,763 1,777 1,830 1,796 2,177 2,196 4,354 8,945 9,863 15,370
Growth (%) (4.4) 9.5 4.3 0.8 3.0 (1.9) 21.2 0.9 98.3 105.4 10.3 55.8
(% of costs) 3.4 2.2 2.3 2.3 0.7 1.5 (0.9) (4.0) (9.3) 4.1 25.2 6.5

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 27

Banks ICICI Bank

SUBSIDIARIES: CAPITAL MARKETS DRIVE MOST OF THE INCREMENTAL GROWTH

ICICI Bank’s subsidiaries reported mixed trends in performance, which was broadly similar to the previous few
years. Asset quality trends improved in international banking subsidiaries with reduction in exposures
towards Indian companies. However, there was a big repatriation of capital from the UK subsidiary in FY2022.
Strong revenue upswing in capital markets improved bottom-line performance at AMC, securities, primary
dealerships. Contribution of profits from life and general insurance has either been flat or declining in recent
years. ICICI Home Finance had a disappointing year with weak RoEs but we see growth improving.

Subsidiary performance: big capital repatriation from the UK subsidiary

The performance across various subsidiaries was mixed across the international banking
subsidiaries, domestic insurance and securities businesses and home finance company. We
have explored most of the main subsidiaries in this report but note there are a few more
whose contribution is quite negligible. Overall, subsidiaries reported flat profits in FY2022
driven by AMC and securities business while most of the other businesses had a relatively
weak performance. Dividend payout was higher mainly due to higher payout from the
mutual fund business. The key takeaway was the repatriation of capital from the UK
subsidiary of US$200 mn, which has led to ~35% reduction in capital. Note that despite this
repatriation, CAR levels are quite comfortable and well above the regulatory requirements.

Improvement in payout ratios

Payout ratios improved to ~55% and back to long-term averages though the contribution is
coming from different subsidiaries in recent years. AMC business was the largest contributor
of dividends followed by securities and primary dealership. As indicated in the previous
years, the overall quantum of payout appears to be sustainable though the growth in
dividends may not be too sharp as select businesses are not seeing such a strong traction on
earnings, as growth is quite subdued.

Exhibit 60: Dividends declared improved yoy led by resumption Exhibit 61: Payout ratio increased due to higher payout from
of dividend from life insurance and higher share from MF ICICI Prudential AMC
PAT and dividends from subs, March fiscal year-ends, 2010-22 (Rs bn) Payout ratio across subsidiaries, March fiscal year-ends, 2010-22 (%)

PAT Dividends paid 70

60 60
53 52 53 54
56 51
46
48 42
37 38 39
42
33
36 26
28

24
14

12
-
2011

2012

2013

2014

2015

2016

2018

2020

2022
2010

2017

2019

2021

-
2010
2011

2017
2018
2019
2020
2021
2022
2012
2013
2014
2015
2016

Source: Company, Kotak Institutional Equities

Source: Company, Kotak Institutional Equities

28 KOTAK INSTITUTIONAL EQUITIES RESEARCH

ICICI Bank Banks

Exhibit 62: Dividend payout was stable with capital market subsidiaries doing well due to strong earnings growth
Payout ratios across subsidiaries, March fiscal year-ends, 2010-22 (%)
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
ICICI AMC 63 35 65 54 39 32 33 66 72 70 72 67 83
ICICI Securities 75 72 67 44 53 66 54 48 26 40 47 45 58
ICICI Securities - PD 50 49 50 45 44 46 52 53 90 72 43 56 91
ICICI Ventures 50 61 22 8 3 - - - - 67 - - -
ICICI Life Insurance - - 30 32 70 51 73 51 61 62 32 - 38
ICICI Lombard General 41 NA - - - 15 27 22 8 22 13 25 35
ICICI UK - - - 153 99 164 - - - - - - -
ICICI Canada - - - 47 47 69 74 - - 39 42 388 13
ICICI Home Finance 78 75 74 70 72 79 79 70 56 12 - - -
Total 33 26 42 37 53 51 60 52 46 53 38 39 54

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 29

Banks ICICI Bank

Exhibit 63: Performance of key subsidiaries

Subsidiaries-key metrics, March fiscal year-ends, 2013-22 (Rs mn)

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
United Kingdom
Networth 33,775 37,690 34,090 36,144 34,753 35,045 34,377 33,143 37,048 23,941
Assets 194,737 267,889 258,113 304,989 226,794 268,622 290,566 258,859 216,169 169,926
PAT 781 1,512 1,145 36 (1,051) (1,769) (4,000) 1,700 1,081 827
RoA 0.4 0.7 0.4 0.0 (0.5) (1.0) (1.8) 0.6 0.5 0.4
RoE 2.1 4.1 3.1 0.1 (3.8) (6.9) (14.2) 4.8 3.0 2.7
Canada
Networth 50,868 50,147 47,244 37,624 34,926 33,650 31,924 35,501 34,350 36,323
Assets 294,595 306,521 306,984 318,206 328,686 315,942 364,722 369,750 352,825 350,214
PAT 2,956 2,616 1,841 1,191 (1,865) 2,012 2,804 3,456 445 1,753
RoA 1.0 0.9 0.6 0.4 (0.6) 0.6 0.8 0.9 0.1 0.5
RoE 6.1 5.2 3.8 2.8 (5.1) 5.9 8.6 10.3 1.3 5.0
Home Finance
Networth 14,646 15,209 14,917 15,292 16,072 17,051 16,828 16,678 17,871 21,051
Assets 72,025 72,575 82,991 93,884 94,300 101,086 139,286 153,702 155,102 159,405
PAT 2,202 2,228 1,975 1,799 1,833 1,058 441 3 217 1,642
RoA 5.5 3.1 2.5 2.0 1.9 1.1 0.4 0.0 0.1 1.0
RoE 15.3 14.9 13.1 11.9 11.7 6.4 2.6 0.0 1.3 8.4
Securities
Networth 3,268 2,996 3,521 3,942 4,851 8,387 10,344 11,914 18,038 24,305
Assets 9,085 16,204 13,611 13,920 20,401 28,647 46,463 44,185 81,557 136,462
PAT 682 749 2,440 2,357 3,376 5,491 4,869 5,367 10,676 13,826
Primary Dealership
Networth 6,791 7,423 8,106 8,669 9,435 9,990 9,627 11,881 14,409 15,898
Assets 107,472 105,512 146,881 158,614 128,524 172,401 116,694 174,258 197,196 202,724
PAT 1,217 1,318 2,174 1,955 4,116 983 656 3,335 5,681 3,287
ICICI Mutual Fund
Networth 1,863 2,864 4,390 6,373 7,332 12,131 11,782 13,399 17,625 20,174
PAT (Rs mn) 1,102 1,830 2,468 3,257 4,805 6,138 6,831 10,459 12,454 14,541
AUM (Rs bn) 878 1,068 1,486 1,672 2,430 3,057 3,208 3,507 3,507 4,568
Dividend 600 706 794 1,059 3,195 4,448 4,801 7,546 8,315 12,039
General Insurance
Net worth 19,591 24,143 29,067 32,554 37,266 45,412 53,205 61,342 74,355 91,097
- Share Capital 4,370 4,451 4,466 4,475 4,512 4,539 4,543 4,545 4,546 4,909
- Reserves & Surplus 15,221 19,693 24,601 28,079 32,754 40,872 48,662 56,798 69,809 86,188
PAT 3,801 5,515 5,858 5,053 7,018 8,618 10,492 11,938 14,731 12,710
Dividend 0 0 890 1,341 1,571 680 2,270 1,591 3,637 4,418
Life Insurance
Net worth 39,171 43,053 48,649 50,739 61,350 65,764 68,755 75,353 91,194 91,631
- Share Capital 14,289 15,277 14,329 14,324 14,353 14,355 14,358 14,359 14,360 14,373
- Reserves & Surplus 24,882 27,776 34,320 36,415 46,996 51,409 54,397 60,994 76,834 77,258
PAT 14,959 15,667 16,343 16,505 16,822 16,198 11,406 10,670 9,601 7,541
Dividend 4,840 10,930 8,370 12,030 8,530 9,901 7,033 3,374 0 2,873
Venture capital
PAT 198 330 9 (212) 93 112 691 134 134 134
Dividend 15 10 0 0 0 0 461 0 0 0

Source: Company, Kotak Institutional Equities

30 KOTAK INSTITUTIONAL EQUITIES RESEARCH

ICICI Bank Banks

International subsidiaries – significance of business from India on the decline

Over the past few years, we have seen a change in the bank’s lending activity in both its
international subsidiaries. There has been a marked decline in the lending exposure towards
Indian corporates where the bank has seen a large share of stress being created in the
previous decade during India’s corporate NPL cycle. We are seeing negligible growth in
business and mostly towards relatively safer assets. Also, the bank has been able to
repatriate capital, reducing the burden of investing in lower RoE businesses.

ICICI Bank Canada: Marginal recovery in RoE

Earnings declined 4X yoy but mainly due to a lower base as RoE is still weak in this
subsidiary. This improvement is driven by a few line items: (1) 40% yoy decline in NII as
interest income decline by ~20%, likely to be partly led by decline in loan book and mix shift
away from commercial/corporate loans and mortgages, (2) stable operating costs yoy, with
cost-income ratio at 58% vs 39% in FY2020, and (3) increase in credit costs to 0.4% of
loans, a reversal compared to negative credit costs 0.1% to 0.2% in the past couple of
years.

The overall loan book declined (-7% yoy) led by sharp contraction in commercial/corporate
loans (-20% yoy) whereas residential mortgage book grew ~20% yoy. The exposure
towards Indian corporates, which was ~50% of the loan portfolio in FY2010-11, has
declined to negligible levels. However, CY2020 saw a growth of ~20% yoy.

In terms of stage-wise movement of loans, corporate portfolio has seen rise is stage-2 loans
to 13% (from 6% in CY2020) while stage-3 is broadly stable. Residential mortgage book
had ~100 bps rise in stage-2 to 7% while stage-3 was negligible.

Overall allowance for credit losses on the book has improved marginally to 2.6% (2.4% in
CY2019), driven by provisions in the corporate book. Impaired book is predominantly India-
linked exposures but fully provided.

The bank indicated that a large portion of residential mortgage customers and a few of
corporate and retail customers opted for the payment deferral schemes. However, by the
end of 3QCY20, most of these customers resumed regular payments and there was no
significant increase in delinquency levels. As at December 31, 2020, loans under active
deferrals were close to nil.

Exhibit 64: Asset quality is of lower concern but revenue profile was quite weak led by lower NIM
RoE decomposition of the Canadian subsidiary, March fiscal year-ends, 2011-22 (%)
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Net interest income 0.8 1.5 1.4 1.5 1.4 1.3 1.4 1.3 1.5 1.6 1.0 0.8
Net other income 0.7 0.4 0.4 0.5 0.3 0.3 0.3 0.2 0.1 0.2 0.3 0.4
Total income 1.5 1.9 1.9 2.0 1.7 1.5 1.6 1.4 1.7 1.8 1.3 1.2
Operating expenses 0.5 0.7 0.6 0.6 0.6 0.5 0.5 0.6 0.6 0.7 0.7 0.6
Employees 0.2 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.4 0.4 0.3
Others 0.3 0.3 0.3 0.3 0.3 0.2 0.2 0.3 0.3 0.3 0.3 0.3
Pre provision income 0.9 1.3 1.3 1.4 1.2 1.0 1.1 0.8 1.1 1.1 0.5 0.5
Loan loss provisions 0.0 0.2 0.2 0.1 0.3 0.4 1.9 (0.0) (0.1) (0.2) 0.4 (0.1)
Invt. depreciation (0.1) 0.0 (0.2) 0.1 0.1 0.0 — — — — — —
Pre -tax income 0.9 1.1 1.3 1.2 0.8 0.5 (0.8) 0.9 1.1 1.3 0.2 0.7
(1- tax rate) 71.9 69.8 77.9 70.9 71.2 71.4 74.2 72.7 73.1 73.1 71.5 73.2
ROA 0.7 0.7 1.0 0.9 0.6 0.4 (0.6) 0.6 0.8 0.9 0.1 0.5
Leverage 6.0 5.6 5.8 6.0 6.3 7.4 8.9 9.4 10.4 10.9 10.3 9.9
ROE 4.1 4.2 6.1 5.2 3.8 2.8 (5.1) 5.9 8.6 10.3 1.3 5.0

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 31

Banks ICICI Bank

Exhibit 65: Exposure to Indian companies is now at negligible levels

Break-up of the loan portfolio, March fiscal year-ends, 2011-22 (%)
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Canada 33.5 64.5 74.4 82.9 89.0 88.0 86.6 85.7 84.8 89.6 91.6 92.6
Corporate loans 17.2 19.7 23.0 20.3 21.0 33.9 26.7 26.6 28.2 26.8 23.2 19.3
Corporate investment portfolio- - - 11.3 12.1 - - - - - - -
Securitized residential mortgages
- 28.0 38.4 38.2 45.9 49.8 51.8 50.7 44.4 45.4 48.3 48.5
Others 16.3 16.8 13.0 13.1 10.0 4.3 8.1 8.4 12.2 17.4 20.1 24.8
India 56.8 30.8 22.7 13.6 5.8 4.0 3.6 3.4 3.1 2.9 3.7 2.1
Commercial loans/ mortgages1.5 5.0 2.5 1.8 0.3 - - - - - - -
Corporate loans 55.3 25.8 20.2 11.8 5.5 4.0 3.6 3.4 3.1 2.9 3.7 2.1
Others 9.7 4.7 2.9 3.5 5.2 8.0 9.8 10.9 12.1 7.5 4.7 5.3
Commercial loans/ mortgages1.1 1.3 0.6 0.9 0.5 - - - - - - -
Corporate loans 8.7 3.5 2.3 2.6 4.7 8.0 9.8 10.9 12.1 7.5 4.7 5.3
Notes:
(A) The bank has clubbed select segments of the book in FY2016. The sharp rise in corporate loans in FY2016 is primarily on account of our
classification into a bucket and not company representation.

Source: Company, Kotak Institutional Equities

Exhibit 66: Impaired loans unchanged in recent years Exhibit 67: India exposure has fallen sharply but impairments
Break-up of weak or impaired, March fiscal year-ends, 2011-19 (Rs high
bn) India exposure loans and impairment provisions, March fiscal year-
ends, 2011-22 (Rs bn)
Closely monitored or impaired % of loans
(%) Loans (Rs bn) Allowance for impairment (Rs bn)
25 12
100
20
20 9
80

15 13 6
11 60
10 10 10 10
10 3
40
4 4
5 0
20
0 0 0
0 -3
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

0
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022
Notes:
Impairment in Canada is not a rule based mechanism. Loans assigned
on a scale of 1 to 8, with credits rated 1 through 4 considered
Source: Company, Kotak Institutional Equities
“Satisfactory”, RR 5 being “Especially Mentioned” and RR 6 treated
as “sub-standard”. RR7-8 is considered weak or impaired.

Source: Company, Kotak Institutional Equities

Tier-1 ratio quite comfortable but no repatriation of capital

The overall CAR for the bank is comfortable at >25%. Unlike the trend over FY2015-18, the
bank has not repatriated capital in FY2020-22. The bank is accreting risk capital through
RWA management as well given loan mix shift towards lower risk-weight segments and
lower loan growth.

32 KOTAK INSTITUTIONAL EQUITIES RESEARCH

ICICI Bank Banks

Exhibit 68: Canada has a strong capital structure at >20% tier-1 Exhibit 69: FY2021 had no repatriation of capital from Canada
Capital adequacy ratio, March fiscal year-ends, 2011-22 (%) Repatriation of capital, March fiscal year-ends, 2011-22 (Rs mn)

Tier-1 Tier-2 6,000

40

4,800
32

3,600
24

2,400
16 32 30 32
30 30
24 25 26
21 22 1,200
19
8 16

0
0

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

Source: Company, Kotak Institutional Equities Source: Company, Kotak Institutional Equities

ICICI Bank UK: Lower revenues drag earnings; repatriation of capital is they key
development

ICICI Bank UK is mainly focused on India-linked businesses and the banking needs of the
Indian community in the UK and Germany. The core services offered by bank include
meeting local banking requirements, remittance services to India and facilitating banking
requirements in India. The bank offers corporate banking services, which include serving
India-Europe trade and investment corridors involving Indian companies operating in Europe,
MNCs operating in India, trade counterparties with India and funds investing in the Indian
equity and debt market.

For local banking services, the bank caters to SME and business banking customers for their
trade and foreign exchange requirements. It also focuses on commercial real-estate lending
against income-producing assets.

The overall loan book declined ~13% and broadly spread across the geographies
UK/Europe/North America as well as India-linked exposure. Share of India-linked exposures
stands at 15% and has declined from the high levels of ~65% in FY2010, ~35% in FY2016
and closer to the bottom of 14% in FY2019. Risk profile was unchanged yoy and better
than it has been in recent years with better rated (A- and above) assets comprising ~65% of
loans (vs 50% in FY2018). The real estate book has seen a rise in overall mix to ~50% from
~20% in FY2019.

FY2022 performance was weak with earnings falling 25% yoy, led by (1) ~20% decline in
NII but offset with higher growth in non-interest income, (2) costs growing by 13% yoy,
leading to cost-income ratio to increase to ~75% from ~60% in FY2021 and (3) credit costs
declining marginally to 0.2% from a peak of 3-4% annually in FY2017-19.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 33

Banks ICICI Bank

Exhibit 70: RoE stable in FY2021 on lower credit costs

RoE decomposition of the bank, March fiscal year-ends, 2011-22 (%)

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Net interest income 1.1 1.2 1.4 1.4 1.5 1.7 1.6 1.9 1.9 1.7 1.6 1.6
Net other income 0.6 0.4 0.9 1.0 1.1 0.4 0.4 0.5 0.3 0.4 0.4 0.5
Total income 1.6 1.6 2.2 2.4 2.7 2.1 2.0 2.3 2.2 2.1 1.9 2.1
Operating expenses 0.6 0.8 1.0 1.0 0.9 0.8 0.8 1.0 0.9 1.0 1.1 1.6
Employees 0.3 0.5 0.6 0.6 0.5 0.4 0.4 0.6 0.6 0.6 0.7 0.9
Others 0.3 0.3 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.7
Pre provision income 1.0 0.8 1.3 1.5 1.8 1.3 1.2 1.3 1.2 1.1 0.8 0.6
Loan loss provisions 0.3 0.1 0.7 0.5 1.2 1.3 1.7 2.2 2.9 0.3 0.3 0.1
Invt. depreciation - - - - - (0.1) - - - - - -
Pre tax income 0.7 0.7 0.5 0.9 0.5 0.1 (0.5) (0.8) (1.6) 0.8 0.5 0.4
(1- tax rate) 71.6 71.6 75.1 69.8 80.5 9.0 113.4 116.0 111.4 81.3 84.4 96.2
ROA 0.5 0.5 0.4 0.7 0.4 0.0 (0.5) (1.0) (1.8) 0.6 0.5 0.4
Leverage 10.2 7.2 5.5 6.3 7.2 7.9 7.4 7.0 7.9 7.7 6.5 6.4
ROE 5.4 3.7 2.1 4.1 3.1 0.1 (3.8) (6.9) (14.2) 4.8 3.0 2.7

Source: Company, Kotak Institutional Equities

Exhibit 71: Exposure to India has increased marginally in FY2021

Break-up of the loan portfolio in the UK, March fiscal year-ends, 2011-22 (%)
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Europe and North America 27.0 46.0 46.0 44.4 47.4 56.5 63.5 77.6 81.9 76.9 76.9 81.2
India 69.4 53.5 53.5 49.5 45.5 36.8 29.1 17.5 13.5 17.5 18.0 14.7
Rest of the world 3.6 0.5 0.5 6.1 7.1 6.7 7.3 4.9 4.5 5.6 5.2 4.1
Notes:
(A) The bank had raised FCNR deposits and had reported as a separate line item in FY2014-15 which is not there in FY2016 as per the annual report
but we have included it here as they are yet to mature. We have removed this in FY2017 as we assume that it would have matured.

Source: Company, Kotak Institutional Equities

Decline in overdue loans

As at March 31, 2022, the gross impairment ratio was at 9% but this has declined 30% yoy
on absolute basis and ~50% from peak levels. The corporate banking segment has made
some progress in reaching resolutions and making recoveries from some of the impaired.
The bank selectively sold down some loans (primarily lower rated) from its non-core strategic
portfolio, which helped in enhancing the overall credit quality of the portfolio. The exposure
to Indian corporates, which are in overdue book, is negligible today as compared to what
we have seen in the past.

34 KOTAK INSTITUTIONAL EQUITIES RESEARCH

ICICI Bank Banks

Exhibit 72: There is a decline in overdues in this book Exhibit 73: Overdues in the India exposure dropped
Overdue loans in the UK book, March fiscal year-ends, 2011-22 Overdue loans in the India exposure, March fiscal year-ends, 2011-22

Over due (LHS) % of loans (RHS) Overdue (LHS) % of loans (RHS)

(% ) 3M over due (RHS) 70 (Rs25
bn)
(Rs bn)
15 20

57 56 20
12 12 16
11
10 44 15
9 9 12
8 8
32
6 6 8 31 10
25 26
4 5 23
4 20
3 3 4 18 5
16
16 15
1 14
0 - 5 7 -
2013

2014

2015

2016

2017

2018

2021

2022
2011

2012

2019

2020

2013

2014

2016

2017

2019

2020

2021

2022
2012

2015

2018
Source: Company, Kotak Institutional Equities Source: Company, Kotak Institutional Equities

With scaling down of the book, capital levels have improved further with Tier-1 ratio of
18%, above the regulatory thresholds. There is a decline on a yoy basis primarily on account
of US$200 mn of repatriation of capital from this subsidiary.

Exhibit 74: Tier-1 comfortable despite repatriation of capital Exhibit 75: There was a big repatriation of capital in FY2022
Break-up of capital, March fiscal year-ends, 2011-22 (%) Repatriation of equity capital, March fiscal year-ends, 2011-22 (Rs mn)

Tier-1 Tier-2 16,000

50

12,800
40

9,600
30
15,158
20 6,400
33
21 24
10 19 18 3,200
17 15 16 14 15
13 13 4,687
2,714
0
0 - - - - - - - - -
2012

2013

2014

2015

2016

2017

2018

2019

2020

2021
2011

2022

2015

2016

2017

2018

2019

2020

2021

2022
2011

2012

2013

2014

Source: Company, Kotak Institutional Equities Source: Company, Kotak Institutional Equities

ICICI Home Finance – recovery very slow

ICICI Home Finance’s performance was better than the previous year as we are seeing a
recovery in loan growth and earnings. PBT grew ~6.5X yoy (low base), driven by ~30%
PPOP growth while provisions declined 35% yoy. The bank had a similar growth in revenues
and operating expenses at ~30% yoy. Overall, RoA improved to 1% and RoE to 8% but this
still continues to be subpar. We have seen a healthy recovery in loan growth in the retail
portfolio while the non-individual book saw a decline of ~20%. The retail portfolio
contributes ~75% of the overall loan book for this business.

The overall impairment ratio declined ~80 bps to 5.8% of loans and consequently, the bank
had increased its provisions for bad loans. Overall coverage on Stage-3 loans is at ~30% (vs

KOTAK INSTITUTIONAL EQUITIES RESEARCH 35

Banks ICICI Bank

45-60% in FY2019-20). Credit costs declined ~70 bps yoy to 1.2%. The stress is high in the
non-housing builder loan portfolio though the intensity has been gradually declining on
absolute basis. The bank has not been growing this portfolio in recent years.

Exhibit 76: RoEs in the business are quite low for a comparable housing finance business
RoE decomposition of housing finance business, March fiscal year-ends, 2011-22 (%)
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
RoE decomposition
Net interest income 5.3 56.6 7.6 4.1 3.9 3.5 3.3 3.0 2.6 2.6 2.6 3.6
Net other income 0.6 3.4 2.3 1.6 1.4 1.2 0.8 0.2 0.3 0.9 1.0 0.9
Total income 5.9 60.1 9.9 5.6 5.3 4.6 4.1 3.2 3.0 3.4 3.6 4.5
Operating expenses 0.9 9.7 2.0 1.3 1.4 1.4 1.2 1.1 1.6 1.9 1.7 2.1
Employees 0.4 3.1 0.8 0.5 0.5 0.5 0.4 0.4 0.7 1.0 1.0 1.1
Others 0.5 6.6 1.2 0.8 0.9 0.9 0.8 0.7 0.9 0.9 0.6 1.0
Pre provision income 5.0 50.4 7.8 4.4 3.9 3.3 2.9 2.1 1.4 1.5 2.0 2.5
Provisions 0.3 4.0 0.2 0.1 0.1 0.2 (0.0) 0.5 0.9 1.3 1.7 1.1
(1- tax rate) 70.8 73.5 72.7 71.6 66.8 66.0 65.9 67.5 69.9 1.1 66.4 77.4
ROA 3.3 34.1 5.5 3.1 2.5 2.0 1.9 1.1 0.4 0.0 0.1 1.0
Leverage 5.4 0.6 2.8 4.8 5.2 5.9 6.0 5.9 7.1 8.7 8.9 8.1
ROE 17.8 18.9 15.3 14.9 13.1 11.9 11.7 6.4 2.6 0.0 1.3 8.4

Source: Company, Kotak Institutional Equities

The bank is primarily focused in the retail business with greater focus on affordable housing.
Share of affordable segment in HL disbursements was up to 45% in FY2022 from 12% in
FY2020.

Loan growth remains volatile over the years with a marginal growth in FY2022. Growth was
driven by housing segment (18% yoy) vs non-housing (-18% yoy decline). The non-housing
loan portfolio is a book that primarily consists of loans-against-property and real estate
financing. The ratio between home loans and non-home loans is 75:25.

Exhibit 77: Growth slowdown in non-housing portfolio

Loan growth across housing and non-housing, March fiscal year-ends, 2011-22 (%)

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Housing loans (Rs bn) 51 40 39 39 47 53 55 57 78 87 90 107
Growth (%) (22.7) (21.4) (4.3) (0.5) 20.8 14.0 3.1 3.7 37.6 11.3 4.0 18.6
Non-housing loans (Rs bn) 32 26 27 28 30 35 35 40 56 56 51 42
Growth (%) (28.7) (20.7) 5.5 3.4 9.2 13.4 2.6 13.7 38.8 (0.5) (8.7) (18.3)
Total (Rs bn) 84 66 66 66 77 88 90 97 134 143 141 149
Growth (%) (25.2) (21.1) (0.5) 1.1 15.9 13.7 2.9 7.6 38.1 6.3 (1.0) 5.3

Source: Company, Kotak Institutional Equities

Overall stage-3 loans (NPL) declined ~80 bps yoy to 5.8% while stage-2 loan ratio was
unchanged at 8%. Provision coverage ratio showed a marginal improvement to ~27% from
24% earlier. In the non-housing segment, NPL ratio remained unchanged at 9% but the
portfolio has seen a reduction on an absolute basis.

Exhibit 78: Increase in GNPL in the non-housing segment

RoE decomposition of housing finance business, March fiscal year-ends, 2011-22 (%)
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Gross NPL 2.1 2.4 3.0 2.0 1.8 2.1 1.6 3.4 3.6 4.0 6.6 5.8
Housing 1.5 1.7 1.4 1.2 0.9 0.8 0.5 3.9 2.8 3.1 5.2 4.5
Non-housing 3.0 3.6 5.3 3.3 3.2 4.1 3.2 2.7 4.6 5.5 9.1 9.2

Source: Company, Kotak Institutional Equities

Capital ratios were unchanged at 22% with 17% Tier-1 ratio. The company has declared a
small dividend in FY2022. The company has managed the capital requirement through Tier-
2 bond issue. Impact of the second Covid wave is not reflected in stress levels.

36 KOTAK INSTITUTIONAL EQUITIES RESEARCH

ICICI Bank Banks

Exhibit 79: Tier-1 ratio is comfortable at ~17% Exhibit 80: The company declared a small dividend in FY2022
Capital adequacy ratio, March fiscal year-ends, 2012-22 (%) Dividend payout ratio, March fiscal year-ends, 2011-22 (%)

Tier-1 Tier-2
80
35

6 64
28
7 6
4 3 2
48
21 1
7 5 79 79
5 75 74 70 72 70
1 32
14 27 56
23 23 23 25 1
22 22
16 17 16 17 16
7 14
12 10
0 0 0 0

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

Source: Company, Kotak Institutional Equities Source: Company, Kotak Institutional Equities

ICICI Prudential AMC – stable active equity market share, PAT/AUM of ~30 bps
The AMC business reported average AUM growth of 13% yoy to Rs4,568 bn. ICICI Pru
AMC has grown its AUM by ~14% CAGR over the past five years compared to ~15% for
the MF industry. Overall market share in the domestic mutual fund business was 12-13% on
a quarterly average basis. The quarterly average equity mutual fund AUM (excluding
exchange traded funds) managed by the company was Rs2,111 bn with a market share of
~12.5%. One of the benefits of this business is the strong operating leverage as AUM grew
~14% over the past five years but earnings grew at ~30% CAGR. The margins (PAT/average
AUM) have also improved over the past few years and now at ~30 bps.

Exhibit 81: ICICI Pru AMC’s market share has been stable in equity AUM in recent years
Actively-managed equity oriented MAAUM market share, March fiscal year-ends, 2014-22, June-July 2022 (%)

2014 2015 2016 2017 2018 2019 2020 2021 2022 4MFY23
Market share in equity oriented MAAUM
Aditya Birla Sun Life 6.0 7.2 7.7 8.7 9.2 8.8 7.7 7.2 6.4 6.1
Axis AMC 1.5 2.3 3.1 3.3 3.6 4.6 6.8 8.0 8.4 8.0
DSP Mutual Fund 4.5 4.1 3.7 4.4 4.4 3.9 3.9 4.1 3.8 3.6
Franklin Templeton 7.1 6.8 7.5 7.5 5.6 5.2 4.3 3.7 2.8 2.7
HDFC AMC 19.9 18.5 15.1 15.8 16.2 15.6 14.4 13.0 11.4 11.5
ICICI Prudential AMC 11.2 13.5 14.2 15.2 15.0 14.3 13.5 12.5 12.4 12.6
IDFC Mutual fund 4.0 3.8 2.9 2.2 2.1 2.2 2.6 2.0 1.6 1.6
Kotak AMC 1.8 2.5 3.2 3.7 4.7 5.1 6.4 6.7 7.0 7.1
Mirae AMC 0.3 0.5 0.7 1.2 1.5 2.2 3.5 4.7 4.9 4.9
Nippon Life India AMC 12.3 12.2 11.2 9.7 9.2 8.9 7.4 6.9 6.3 6.3
SBI AMC 7.3 6.1 7.0 8.0 7.9 8.9 9.7 10.2 12.0 12.4
Tata AMC 2.2 2.0 2.5 2.1 1.7 2.3 2.3 2.5 2.9 2.8
UTI AMC 10.6 8.7 7.4 6.3 4.8 4.7 4.4 4.8 4.8 4.8
Total of above players 88.8 88.1 86.4 88.2 86.1 86.5 86.9 86.3 84.7 84.4
Top 10 85.2 83.3 80.2 82.7 80.7 79.9 78.5 78.0 77.4 77.4
Others 11.2 11.9 13.6 11.8 13.9 13.5 13.1 13.7 15.3 15.6

Source: Company, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 37

Banks ICICI Bank

Exhibit 82: Average AUM grew ~13% yoy in FY2022 Exhibit 83: Market share at 12-13%
Average AUM, March fiscal year-ends, 2010-22 Market share in AUM, March fiscal year-ends, 2010-22 (%)

(Rs bn) AUM Growth (%) 15

5,000 60

14
4,000 45

3,000 30 13

2,000 15 12

1,000 0
11

0 -15
2010
2011
2012
2013
2014
2015

2019
2020
2021
2022
2016
2017
2018

10

2010
2011
2012

2015
2016
2017
2018
2019

2021
2022
2013
2014

2020
Source: Company, Kotak Institutional Equities
Source: Company, Kotak Institutional Equities

Exhibit 84: PAT grew ~20% yoy Exhibit 85: PAT margin improved further and close to ~30 bps
PAT, March fiscal year-ends, 2010-22 (Rs mn) PAT/average AUM, March fiscal year-ends, 2010-22

13,000 0.35

10,400 0.28

7,800 0.21

5,200 0.14

0.07
2,600

0.00
0
2011
2012

2014
2015
2016

2018
2019

2021
2022
2010

2013

2017

2020
2010
2011

2014
2015

2017
2018
2019

2021
2022
2012
2013

2016

2020

Source: Company, Kotak Institutional Equities Source: Company, Kotak Institutional Equities

ICICI Securities and Primary Dealership

ICICI Securities is one of the leading retail brokerage firms. However, it has steadily lost
market share over the past 7-8 years. As per latest data, it has the fourth largest number of
active clients. Overall revenues grew ~30% in FY2022 as revenues from margin trading
facility grew off a low base along with strong growth in distribution revenues from mutual
funds and insurance. Operating expense growth was ~25% yoy, leading to earnings growth
of ~30% yoy.

Primary Dealership had a weak year on the back of decline in trading/interest income, which
along with absence of operating leverage, led to PAT decline of ~40% yoy. We are not
reading too much into these changes given the nature of business that is highly dependent
on external conditions and volatility in capital markets.

38 KOTAK INSTITUTIONAL EQUITIES RESEARCH

ICICI Bank Banks

Exhibit 86: ICICI Securities has held its market share at ~8% since FY2021
Number of active clients of brokerages, March fiscal year-ends (#)

2014 2015 2016 2017 2018 2019 2020 2021 2022 Jul-22 FYTD additions Share (%) Yoy (%)
Zerodha 17,523 30,379 61,970 165,586 540,905 909,008 1,414,389 3,602,074 6,277,434 6,579,159 301,725 17.4 45
Upstox (RKSV Securities) 4,631 7,372 10,622 17,229 43,889 99,546 619,305 2,141,095 5,215,523 5,199,547 (15,976) 13.8 57
Groww (Nextbillion Technology) 780,570 3,847,955 4,499,782 651,827 11.9 187
Angel Broking 140,174 160,354 170,808 230,194 363,663 412,809 576,414 1,564,667 3,657,550 4,063,669 406,119 10.8 89
ICICI Securities 500,733 594,714 560,438 618,359 798,355 843,975 1,075,956 1,580,233 3,031,192 3,182,724 151,532 8.4 63
5Paisa Capital 3,652 36,034 106,280 434,036 870,405 1,754,330 1,578,716 (175,614) 4.2 45
Kotak Securities 223,280 268,459 246,945 273,895 368,638 437,822 571,806 743,206 1,256,001 1,223,441 (32,560) 3.2 45
HDFC Securities 278,706 347,555 408,059 483,244 602,493 672,044 720,150 957,085 1,141,264 1,177,765 36,501 3.1 20
IIFL Securities 235,241 286,032 262,930 197,996 225,435 215,775 218,877 291,730 1,132,766 1,141,787 9,021 3.0 226
Motilal Oswal Securities 123,022 152,608 165,844 207,194 307,647 319,138 377,123 564,034 896,851 915,409 18,558 2.4 35
Sharekhan 274,777 342,592 335,843 366,468 535,003 509,787 549,778 679,333 764,250 768,940 4,690 2.0 5
SBICAP Securities 68,328 113,810 125,828 169,345 213,616 209,301 249,924 329,099 635,384 651,839 16,455 1.7 84
Paytm Money NA 85,827 404,376 553,792 149,416 1.5 242
Axis Securities 77,333 120,292 184,325 259,006 404,769 419,455 270,462 454,882 422,358 404,569 (17,789) 1.1 (13)
Geojit Financial Services 148,176 158,271 177,397 160,317 183,466 162,789 163,742 201,206 234,546 234,764 218 0.6 7
Edelweiss Broking 23,601 47,123 77,459 74,631 104,643 120,132 130,215 157,254 193,041 210,236 17,195 0.6 25
Religare Broking Limited 116,223 129,718 120,395 120,887 143,949 159,030 111,652 132,939 165,416 160,126 (5,290) 0.4 10
Reliance Securities 92,907 114,086 97,390 83,430 122,858 120,227 119,321 117,307 107,201 97,385 (9,816) 0.3 (22)
Bajaj Financial Securities Ltd — 85,649 94,561 8,912 0.3
Others 1,963,516 2,218,372 2,163,710 2,519,868 3,294,438 3,065,089 3,192,510 3,640,886 4,811,933 4,985,985 174,052 13.2 26
Overall 4,288,171 5,091,737 5,169,963 5,951,301 8,289,801 8,782,207 10,795,660 18,893,832 36,035,020 37,724,196 1,689,176 59

Source: NSE, Kotak Institutional Equities

Exhibit 87: ICICI Securities had a healthy performance in FY2022; earnings decline for Primary Dealership
Key business metrics, March fiscal year-ends, 2010-22 (Rs mn)
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Securities
Revenues 6,131 5,860 5,697 5,922 6,672 10,597 9,810 12,306 16,202 15,389 15,004 22,663 28,912
Growth (%) 66 (4) (3) 4 13 59 (7) 25 32 (5) (3) 51 28
PAT 1,227 1,132 771 682 749 2,440 2,357 3,376 5,491 4,869 5,367 10,676 13,826
Growth (%) (8) (32) (12) 10 226 (3) 43 63 (11) 10 99 30
Primary dealership
Revenues 1,784 1,249 1,800 2,479 2,687 4,154 3,922 7,288 2,425 1,850 5,286 8,630 5,553
Growth (%) (64) (30) 44 38 8 55 (6) 86 (67) (24) 186 63 (36)
PAT 850 528 857 1,217 1,318 2,174 1,955 4,116 983 656 3,335 5,681 3,287
Growth (%) (69) (38) 62 42 8 65 (10) 111 (76) (33) 408 70 (42)

Source: Company, Kotak Institutional Equities

ICICI Prudential Life Insurance – 15% operating RoEV in FY2021

ICICI Prudential Life’s operating RoEV declined to 11% in FY2022, mainly due to large
mortality variance because of Covid-19. Excluding the mortality variance, operating variance
would be 15%, similar to FY2021. Expansion in VNB margins by 290 bps led to 33%
growth in VNB even as APE was up 20% yoy for the year. ICICI Prudential Life has increased
focus on the profitable non-par and annuity segments. The company launched guaranteed
10-30 year return plan in immediate and deferred annuity design, driving growth in volumes
from agents and new banks. ICICI Bank has focused on pension plans as well. These
products led to increase in segmental margin of non-linked savings business to 33% from
14-17% for the past three years – this is the key driver of margin expansion in FY2022.
The parent bank ironically remains the biggest drag with 5% yoy decline for the year,
bringing down the overall annual APE growth to 20% for the company. Share of ICICI Bank
has been consistently falling, down to 25% of APE in FY2022 from 31% in FY2021 and
56% in FY2019. New bank partners (up 53% yoy) and agency channel (up 19% yoy)
supported overall APE growth.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 39

Banks ICICI Bank

ICICI Lombard General – a muted performance on earnings

ICICI Lombard recorded an earnings decline of ~15% PAT despite a sharp recovery in
premium growth of ~30% yoy primarily due to higher claims. As a consequence, the
combined ratio was higher at ~109% for the year. RoE declined to 15% from ~20% levels.
The solvency ratio at FY2021 was 2.5X against the minimum regulatory requirement of
1.5X.

Exhibit 88: Premiums grew 30% yoy Exhibit 89: RoEs declined to 15% from 20% in earlier years
Premiums, March fiscal year-ends, 2010-22 (Rs bn) PAT and RoE, March fiscal year-ends, 2010-22

200 PAT (LHS) RoE (RHS)

(Rs mn) (%)
15,000 45
160
10,600 30
25
120 20 22 20 21 21 21 22
6,200 16 1515
10
80
1,800 0
-5
40
(2,600) -15

- -25
(7,000) -30
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

2010
2011
2012

2014
2015
2016
2017

2019
2020
2021
2022
2013

2018
Notes:
Source: Company, Kotak Institutional Equities (A) Earnings in FY2012 were impacted because of higher provisions
for prior period insurance claims in the auto loan portfolio.

Source: Company, Kotak Institutional Equities

Exhibit 90: Combined ratio for the insurance business was >100%
Combined ratio for ICICI Lombard General Insurance, March fiscal year-ends, 2010-22 (%)

120

109
110 107
104 105 104 104
100 100 100
99
100

92
90 86

80 78

70
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Source: Company, Kotak Institutional Equities

40 KOTAK INSTITUTIONAL EQUITIES RESEARCH

ICICI Bank Banks

Exhibit 91: ICICI Bank: change in estimates

March fiscal year-ends (Rs mn)
New estimates Old estimates (% change)
2023E 2024E 2025E 2023E 2024E 2025E 2023E 2024E 2025E
Net interest income 560,411 596,526 668,368 550,770 595,159 669,255 2 0 (0)
Spread 3.7 3.4 3.3 3.5 3.3 3.2 15 bps 13 bps 15 bps
NIM (%) 4.0 3.8 3.7 3.9 3.7 3.6 13 bps 12 bps 13 bps
Customer assets (Rs bn) 10,478 11,997 13,771 10,395 11,902 13,662 1 1 1
Loan loss provisions 65,611 81,767 93,912 64,929 80,247 92,272 1 2 2
Other income 217,059 251,846 289,688 214,691 248,130 284,247 1 1 2
Fee income 151,675 172,233 197,019 161,104 182,255 207,572 (6) (5) (5)
Treasury income 7,000 11,000 12,000 7,000 11,000 12,000 0 0 0
Operating expenses 319,053 362,421 410,407 315,083 357,904 405,281 1 1 1
Employee expenses 119,423 136,780 155,932 116,278 133,137 151,728 3 3 3
PBT 392,806 404,185 453,737 385,449 405,138 455,949 2 (0) (0)
Tax 82,489 84,879 95,285 80,944 85,079 95,749 2 (0) (0)
Net profit 310,316 319,306 358,452 304,505 320,059 360,200 2 (0) (0)
PBT-treasury+provisions 451,417 474,951 535,649 443,378 474,385 536,221 2 0 (0)
EPS (Rs) 45 46 52 44 46 52 1 (0) (1)
RoA (%) 2.1 1.9 1.9 2.0 1.9 1.9 10 bps 3 bps 0 bps
RoE (%) 17.0 15.4 15.3 16.7 15.4 15.4 29 bps -4 bps -14 bps
Adj. BVPS (Rs) 267 306 346 267 306 346 0 (0) (0)
Slippages (%) 2.3 1.8 1.8 2.3 1.8 1.8 0 bps 0 bps 0 bps
Gross NPA (%) 2.8 2.3 2.1 2.9 2.3 2.1 -9 bps -4 bps 1 bps
Credit cost (%) 0.7 0.8 0.8 0.7 0.8 0.8 0 bps -5 bps -5 bps
Cost-income ratio (%) 41 43 43 41 42 43 4 bps 72 bps -16 bps

Source: Company, Kotak Institutional Equities estimates

Exhibit 92: ICICI Bank SoTP (FY2024) valuation

ICICI share
(%) FY2024 (Rs) Valuation methodology
Value of ICICI standalone 100.0 790 Based on residual growth model
Subsidiaries
ICICI Financial Services 124
ICICI Prudential Life 51.3 59 2.3X FY2024E Embedded Value; 15% holdco disc.
General insurance 48.1 38 ~5X FY2024E BV; 15% holdco disc.
Mutual funds 51.0 27 25X FY2024E PAT; 20% holdco disc.
Other subsidiaries/associates
ICICI Securities 74.9 32 20X FY2024E PAT; 15% holdco disc.
ICICI Securities Primary Dealer 100.0 3 1X FY2024E book
ICICI Homes 100.0 5 1.5X FY2024E book
ICICI Bank UK 100.0 2 0.6XFY2024E book
ICICI Bank Canada 100.0 4 0.6XFY2024E book
Venture capital/MF 100.0 2 10% of AUM of US$2 bn
Value of subsidiaries 172 `
Value of company 962

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 41

 Banks ICICI Bank

Exhibit 93: ICICI Bank SoTP (FY2024) valuation

ICICI share
(%) FY2025 (Rs) Valuation methodology
Value of ICICI standalone 100.0 899 Based on Residual growth model
Subsidiaries
ICICI Financial Services 143
ICICI Prudential Life 51.3 68 2.3X FY2025E Embedded Value; 15% holdco disc.
General insurance 48.1 43 ~5X FY2025 BV; 15% holdco disc.
Mutual funds 51.0 31 25X FY2025E PAT; 20% holdco disc.
Other subsidiaries/associates
ICICI Securities 75.0 36 20X FY2025 PAT; 15% holdco disc.
ICICI Securities Primary Dealer 100.0 3 1X FY2025E book
ICICI Homes 100.0 5 1.5X FY2025E book
ICICI Bank UK 100.0 3 0.6XFY2025E book
ICICI Bank Canada 100.0 4 0.6XFY2025E book
Venture capital/MF 100.0 2 10% of AUM of US$2 bn
Value of subsidiaries 195 `
Value of company 1,093

Source: Company, Kotak Institutional Equities estimates

Exhibit 94: ICICI Bank – forecasts and valuation

March fiscal year-ends
P/E ABVPS P/B
PAT EPS P/E BVPS P/B RoE Core RoE (standalone) (standalone) (standalone)
(Rs bn) (Rs) (X) (Rs) (X) (%) (%) (X) (Rs) (X)
2013 83 13.1 67.3 105 8.4 13.1 14.7 60.8 83 8.6
2014 98 15.4 57.2 115 7.7 14.0 14.9 53.0 92 7.7
2015 113 17.7 49.9 126 7.0 14.7 15.0 46.6 101 7.0
2016 97 15.1 58.4 139 6.3 11.4 11.1 55.8 104 6.8
2017 98 15.3 57.7 156 5.7 10.9 10.0 54.4 108 6.6
2018 68 10.5 83.8 164 5.4 8.3 6.0 82.2 113 6.3
2019 34 5.2 169.3 168 5.3 3.4 2.4 200.6 134 5.3
2020 79 12.3 72.1 180 4.9 7.7 6.5 69.1 149 4.8
2021 162 23.4 37.7 213 4.1 12.2 12.2 32.9 185 3.8
2022 233 33.6 26.3 245 3.6 14.9 14.4 23.0 221 3.2
2023E 310 44.7 19.8 281 3.1 17.0 16.7 17.0 255 2.8
2024E 319 45.9 19.2 317 2.8 15.4 14.9 16.6 294 2.4
2025E 358 51.6 17.1 359 2.5 15.3 14.7 14.8 334 2.1

Source: Company, Kotak Institutional Equities estimates

42 KOTAK INSTITUTIONAL EQUITIES RESEARCH

ICICI Bank Banks

Exhibit 95: ICICI Bank trading at 3X one year forward (adj.) P/B Exhibit 96: ICICI Bank is trading at a premium to peers
Rolling PBR (adjusted one-year forward book) (X) ICICI Bank trading premium to private banks (X)
Rolling PBR (X) (LHS) Rolling PER (X) (RHS) 1.5
3.5 60

2.8 48 1.2

2.1 36 0.9

1.4 24 0.6

0.7 12 0.3

0.0 0 0.0
Aug-09
Aug-10
Aug-11
Aug-12
Aug-13
Aug-14
Aug-15
Aug-16
Aug-17
Aug-18
Aug-19
Aug-20
Aug-21
Aug-22

Aug-09
Aug-10

Aug-14
Aug-15
Aug-16
Aug-17
Aug-18
Aug-19
Aug-20
Aug-21
Aug-22
Aug-11
Aug-12
Aug-13
Source: Company, Bloomberg, Kotak Institutional Equities estimates Source: Company, Bloomberg, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 43

 Banks ICICI Bank

Exhibit 97: ICICI Bank income statement and balance sheet

March fiscal year-ends (Rs mn)
2017 2018 2019 2020 2021 2022 2023E 2024E 2025E
Growth rates (%)
Net loan growth 6.7 10.4 14.5 10.0 13.7 17.1 18.2 14.7 15.0
Customer assets growth 6.5 12.4 12.7 9.2 11.9 15.1 17.9 14.5 14.8
Corporate loans (0.9) (0.8) 2.9 1.9 4.4 10.2 26.1 14.7 15.1
Total retail loans 14.5 20.5 23.1 15.0 18.8 20.4 14.7 14.7 14.9
Deposits growth 16.3 14.5 16.4 18.1 21.0 14.2 13.1 14.8 14.4
Borrowings growth (26.5) 49.7 (8.6) (3.1) (38.2) 15.8 (14.8) 23.1 25.8
Net interest income 2.4 5.9 17.3 23.1 17.2 21.7 18.1 6.4 12.0
Loan loss provisions 29.1 1.2 17.5 (29.7) 31.5 (47.6) (20.6) 24.6 14.9
Non-interest income 27.3 (10.7) (16.7) 13.3 15.3 (2.4) 17.2 16.0 15.0
Net fee income 7.7 9.4 16.4 13.8 (8.4) 18.5 20.0 13.6 14.4
Net capital gains 127.2 (26.9) (78.8) 22.4 215.6 (86.4) (0.4) 57.1 9.1
Total income 12.8 (1.9) 2.7 19.7 16.6 13.8 17.8 9.1 12.9
Operating expenses 16.3 6.4 15.2 19.5 (0.2) 24.0 19.3 13.6 13.2
Employee expenses 14.6 3.1 15.1 21.5 (2.2) 19.5 23.5 14.5 14.0
DMA 18.6 17.7 22.5 11.9 (5.9) 34.2 0.4 17.5 17.5
Asset management measures (%)
Yield on average earning assets 8.4 7.6 7.7 8.0 7.4 7.0 7.3 7.4 7.5
Interest on advances 8.8 8.4 8.7 9.3 8.3 8.0 8.2 8.2 8.3
Interest on investments 7.6 6.8 6.6 6.7 6.5 5.8 6.4 6.6 6.8
Average cost of funds 5.4 4.7 4.6 4.7 4.1 3.5 3.6 4.0 4.2
Interest on deposits 5.0 4.5 4.4 4.6 3.9 3.3 3.6 3.9 4.1
Other interest 6.4 5.4 5.4 5.2 5.0 5.0 4.3 4.5 4.7
Difference 3.0 2.9 3.1 3.3 3.3 3.5 3.7 3.4 3.3
Net interest income/earning assets 3.4 3.2 3.3 3.6 3.6 3.9 4.0 3.8 3.7
New provisions/average net loans 3.2 3.0 3.1 1.9 2.3 1.0 0.7 0.8 0.8
Loans-to-deposit ratio 75.2 68.2 71.0 68.7 70.8 72.5 77.7 77.3 77.0
Share of deposits
Current 15.3 15.9 14.7 13.3 14.6 14.9 14.5 14.1 13.7
Fixed 49.6 48.3 50.4 54.9 53.7 51.3 51.7 52.1 52.5
Savings 35.1 35.8 34.9 31.9 31.7 33.8 33.8 33.8 33.8
Tax rate 13.1 8.8 11.0 43.5 19.8 23.7 21.0 21.0 21.0
Dividend payout ratio 29.7 21.5 28.7 - 8.5 14.9 20.0 20.0 20.0
Asset quality metrics (%)
Gross NPL 8.5 9.5 7.0 5.8 5.1 3.7 2.8 2.3 2.1
Net NPL 5.4 5.4 2.3 1.5 1.2 0.8 0.8 0.6 0.6
Slippages 7.7 6.2 2.1 2.4 2.5 2.6 2.3 1.8 1.8
Provision coverage (ex write-off) 35.8 42.6 67.3 73.4 75.7 77.9 70.3 72.9 70.9
RoA composition - % of average assets
Net interest income 3.0 2.8 2.9 3.2 3.3 3.6 3.8 3.6 3.5
Loan loss provisions 2.0 1.8 1.9 1.2 1.4 0.6 0.4 0.5 0.5
Net other income 2.7 2.1 1.6 1.6 1.6 1.4 1.5 1.5 1.5
Operating expenses 2.1 2.0 2.2 2.2 1.9 2.0 2.2 2.2 2.2
(1- tax rate) 86.9 91.2 89.0 56.5 80.2 76.3 79.0 79.0 79.0
RoA 1.4 1.0 0.4 0.8 1.4 1.8 2.1 1.9 1.9
Average assets/average equity 7.7 7.9 8.6 9.2 8.8 8.3 8.1 8.0 8.0
RoE 10.9 8.3 3.4 7.7 12.2 14.9 17.0 15.4 15.3

Source: Company, Kotak Institutional Equities estimates

44 KOTAK INSTITUTIONAL EQUITIES RESEARCH

 ICICI Bank Banks

Exhibit 98: ICICI Bank, growth rates, key ratios and Du Pont analysis
March fiscal year-ends (%)
2017 2018 2019 2020 2021 2022 2023E 2024E 2025E
Total interest income 541,563 549,659 634,012 747,983 791,183 863,745 1,011,242 1,152,434 1,344,125
Interest on advances 396,034 408,662 479,426 575,511 572,888 638,336 767,968 889,557 1,038,822
Interest on investments 113,771 115,682 127,969 146,732 165,398 164,093 191,457 214,739 252,579
Total interest expense 324,190 319,400 363,864 415,313 401,288 389,085 450,831 555,908 675,757
Deposits from customers 228,717 234,288 265,247 326,878 332,563 333,002 402,886 504,724 609,291
Net interest income 217,373 230,258 270,148 332,671 389,894 474,661 560,411 596,526 668,368
Loan loss provisions 143,470 145,216 170,670 120,020 157,780 82,643 65,611 81,767 93,912
Net interest income (after prov.) 73,903 85,042 99,478 212,651 232,114 392,018 494,800 514,759 574,456
Other income 195,045 174,196 145,122 164,486 189,685 185,175 217,059 251,846 289,688
Net fee income 80,349 87,894 102,319 116,451 106,707 126,397 151,675 172,233 197,019
Net capital gains 86,232 63,059 13,394 16,392 51,738 7,026 7,000 11,000 12,000
Miscellaneous income 721 834 918 848 (271) 3,831 4,214 5,267 6,584
Operating expenses 147,551 157,039 180,891 216,144 215,608 267,333 319,053 362,421 410,407
Employee expense 57,337 59,140 68,082 82,712 80,918 96,727 119,423 136,780 155,932
DMA 11,078 13,036 15,971 17,876 16,821 22,568 22,664 26,624 31,290
Pre-tax income 112,787 74,346 37,769 140,480 201,829 306,089 392,806 404,185 453,737
Tax provisions 14,775 6,570 4,140 61,172 39,900 72,694 82,489 84,879 95,285
Net profit 98,012 67,776 33,629 79,308 161,929 233,395 310,316 319,306 358,452
% growth 0.8 (30.8) (50.4) 135.8 104.2 44.1 33.0 2.9 12.3
PBT+provision-treasury gains 172,545 165,583 217,425 251,511 313,811 381,706 451,417 474,951 535,649
% growth (14.0) (4.0) 31.3 15.7 24.8 21.6 18.3 5.2 12.8
Balance sheet (Rs mn)
Cash and bank balance 469,000 841,694 802,963 1,191,557 1,331,283 1,678,224 1,369,843 1,547,581 1,747,692
Cash 71,939 80,448 87,039 99,438 70,310 71,208 80,518 92,402 105,671
Balance with RBI 245,085 250,576 291,541 253,402 390,002 530,000 648,029 749,755 866,054
Balance with banks 3,801 4,849 7,693 1,688 542 5,646 6,210 6,831 7,514
Outside India 148,175 289,163 313,821 173,606 518,093 577,350 635,085 698,593 768,453
Net value of investments 1,615,065 2,029,942 2,077,327 2,495,315 2,812,865 3,102,410 3,138,252 3,584,264 4,093,338
Investments in India 1,541,700 1,962,100 2,013,776 2,415,591 2,607,008 2,952,004 2,988,239 3,434,637 3,944,090
Govt. and other securities 1,104,084 1,391,853 1,479,231 1,883,319 2,136,208 2,563,877 2,576,094 2,996,187 3,476,820
Shares 27,419 23,781 18,840 24,622 28,220 24,136 24,136 24,136 24,136
Subsidiaries 62,405 61,489 61,202 61,202 60,739 66,264 66,264 66,264 66,264
Debentures and bonds 100,750 153,889 142,328 119,853 270,018 225,803 248,384 273,222 300,544
Net loans and advances 4,642,321 5,123,953 5,866,466 6,452,900 7,337,291 8,590,204 10,155,830 11,648,607 13,394,627
Corporate loans 2,201,941 2,184,003 2,247,106 2,290,730 2,392,381 2,637,414 3,326,310 3,816,373 4,392,090
Total retail loans 2,440,380 2,939,950 3,619,360 4,162,170 4,944,910 5,952,790 6,829,521 7,832,234 9,002,537
Fixed assets 78,052 79,035 79,314 84,103 88,776 93,738 85,988 77,719 68,512
Net leased assets 2,415 2,415 2,415 2,740 3,287 3,255 2,375 2,019 1,716
Net owned assets 75,637 76,620 76,900 81,363 85,489 90,483 83,613 75,701 66,796
Other assets 625,345 717,268 818,522 759,777 734,112 648,401 713,241 784,565 863,022
Total assets 7,429,784 8,791,892 9,644,591 10,983,651 12,304,327 14,112,977 15,463,154 17,642,736 20,167,191

Deposits 4,900,391 5,609,752 6,529,197 7,709,690 9,325,222 10,645,716 12,037,591 13,814,152 15,797,923
Borrowings and bills payable 1,269,105 1,900,311 1,736,590 1,682,446 1,040,211 1,204,473 1,026,588 1,263,818 1,589,462
Preference capital 3,500 3,500 - - - - - - -
Other liabilities 260,778 230,239 295,171 426,507 463,833 560,332 448,266 358,613 286,890
Total liabilities 6,430,274 7,740,302 8,560,958 9,818,642 10,829,266 12,410,522 13,512,445 15,436,583 17,674,275
Paid-up capital 11,651 12,858 12,895 12,948 13,834 13,900 13,900 13,900 13,900
Reserves & surplus 987,860 1,038,731 1,070,739 1,152,062 1,461,227 1,688,556 1,936,809 2,192,254 2,479,016
Total shareholders' equity 999,511 1,051,589 1,083,634 1,165,009 1,475,061 1,702,456 1,950,709 2,206,153 2,492,915

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 45

 SELL
GAIL (India) (GAIL)
https://ultraviewer.et/en/own AUGUST 19, 2022
Gas Utilities
load.html
UPDATE
Sector view: Attractive

Triple whammy of gas allocation, tariff cut and spread reduction. While CMP (`): 133
downgrading GAIL to SELL recently, we argued that it faced headwinds in each of the Fair Value (`): 115
key segments. The situation has worsened – (1) gas allocation for consumption in
BSE-30: 59,646
transmission has been cut by ~30%, (2) the regulator has cut tariffs in three of four
regional pipelines by 41-98% and (3) with rising HH and falling oil, spreads on oil-linked
sales of HH volumes have compressed and will get negative soon. Reiterate SELL rating
(against consensus) with FV of Rs115 (lowest on the Street).
GAIL (India)
Stock data Forecasts/valuations 2022 2023E 2024E
CMP(Rs)/FV(Rs)/Rating 133/115/SELL EPS (Rs) 23.3 15.0 11.1
52-week range (Rs) (high-low) 174-125 EPS growth (%) 115.2 (35.6) (26.3)
Mcap (bn) (Rs/US$) 584/7.4 P/E (X) 5.7 8.8 12.0
ADTV-3M (mn) (Rs/US$) 1,561/20 P/B (X) 1.1 1.0 1.0
Shareholding pattern (%) EV/EBITDA (X) 4.6 7.1 9.7
Promoters 51.5 RoE (%) 20.3 11.5 8.1
FPIs/MFs/BFIs 20.5/8.4/6.8 Div. yield (%) 7.5 5.3 5.6
Price performance (%) 1M 3M 12M Sales (Rs bn) 916 1,033 1,008
Absolute (5.1) (13.4) (8.6) EBITDA (Rs bn) 138 95 72
Rel. to BSE-30 (14.0) (26.4) (15.8) Net profits (Rs bn) 104 66 49

Source: Bloomberg, Kotak Institutional Equities estimates

Transmission: gas allocation cut to impact near-term earnings; tariff adjustment can take longer

We note that to provide additional 2.4 mmscmd domestic gas to CGDs from Aug 16, 2022,
GAIL’s gas allocation for internal consumption for gas transmission segment (for compression
mainly) has been cut by 0.45 mmscmd to 1.1 mmscmd (from 1.55 mmscmd). In the near
term, due to acute shortage of LT LNG (Gazprom contract imbroglio), GAIL may be forced to
use spot LNG, though we believe GAIL will try to replace this soon by relatively cheaper LT LNG.

 At average spot LNG price of US$35/mmbtu, this would increase transmission cost for the
second half or 2QFY23E by a sharp ~Rs1.8 bn, and raise overall costs further 21% qoq (50%
yoy). We estimate 2QFY23E transmission EBIT to decline 29% qoq and 42% yoy.

 Assuming from 3Q, GAIL will be able to use LT LNG at US$14-15/mmbtu, for the shortfall,
the impact would be nearly Rs1-1.1 bn each quarter (12-14% of 1Q transmission EBIT).

To offset the impact of higher gas prices, GAIL can request the regulator for revising
transmission tariffs. But, the tariff revision process could easily take 6-9 months, if not longer.
We think the Street would cut the segment’s earnings/valuations in the coming quarters.

New regulator, but no change in methodology yet; sharp 41-98% tariff cuts worrisome

After nearly three years, the regulator finally has quorum to take key decisions. We note that of
the three current new members, two had long tenures at GAIL (both retired as directors). The
Anil Sharma
new board in recent months has shown urgency to resolve pending issue. Recently, it has issued
three tariff orders for GAIL’s four regional pipelines. However, rather than any fresh view, the
tariff orders have similar template and logic as previous orders, which is disappointing. Hemang Khanna
The new orders, in our view, are unreasonable and harsh. For three pipelines, tariffs have
been cut by sharp 41-98%, and only one pipeline has seen a tariff increase.

For instance, for Agartala network, tariff has been cut by a sharp 98% to just Re1/mmbtu (from
Rs46/mmbtu). At this tariff, compared to the regulator’s approved opex of Rs1,042 mn for
FY2023E to FY2028, GAIL’s transmission revenue will be a paltry Rs93 mn.
[email protected]
Contact: +91 22 6218 6427

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
GAIL (India) Gas Utilities

Due to relatively small volumes in these networks, the net impact on earnings is small. But,
the regulator following the earlier methodology, logic, etc. is worrisome. This can weaken
the outlook for tariff orders for bigger pipelines as well, in our view.

We note that due to unreasonably harsh tariff orders over the years, compared to required
12% post tax RoCE, GAIL has earned much less 6-8% post tax RoCE. Further cut in tariffs
and sharp increases in gas costs can depress RoCEs further in the near term to just
around 5% in FY2023E, per our estimate.

Our interaction with the regulator suggests that it is now looking for a holistic reform of
the pipeline tariff process, and will be more considerate of industry demand on issues like
volume divisor, unaccounted gas, past depreciation, etc. Also, it will likely propose a
consultation paper soon for integration of pipeline tariffs at the entity level first. This may be
followed by integration of interconnected pipelines for all entities (unified tariff regulations
are already in place). With new members having relevant gas industry experience, we are
optimistic on reforms. But, such initiatives in the past have seen slow progress, and the tariff
determination process has disappointed more often.

Marketing: spreads getting negative for oil indexed sales of HH; Gazprom
imbroglio to hurt volumes and profits
In the gas marketing segment, after reporting large losses in FY2021 (decline in demand,
low spot LNG), GAIL has reported strong earnings in the past four quarters. The large
profits, in our view, have been driven by (1) opportunistic gains on selling surplus volumes
at high prevailing spot prices, (2) increased arbitrage on oil indexed sales of HH-linked
volumes, and (3) high margins on Gazprom volumes in a rising oil prices scenario
(Gazprom contracts prices on 9-month average oil prices, while most oil-linked sales on 3-
month Brent basis).

But, in our view, the situation has dramatically turned negative for GAIL in the past
few weeks. GAIL’s 2.5 mmtpa (about 15% of its LNG portfolio) contract with Gazprom has
run into rough weather due to the ongoing Russia-Ukraine crisis. Rather than being in
surplus, it is now significantly short on LT LNG. Thus, the ability to surprise by making
large gains on opportunistic sales as such is low.

To mitigate the impact of lower Gazprom volumes, (1) It has cut volumes across most
customers to supply or pay levels (generally 10% below contracted volumes), (2) it is trying
to bring future unsold cargoes using time-swaps and also by chartering ships to bring these
to India, (3) it has cut its own consumption by reducing utilization of Pata Petchem plant
(currently below 50%) and (4) it has also procured a few spot cargoes to meet short-term
commitments, we understand.

 Sudden allocation to CGDs, GAIL will need to dispose excess spot LNG

After introduction of uniform blended prices (UBP), due to shortage of LT LNG, GAIL was
primarily mixing very expensive spot LNG for 15% APM shortfall. This had increased blended
price very sharply from US$8/mmbtu to US$8.9/mmbtu in July, and further to
US$10.5/mmbtu in August. This sharp increase in price for CGDs, had led to the
government modifying May 2022 guidelines and allocating additional 2.4 mmscmd to CGDs
from August 16 (0.45 mmscmd taken from GAIL, as we noted above).

In our view, the sudden decision to allocate higher domestic volumes will likely hurt GAIL, as
it would have already tied up/procured expensing spot LNG. With less demand for this gas, it
will either need to use this gas for internal usage (transmission or in petchem) or dispose in
the market.

KOTAK INSTITUTIONAL EQUITIES RESEARCH 47

Gas Utilities GAIL (India)

 In rising oil prices environment, margins on Gazprom contract were high

We note that unlike the RasGas contract (linked to 3-month average Brent prices), GAIL’s
Gazprom contract is linked to 9-month average oil prices with 2-month lag. Rather than
having back-to-back contracts, most of GAIL’s oil indexed contracts are benchmarked
similar to the RasGas formula. In a rising oil prices environment, the spreads were higher
on Gazprom volumes in the past few quarters. With sudden drying of Gazprom
volumes, marketing profitability will decline.

 Oil indexed sales of HH volumes – margins have compressed, and will likely turn
negative soon
We understand that a large portion of GAIL’s HH volumes sales in India (2-2.5 mmtpa)
have been sold on oil indexed basis on formula similar to RasGas. Fertilizer companies in
particular prefer this formula as gas price reimbursement from the government is based
on it. Thus, GAIL is exposed to the volatility of spread risk. While it tries to mitigate losses,
sharp increases in HH prices in recent weeks (while oil prices are correcting) will likely hurt
GAIL, in our view. Per our estimates, margins have compressed significantly, and will likely
turn negative as the full impact of the recent oil price weakness is seen (RasGas formula
based on 3M average price).

Exhibit 1: After over 100% qoq rise in gas costs in 1QFY23E, GAIL's gas costs for transmission will rise ~70% qoq and 5-6X yoy in 2Q (if
GAIL meets shortfall from spot LNG); transmission EBIT for 2QFY23E will likely decline further 21% qoq (~50% yoy), per our estimate
Transmission segment overall and per unit revenue, costs, margins trends and estimates, March fiscal year-ends (Rs mn, Rs/scm, US$/mmbtu)

change (%)
1QFY22 2QFY22 3QFY22 4QFY22 1QFY23 2QFY23E qoq yoy
Volume mmscmd 107.7 114.3 114.3 107.6 109.5 105.0 -4.1 -8.1
Revenue Rs mn 14,837 16,462 16,727 15,898 16,584 16,082 (3) (4)
EBIT Rs mn 9,149 10,400 9,775 8,733 8,005 5,662 (29) (42)
opex + depreciation Rs mn 5,688 6,062 6,952 7,165 8,579 10,420 21 50
Per unit details
Realizations Rs/scm 1.51 1.57 1.59 1.64 1.66 1.66 — 6
EBIT Rs/scm 0.93 0.99 0.93 0.90 0.80 0.59 (27) (41)
opex + depreciation Rs/scm 0.58 0.58 0.66 0.74 0.86 1.08 25 87

Gas cost US$/mmbtu 1.8 1.8 2.9 2.9 6.1 10.3 69 472

Source: Company, PPAC, Kotak Institutional Equities estimates

Exhibit 2: Driven by weak volume growth, increased capex and often disappointing/harsh tariff orders, GAIL’s post tax RoCE in
transmission has been much lower at 6-9% vs 12% as per regulation. This could likely decline to ~5% in FY2023E, per our estimate
Trend of transmission EBIT and post-tax RoCE, March fiscal year-ends

(Rs bn) Transmission EBIT Post tax RoCE (RHS) ROCE as per regulation (RHS) Annual average RoCE (%)
12 15

10 13

8 11

6 9

4 7

2 5

- 3
1QFY12

1QFY13

1QFY14

1QFY15

1QFY16

1QFY17

3QFY18

3QFY19

3QFY20

3QFY21

3QFY22
3QFY12

3QFY13

3QFY14

3QFY15

3QFY16

3QFY17

1QFY18

1QFY19

1QFY20

1QFY21

1QFY22

1QFY23

Source: Company, PPAC, , Kotak Institutional Equities estimates

48 KOTAK INSTITUTIONAL EQUITIES RESEARCH

GAIL (India) Gas Utilities

Exhibit 3: In recent orders, for GAIL’s three regional networks, PNGRB has cut tariff by sharp 41-98% and increased by 2.5X for one;
overall impact is low, but continued use of extant methodology/reasoning is worrisome and can impact tariff of bigger networks as well
Key details of regional pipeline for which tariff issued, and impact on transmission segment

Cauvery Basin % of transmission

Agartala Dukli-Maharajganj RMD NKM Total segment for FY22
Key details for GAIL's pipelines
Capacity (mmscmd) 2.0 0.08 2.3 2.0 6.4
FY 22 volume 1.5 0.06 1.8 1.5 4.9 4.4
Length (kms) 55 5 10 231 301
Economic life end Dec-27 Mar-32 Mar-27 Mar-25
Change in tariffs
Earlier tariff (Rs/mmbtu) 45.9 46.37 16.6 17.4
Revised tariff (Rs/mmbtu) 1.02 27.41 9.63 43.82
Change % (98) (41) (42) 152
Annual revenue impact (Rs mn)
On earlier tariffs 947 36 416 359 1,759 2.8
On revised tariffs 21 21 241 904 1,188 1.9
Change (926) (15) - (175) 545 (571)
% of FY22 EBIT (1.5)

Source: PNGRB, company, Kotak Institutional Equities estimates

Exhibit 4: Approved tariffs are 56-97% below those sought by GAIL, as the regulator continues to follow earlier reasoning on issues like
volume divisor, unaccounted gas, cost disallowance, etc.
Reconciliation of tariff sought by GAIL vs approved by regulator

Cauvery Basin
Agartala Dukli-Maharajganj RMD sub-network NKM sub-network
Impact Tariff Impact Tariff Impact Tariff Impact Tariff
Tariff Submitted by GAIL 38.56 63.78 24.44 99.49
Economic Life extension (0.8) 23.6 (22.8) 76.7
Excluding Madanam Tie-in (11.5) 65.2
Capex 0.3 38.8 (3.4) 60.4 0.1 23.7 (7.9) 57.3
Future capex (2.8) 36.0 (15.7) 44.7 (0.2) 23.6 (0.5) 56.8
Actual opex (0.4) 23.1 (0.4) 56.4
Future opex 0.2 36.3 (1.4) 43.4 (2.1) 21.0 (1.6) 54.8
Unaccounted gas loss (5.3) 31.0 (5.5) 37.9 (5.9) 15.1 (5.6) 49.3
Volume divisor (17.1) 13.9 (12.6) 25.3 (1.4) 13.7 (5.8) 43.5
Tariff applicability (12.6) 1.3 (1.1) 24.2 (2.5) 11.2 8.7 52.1
Others (0.3) 1.0 3.2 27.4 (1.6) 9.6 (8.3) 43.8
Total impact (35.0) (17.3) (13.9) (12.9)
Tariff determined by PNGRB 1.02 27.41 9.63 43.82
Change versus tariff submitted by GAIL (%) (97) (57) (61) (56)

Source: PNGRB, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 49

Gas Utilities GAIL (India)

Exhibit 5: Typically, at higher oil prices, GAIL benefits from Exhibit 6: Spread between oil indexed sales and HH were very
arbitrage on oil indexed sales (based on 3M average vs HH high in July 2022, but these have sharply declined, and will be
purchase (same month NYME settlement price); with sharp rise negative soon, if current high HH prices persist
in HH and declines in oil price, the spreads have compressed Estimate of spread between RasGas and HH-linked LNG, from April
Estimate of DES price of RasGas and HH-linked LNG, from April 2021 2021 (US$/mmbtu)
(US$/mmbtu)
(US$/mmbtu) RasGas-US LNG spread
(US$/mmbtu) RasGas US LNG 4
16
3
14
2
12
1
10
0

8
-1

6 -2

4 -3
Dec-21

Dec-22
Mar-22
Jun-21

Jun-22
Apr-21

Sep-21

Apr-22

Sep-22
May-21

May-22
Jul-21

Jul-22
Nov-21

Jan-22

Nov-22
Feb-22
Oct-21

Oct-22
Aug-21

Aug-22

Dec-21

Dec-22
Mar-22
May-21
Jun-21

May-22
Jun-22
Sep-21

Sep-22
Apr-21

Apr-22
Jul-21

Nov-21

Jul-22

Nov-22
Jan-22
Aug-21

Feb-22

Aug-22
Oct-21

Oct-22
Source: Bloomberg, CME, Kotak Institutional Equities estimates Source: Bloomberg, CME, Kotak Institutional Equities estimates

Exhibit 7: Gazprom contracts are based on 9M average oil prices Exhibit 8: With high arbitrage, GAIL likely made high profits on
(with 2M lag), while most sales are on RasGas formula (3M Gazprom volumes in 1QFY23 and in July 2022. But, now due to
average oil price). When oil prices are on a rising trend, GAIL contract imbroglio, Gazprom volumes have dried up
benefits from arbitrage Estimate of spread of Gazprom and RasGas LNG contracts, from April
Estimate of DES price of Gazprom and RasGas LNG contracts, from 2021 (US$/mmbtu)
April 2021 (US$/mmbtu)
(US$/mmbtu) RasGas-Gazprom spread
(US$/mmbtu) Gazprom RasGas 3
16.0

14.0
2
12.0

10.0
1

8.0

6.0
0
Dec-21

Mar-22
May-21
Jun-21

May-22
Jun-22
Sep-21
Apr-21

Apr-22
Nov-21
Jul-21

Jul-22
Jan-22
Aug-21

Oct-21

Feb-22

4.0
Dec-21
Jun-21

Jun-22
Mar-22
May-21

May-22
Apr-21

Apr-22
Sep-21

Nov-21

Jan-22
Jul-21
Aug-21

Oct-21

Jul-22
Feb-22

Source: Bloomberg, Company, Kotak Institutional Equities estimates

Source: Bloomberg, Company, Kotak Institutional Equities estimates

50 KOTAK INSTITUTIONAL EQUITIES RESEARCH

GAIL (India) Gas Utilities

Exhibit 9: With weakening LPG prices and increased gas cost, Exhibit 10: After 13% qoq decline in 1QFY23, we see further
LPG/LHC segment per unit margins are now declining 32% qoq decline in LPG/LHC segment in 2QFY23E
Quarterly trend of LPG/LHC segment, March fiscal year-ends, 1QFY22 Quarterly trend of LPG/LHC segment, March fiscal year-ends, 1QFY21
onwards (Rs/kg) onwards (Rs mn, ‘000 tons)

(Rs/kg EBIT Realization Costs (Rs mn) EBIT Sales volume (RHS) ('000 tons)
70 10,000 350

300
60 8,000
250
50
6,000 200
40
34 150
31 4,000
29
30 25 26
100
17 2,000
20 50

10 0 0

1QFY21

2QFY21

3QFY21

4QFY21

1QFY22

2QFY22

3QFY22

4QFY22

1QFY23

2QFY23E
0
1QFY22 2QFY22 3QFY22 4QFY22 1QFY23 2QFY23E

Source: Company, Kotak Institutional Equities estimates Source: Company, Kotak Institutional Equities estimates

Exhibit 11: With weakening prices and increased gas cost, per Exhibit 12: We expect petchem segment to report loss in
unit margins have sharply declined for petchem 2QFY23E itself
Quarterly trend of petchem segment, March fiscal year-ends, 1QFY22 Quarterly trend of petchem segment, March fiscal year-ends, 1QFY21
onwards (Rs/kg) onwards (Rs mn, ‘000 tons)

(Rs/kg EBIT Realization Costs (Rs mn) EBIT Volume (RHS) ('000 tons)
160.0 7,000 250

140.0 6,000
5,000 200
120.0
4,000
100.0 150
3,000
80.0
2,000
100
60.0 1,000
40.0 0 50
16.4 16.8 17.5
20.0 10.0 (1,000)
3.2
(2,000) -
-
2QFY23E
1QFY21

2QFY21

3QFY21

4QFY21

1QFY22

2QFY22

3QFY22

4QFY22

1QFY23

(20.0) (5.0)
1QFY22 2QFY22 3QFY22 4QFY22 1QFY23 2QFY23E

Source: Company, Kotak Institutional Equities estimates Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 51

Gas Utilities GAIL (India)

Exhibit 13: We value GAIL stock at Rs115 per share based on June 2024 estimates
Sum-of-the-parts valuation of GAIL, June 2024E basis (Rs bn)
EV (Rs bn)
Valuation base (Rs bn) Multiples (X) EBITDA Valuation
Other EBITDA Other EV/EBITDA Other basis (Rs/share)
Utility
Natural gas transportation 39.4 7.0 276 62
Natural gas marketing 24.6 3.0 74 17
LPG transportation 4.0 6.0 24 5
Total utility businesses 68.0 373 84
Commodity
LPG/LHC production 4.7 6.0 28 6
Petrochemicals 0.9 6.0 5 1
Total commodity businesses 5.6 34 8
Investments
IGL 55 0.8 44 10
Petronet LNG 41 0.8 33 7
MGL 25 0.8 20 5
China Gas 18 0.8 14 3
ONGC 42 0.6 25 6
Others 125 0.6 75 17
Investments 306 211 48
Total enterprise value 139
Net debt/(cash) 104 23
Equity value 116

Source: Kotak Institutional Equities estimates

Exhibit 14: We expect sharp weak operating performance in near term

Key assumptions behind GAIL model, March fiscal year-ends, 2019-25E

2019 2020 2021 2022 2023E 2024E 2025E

Volumes
Natural gas (mcm/d)
Transmission 107.4 108.4 104.2 111 108 118 125
Sales 97 96 89 96 95 98 105
LPG/LHC ('000 tons)
Transmission 3,975 3,909 4,163 4,199 4,259 4,289 4,319
Production 1,341 1,264 1,137 1,004 1,100 1,125 1,160
Petrochemicals ('000 tons)
Polyethylene 735 738 872 792 700 810 810
Total petrochemicals 735 738 872 792 700 810 810
Tariffs/Margins
Natural gas (Rs/scm)
Blended transmission tariffs 1.47 1.57 1.57 1.58 1.61 1.63 1.64
Blended marketing margins 0.81 0.61 (0.22) 1.40 1.15 0.70 0.78
LPG
LPG price (US$/ton) 542 473 390 649 735 615 580
Other assumptions
Polyethylene, HDPE (US$/ton) 1,305 1,040 1,091 1,445 1,457 1,365 1,300
Import tariff, Polyethylene 7.7% 7.7% 7.7% 7.7% 7.7% 7.7% 7.7%

Source: Company, Kotak Institutional Equities estimates

52 KOTAK INSTITUTIONAL EQUITIES RESEARCH

GAIL (India) Gas Utilities

Exhibit 15: We expect sharp decline in operating profits in FY2023, and further weakness in FY2024E
Segment breakdown of GAIL's EBITDA, March fiscal year-ends, 2018-25E (Rs mn)

2018 2019 2020 2021 2022 2023E 2024E 2025E

EBITDA
Gas transportation 37,137 40,894 46,590 45,890 49,000 40,140 43,673 46,452
LPG transportation 3,268 3,586 3,909 4,120 3,970 4,067 3,980 4,036
Gas marketing 12,561 28,591 21,562 (7,023) 49,322 40,000 24,854 30,003
LPG production 23,480 25,986 16,726 13,880 29,850 18,845 7,869 5,203
Petrochemicals 6,880 8,148 2,043 15,190 17,300 1,707 1,580 2,900
Others (6,709) (15,180) (5,275) (7,723) (11,151) (10,000) (10,000) (10,000)
Subsidy loss — — — — — — — —
Total 76,616 92,024 85,554 64,335 138,290 94,758 71,955 78,593

Source: Company, Kotak Institutional Equities estimates

KOTAK INSTITUTIONAL EQUITIES RESEARCH 53

Gas Utilities GAIL (India)

Exhibit 16: Profit model, balance sheet, cash model of GAIL, March fiscal year-ends, 2018-25E (Rs mn)

2018 2019 2020 2021 2022 2023E 2024E 2025E

Profit model (Rs mn)
Net sales 536,616 749,933 720,570 567,302 916,265 1,032,504 1,008,417 1,046,174
EBITDA 76,339 96,038 85,554 64,451 138,290 94,758 71,955 78,593
O ther income 9,870 15,712 14,168 19,085 20,469 20,061 21,196 20,434
Interest (2,751) (1,385) (1,085) (1,559) (1,744) (2,198) (2,307) (5,836)
Depreciation (14,151) (15,502) (18,360) (19,079) (21,112) (23,856) (25,391) (27,021)
Pretax profits 69,307 94,862 80,277 62,898 135,903 88,765 65,453 66,170
Current tax (16,333) (24,386) (20,600) (15,496) (32,484) (21,978) (16,243) (16,415)
Deferred tax (7,066) (6,205) — 540 221 (888) (655) (662)
Net profits 46,184 60,257 66,206 48,902 103,640 65,899 48,555 49,093
Adjusted net profits 46,000 62,919 59,459 48,167 103,640 65,899 48,555 49,093
Adjusted EPS (Rs) 10.2 14.0 13.2 10.8 23.3 15.0 11.1 11.2

Balance sheet (Rs mn)

Total equity 403,281 440,929 439,711 466,112 555,868 590,513 606,193 620,219
Deferred taxation liability 46,309 59,477 44,972 45,022 47,673 48,560 49,215 49,877
Total borrowings 20,805 10,011 56,174 61,730 76,558 94,558 118,688 140,688
Current liabilities 110,427 133,369 144,479 160,241 183,307 190,581 189,793 192,402
Total liabilities and equity 580,822 643,786 685,336 733,104 863,405 924,212 963,889 1,003,185
Cash 25,294 12,147 8,039 13,618 20,850 5,564 2,059 2,631
O ther current assets 112,959 133,472 163,831 146,514 207,920 240,020 242,727 252,063
Total fixed assets 343,038 402,886 438,481 475,734 513,427 557,419 597,894 627,282
Investments 99,531 95,282 74,985 97,238 121,209 121,209 121,209 121,209
Total assets 580,822 643,786 685,336 733,104 863,405 924,212 963,889 1,003,185

Free cash flow (Rs mn)

O perating cash flow, excl. working capital 64,201 74,922 64,677 53,655 116,093 70,194 53,149 55,693
Working capital changes 18,864 2,425 3,073 22,210 (29,737) (24,826) (3,494) (6,728)
Capital expenditure (29,456) (59,942) (54,620) (42,619) (53,616) (67,460) (65,610) (55,760)
Investments (7,632) (4,823) (32,993) (10,163) (6,012) — — —
O ther income 11,377 10,399 19,049 14,040 13,153 20,061 21,196 20,434
Free cash flow 57,354 22,981 (816) 37,123 39,881 (2,031) 5,240 13,639

Ratios (%)
Debt/equity 4.6 2.0 11.6 12.1 12.7 14.8 18.1 21.0
Net debt/equity (1.0) (0.4) 9.9 9.4 9.2 13.9 17.8 20.6
RO AE (%) 10.5 12.7 13.4 9.8 18.6 10.6 7.5 7.4
ROACE (%) 10.1 13.0 11.5 8.9 16.8 9.6 6.7 6.7

Key assumptions
Gas transmission volumes (mcm/d) 105 107 108 104 111 108 118 125
Petrochemical sales volumes ('000 tons) 673 735 738 872 792 700 810 810
LPG/LHC sales volumes ('000 tons) 1,276 1,341 1,264 1,137 1,004 1,100 1,125 1,160
LPG transmission volumes ('000 tons) 3,721 3,975 3,909 4,163 4,199 4,259 4,289 4,319

Source: Company, Kotak Institutional Equities estimates

54 KOTAK INSTITUTIONAL EQUITIES RESEARCH

 ATTRACTIVE
Banks
India AUGUST 22, 2022
UPDATE
BSE-30: 59,646

Capex led loan demand is not visible, as yet. RBI’s recent release on project loans to
private sector by banks/FI shows fresh sanctions at ~1.3% of loans in FY2022 (~0.7% in
FY2021) and pending disbursements at ~0.9% of loans. The current visibility of capex
loan demand is still not comfortable to establish the view that growth from corporate
sector is on an upswing. Infrastructure (power and roads & bridges) remains a preferred
destination for bank funding, but mega projects have been out of favor.

Sanctions up ~90% yoy from FY2021 trough, but well below pre-pandemic levels

RBI’s latest release gives us incremental data on fresh sanctions of long-term project funding by QUICK NUMBERS
banks/ FIs in FY2021-22 to private corporates. Fresh sanctions increased ~90% yoy to ~Rs1.4 tn
in FY2022 from the multi-year low witnessed in FY2021 (Exhibit 1). However, this is well below  New sanctions for
~Rs4 tn annual sanctions at the peak of the previous corporate investment cycle in FY2010-11. private capex up
As a proportion of outstanding credit from banks to industry, sanctions stood at ~1.3% in ~90% yoy, but
FY2022 – down from ~2% in FY2018-2020. Actual capex has continued to decline sequentially below pre-Covid
since FY2019 in spite of higher sanctions yoy in FY2022, because sanctions tend to reflect in level
capex with a lag (Exhibit 3).
 Infrastructure
Infrastructure is the preferred destination for bank funding; mega projects remain out of favor (power and roads/
Infrastructure accounted for ~57% of the sanctions in FY2022 – similar to what we observed in bridges) continues
FY2017-2020. Infrastructure sanctions have been primarily led by power and roads/bridges to attract most of
sector projects in the past few years (Exhibits 4-5). Significant amount of funding sanctions the funding
went towards the metals and mining sector in the first half of the past decade and also in 2018,
but sanctions declined thereafter. The states of Maharashtra and Gujarat have been the largest  We remain
beneficiaries of private sector project sanctions (Exhibit 11) with the states of Uttar Pradesh and optimistic on retail
Rajasthan showing a marked improvement recently. A break-up of sanctions by project size and MSME driving
indicates that mega projects (cost >Rs50 bn) have attracted significantly lower sanctions (<Rs0.5 bank credit growth
tn) after FY2014 as compared to ~Rs2.4 tn and ~Rs1.8 tn in FY2010 and FY2011 resp. (Exhibits
6-7). Further, a large share of new sanctions in the past few years has gone towards green-field
projects, rather than expansion or modernization of existing projects (Exhibits 8-9).

Still in early stages of corporate re-leveraging cycle; expect retail/MSME to drive bank credit

The share of corporate in overall bank credit has declined meaningfully over the past decade M B Mahesh, CFA
reflecting the excess capacity that we have been carrying for some time to meet domestic
demand requirements. While we have witnessed a lot of discussion in the past year around
corporate capex led credit, we are still waiting to see corporates undertaking any massive Nischint Chawathe
projects so far and have instead de-leveraged significantly due to improvement in profitability.
While there is a potential for the cycle to turn and there is some tailwind from bond market
Ashlesh Sonje, CFA
substitution, we are currently in the midst of a modest level of macroeconomic uncertainty
which can remain an overhang for corporates to make large investments funded by debt. At the
same time, some of the mid-tier banks are likely to stay focused de-risking their portfolios in
Abhijeet Sakhare
order to avoid repeating mistakes of the previous credit cycle. Loans to large industry constitute
~21% of total bank credit and growth has been muted in recent years (Exhibits 11- 12). At the
same time, many of the PSU banks have today turned a lot more constructive on growing their
Varun Palacharla
balance sheet because outlook on asset quality has improved. We continue to feel confident
about retail and MSME sectors driving credit growth for the banking system – led by better
credit demand and ability to underwrite due to availability of relevant data.

[email protected]
Contact: +91 22 6218 6427

For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.
India Banks

Exhibit 1: Fresh sanctions in FY2022 improved from FY2021 Exhibit 2: No/low project cancellations for FY2021 sanctions
trough, but stayed below pre-Covid level resulting in no difference between initial and revised estimate
Sanctions of long term projects by banks/FIs to private corporate Yoy growth in sanctions and decline in revised estimate w.r.t. initial
sector, March fiscal year-ends (Rs bn) estimate, March fiscal year-ends (%)

Initial Revised % of bank credit (RHS) Yoy growth (LHS) Decline in revised estimate (%, RHS)
6,000 16.0 135 30

4,800 12.8 24
90

18
3,600 9.6 45
12
2,400 6.4 0
6

1,200 3.2 (45)

0

0 - (90) (6)

2007
2008
2009
2010
2011

2013
2014
2015
2016
2017

2019
2020
2021
2022
2012

2018
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

Notes: Source: RBI, Kotak Institutional Equities

(1) We have considered credit from banks only.
(2) Analysis includes sanctions from PSU banks, private banks, foreign
banks, PFC, REC, EXIM Bank, LIC and IFCI.

Source: RBI, Kotak Institutional Equities

Exhibit 3: Low sanctions in FY2021 have resulted in capex decline in FY2022, but improving sanctions should help
Schedule of disbursements across years, March fiscal year-ends (Rs bn)
Phasing of Capital Expenditure of Projects Sanctioned Assistance by Banks/FIs
Capital Expenditure Project Project Project Beyond
in the Year s (#) Cost (a) Cost (b) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2023
Year of sanction
Up to 2011 3,136 2,237 1,233 58 7 119 1 9
2012 636 2,120 1,916 230 669 554 28 2 95 29
2013 414 1,963 1,8 95 1 367 567 490 273 112 64 20
2014 472 1,340 1,273 13 151 348 449 199 71 27 15
2015 326 8 76 8 73 1 148 346 259 95 12 2 10
2016 346 954 918 38 74 375 28 6 81 50 12 2
2017 541 1,8 28 1,792 14 40 254 712 411 216 86 40 21
2018 48 5 1,728 1,68 2 6 152 124 630 414 228 102 23 2
2019 409 1,766 1,592 6 69 110 600 471 212 98 27 0
2020 320 2,000 1,758 40 145 540 58 6 28 1 141 25
2021 220 756 756 25 37 290 262 97 45
2022 403 1,433 36 103 599 443 253
Total 3,367 3,286 2,506 1,906 1,402 1,387 1,430 1,332 1,467 1,419 1,335 1,284 710 323
Incremental loans 6,610 6,298 5,8 49 6,566 4,8 15 5,477 4,8 48 5,956 9,446 16,960 5,8 07 9,398
Incremental capex (% of incremental loans) 50.9 52.2 42.8 29.0 29.1 25.3 29.5 22.4 15.5 8 .4 23.0 13.7
Total bank credit 37,495 43,793 49,642 56,208 61,023 66,500 71,347 77,303 8 6,749 103,709 109,516 118 ,913
Incremental capex (% of bank credit to industry) 10.9 8.8 5.7 3.8 2.5 2.3 2.2 1.9 1.9 1.6 1.3 1.2

Notes:
(a) “Project cost (a)” and “Project cost (b)” represent initial estimate and revised estimate respectively.

Source: RBI, Kotak Institutional Equities

56 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Banks India

Exhibit 4: “Power”, “roads & bridges” and ”construction” have attracted the highest amount of project sanctions
Sector-wise break up of number of sanctions and cost of projects sanctioned, March fiscal year-ends
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
(#) (Rs bn) (#) (Rs bn) (#) (Rs bn) (#) (Rs bn) (#) (Rs bn) (#) (Rs bn) (#) (Rs bn) (#) (Rs bn) (#) (Rs bn) (#) (Rs bn)
Infrastructure 82 908 87 507 74 426 108 661 204 1,122 150 8 71 122 962 99 1,08 1 63 561 96 8 13
Power 71 747 70 447 65 368 92 524 170 8 14 117 614 78 427 47 578 35 373 59 423
Telecom 2 106 1 — 1 43 1 3 1 — — — — — — — — — — —
Ports & Airports 1 36 1 10 — — 3 22 8 102 6 52 4 226 4 148 1 1 2 83
Storage & Water Management — — 5 14 2 5 4 39 6 66 2 7 13 91 4 7 5 9 2 3
SEZ, Industrial, Biotech and IT Park 8 17 8 19 3 8 1 4 2 7 9 27 11 51 8 23 5 17 3 16
Roads & Bridges 0\ — 2 15 3 3 7 70 17 131 16 170 16 166 36 325 17 162 30 28 8
Chemicals & Fertilizers 19 21 15 13 7 23 11 15 10 38 23 192 19 46 12 23 9 12 20 49
Cement 11 74 12 90 7 33 5 17 5 41 3 10 10 81 2 2 5 10 3 46
Mining & Quarrying 2 2 1 8 2 1 10 25 4 7 1 — 7 89 6 93 2 2 — —
Textiles 31 36 58 131 50 36 49 44 57 73 54 62 27 54 11 9 15 14 56 64
Metal & Metal Products 51 548 44 216 17 152 14 14 23 88 21 163 16 48 14 14 6 6 27 56
Rubber Products 7 9 9 4 8 7 4 5 8 4 10 42 5 8 5 5 17 16 — —
Construction 20 53 27 27 29 35 26 17 60 215 39 89 26 37 44 200 27 36 23 105
Hospitals 17 27 10 9 2 1 1 — 22 20 18 30 15 41 12 12 7 2 19 33
Hotel & Restaurants 31 59 29 34 15 10 16 10 12 14 29 49 26 30 16 30 4 22 — —
Pharmaceuticals 10 8 19 17 9 13 11 3 12 20 15 10 23 25 9 11 7 4 20 19
Food Products 36 17 43 23 34 25 26 17 38 16 47 47 28 22 32 33 20 11 25 24
Other Services 2 2 8 10 2 1 — — 3 2 — — — — — — — — —
Other Manufacturing 8 2 15 9 7 1 9 13 7 4 9 12 — — — — — — —
Transport Equipment 17 17 16 15 7 46 4 23 9 65 10 5 5 13 5 7 2 2 — —
Others* 70 108 79 160 56 64 52 55 67 65 56 99 80 135 53 236 36 58 114 225
Total 414 1,895 472 1,273 326 873 346 918 541 1,792 485 1,682 409 1,592 320 1,758 220 756 403 1,433

Note:
(1) We have highlighted the two sectors with highest project cost for every year.

Source: RBI, Kotak Institutional Equities

Exhibit 5: “Power”, “roads & bridges” and ”construction” have attracted the highest amount of project sanctions
Sector-wise break up of number of sanctions and cost of projects sanctioned, March fiscal year-ends (%)

Power Roads/ bridges Ports/ airports Textiles Metals/ metal products Construction Others
100

80
3 2 12 5
0
2 4 2 5 11 7
60 8 2 22
6 8
6
7 3
0- 14 19
40 2- 10 20
1
10
57
45 49
20 39 42
35 37 33
27 30

-
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Source: RBI, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 57

India Banks

Exhibit 6: Number of mega project (>Rs50 bn cost) sanctions has Exhibit 7: ~Share of mega projects (>Rs50 bn cost) has declined
declined to low single digits the most
Size-wise break-up of number of projects sanctioned by banks/ FIs, Size-wise break-up of project cost for sanctions by banks/ FIs, March
March fiscal year-ends (#) fiscal year-ends (Rs tn)

<Rs1 bn Rs1-5 bn Rs5-10 bn Rs10-50 bn >Rs50 bn <Rs1 bn Rs1-5 bn Rs5-10 bn Rs10-50 bn >Rs50 bn
800 100
708 729 697
636
640 80
541 39
472 48 5 47
48 54
480 194 18 9 172145 414 409 403 60 42 44
40
29
346 28 37
115 326 18 0
320
320 149 40 30 27 26
119 65 76 29 14 15 12 20
110 220 126 21 14 11 17 14
420 439 412 420 8 4 52 19
160 20 8 7
306 28 7 263 7 9 17 20 17 21 23 21
245 223 214 220 202 17 17 20
150 128 14 11 10 15 12
- - 5 4 4 8 5 8 9 9 6 5 5 3 6 6
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022

2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Source: RBI, Kotak Institutional Equities estimates Source: RBI, Kotak Institutional Equities

Exhibit 8: ~90% of sanctions are for greenfield projects Exhibit 9: Most of the project cost sanctioned in FY2022 is for
Purpose-wise break-up of projects sanctioned by banks/ FIs, March greenfield projects
fiscal year-ends (#) Purpose-wise break-up of project cost for sanctions by banks/ FIs,
March fiscal year-ends (Rs tn)
New Expansion and modernisation Diversification Others
New Expansion and modernisation Diversification Others
750 697
100
636 6 11
15 9
600 19 14
224
541
80 31 23 14 10
172 472 48 5 20
414 97 409
450 80 403
95 60
326 346
107 8 0 320 89
300 64 15 89 94 8 9
37 220 84
92 40 77 8 0
454 449 74 79
361
429 396 38 67 71 65
150 303 309 313
260 262
203 18 1 20 39

-
2011

2012

2014

2015

2016

2017

2019

2020

2021

2022
2013

2018

-
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

Source: RBI, Kotak Institutional Equities estimates

Source: RBI, Kotak Institutional Equities

58 KOTAK INSTITUTIONAL EQUITIES RESEARCH

 Banks India

Exhibit 10: Maharashtra and Gujarat have historically attracted the highest amount of project sanctions; Rajasthan and Uttar Pradesh
have also seen healthy sanctions recently
State-wise breakup of project cost of loans sanctioned by banks/ FIs for private corporate investment, March fiscal year-ends (Rs bn)
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
(#) (Rs bn) (#) (Rs bn) (#) (Rs bn) (#) (Rs bn) (#) (Rs bn) (#) (Rs bn) (#) (Rs bn) (#) (Rs bn) (#) (Rs bn) (#) (Rs bn) (#) (Rs bn)
Maharashtra 86 366 67 203 76 251 38 129 36 86 57 158 65 392 34 18 3 41 121 13 64 44 136
Karnataka 39 230 20 30 39 79 27 47 21 57 52 122 66 162 34 91 33 302 11 46 24 97
Andhra Pradesh 52 98 35 108 37 51 24 71 33 113 47 143 22 167 29 177 12 70 7 113 12 33
Gujarat 75 172 58 106 66 18 5 71 83 61 139 102 412 71 135 56 177 47 266 54 129 83 171
Tamil Nadu 58 109 22 34 33 69 27 25 26 85 22 79 28 111 32 204 28 146 7 5 40 125
Rajasthan 49 94 41 100 24 18 29 97 10 8 23 50 33 106 21 123 23 67 21 129 33 191
Chhatisgarh 11 46 9 78 16 136 8 65 8 43 15 72 7 81 6 14 6 4 3 9 4 9
Odisha 15 121 10 508 10 149 5 139 6 28 6 56 5 50 9 22 6 33 2 1 9 30
Uttar Pradesh 42 149 26 83 21 14 20 47 15 21 22 66 30 40 28 76 24 98 30 104 33 18 5
Himachal Pradesh 7 10 5 6 3 23 3 1 8 13 1 — 8 39 7 5 6 2 4 2 7 17
Punjab 37 33 12 207 28 19 6 3 11 16 29 38 36 37 15 30 9 14 4 5 15 30
Jammu & Kashmir 5 4 10 4 10 66 2 1 9 2 3 2 8 34 11 6 3 2 5 2 na na
Telangana NA NA NA NA NA NA NA NA 10 35 52 122 17 32 26 145 12 70 9 14 15 43
West Bengal 19 94 13 19 12 15 9 11 14 28 18 30 14 30 13 18 7 16 3 3 11 37
Madhya Pradesh 16 107 13 74 30 78 14 34 21 63 18 134 12 12 12 25 10 21 19 21 18 59
Multiple states 34 86 15 146 21 88 10 83 13 124 17 211 17 126 15 156 8 206 2 11 7 57
Others 91 197 58 190 46 33 33 38 44 56 57 97 51 130 61 140 45 320 26 97 48 214
Total 636 1,916 414 1,8 95 472 1,273 326 8 73 346 918 541 1,792 48 5 1,68 2 409 1,592 320 1,758 220 756 403 1,433

Note:
(1) We have highlighted the states that saw >Rs125 bn of project cost sanctions in a year.

Source: RBI, Kotak Institutional Equities

Exhibit 11: Growth in bank credit to large industry has been muted since FY2016, with certain sectors like power, telecom, roads and
mining showing bursts of growth in some years
Break-up of bank credit and growth across segments, March fiscal year-ends (%)
Proportion of loans Growth yoy
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Jun-22 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Jun-22
Agriculture & Allied 13.7 13.1 12.7 12.1 12.0 12.8 13.5 14.0 13.4 12.9 12.6 13.2 13.3 13.3 16 13 8 13 15 15 12 4 8 9 10 10 13

Industry 43.1 43.8 45.2 45.8 45.5 44.3 41.7 37.8 35.1 33.4 31.0 29.2 28.6 28.1 23 20 15 13 6 3 (2) 1 7 3 (1) 8 9
Micro, small and medium 11.2 8.9 8.6 8.4 8.6 8.4 7.4 6.7 6.2 5.6 4.8 5.3 6.3 6.4 (3) 12 11 16 7 (4) (2) — 1 3 15 31 34
Large 32.0 34.8 36.6 37.4 36.9 35.8 34.3 31.1 28.9 27.8 25.8 23.5 21.8 21.3 32 22 16 12 5 4 (2) 1 8 3 (5) 2 3
Sector-wise:
Mining & Quarrying 0.6 0.7 0.8 0.7 0.6 0.6 0.6 0.5 0.5 0.5 0.5 0.4 0.4 0.4 41 28 7 3 — 9 (12) 20 1 8 (4) 13 8
Food processing 2.2 2.1 2.2 2.4 2.6 2.9 2.3 2.1 2.0 1.8 1.5 1.6 1.6 1.6 18 22 24 25 17 (12) (3) 7 1 (8) 8 11 14
Textiles 4.0 4.0 3.7 3.8 3.7 3.4 3.1 2.8 2.7 2.4 2.0 2.0 2.0 1.9 20 9 15 10 (0) 2 (5) 7 (3) (4) 5 10 5
Cement 0.8 0.8 0.9 0.9 1.0 0.9 0.8 0.8 0.7 0.6 0.6 0.6 0.4 0.4 20 25 24 18 4 (3) (0) (3) 6 10 (6) (17) (10)
Basic metals 5.4 5.8 6.1 6.5 6.5 6.4 6.4 5.9 5.4 4.3 3.6 3.1 2.6 2.6 32 22 20 15 7 8 1 (1) (11) (6) (12) (6) 1
Construction 1.5 1.2 1.1 1.1 1.1 1.2 1.1 1.2 1.2 1.2 1.2 1.2 1.1 1.0 (2) 12 7 20 19 — 10 10 10 11 8 (2) (2)
Infrastructure 12.5 14.2 14.7 15.0 15.1 15.4 14.7 12.8 11.6 12.2 11.3 10.9 10.8 10.8 38 21 16 15 11 4 (6) (2) 19 3 1 9 10
Power 6.2 7.3 7.7 8.5 8.8 9.3 8.9 7.4 6.8 6.6 5.9 5.7 5.5 5.5 42 24 26 17 15 4 (9) (1) 9 — (0) 7 9
Telecom 2.0 2.5 2.2 1.8 1.6 1.5 1.4 1.2 1.1 1.3 1.5 1.1 1.2 1.2 58 1 (7—) 1 4 (1) (7) (1) 37 27 (22) 13 13
Roads 2.4 2.5 2.6 2.7 2.9 2.8 2.7 2.5 2.2 2.0 1.9 2.2 2.4 2.5 24 22 18 20 7 5 1 (7) 5 4 24 20 18
Other Infrastructure 1.9 1.9 2.2 1.9 1.9 1.8 1.8 1.6 1.6 2.3 1.9 1.8 1.7 1.6 21 32 — 9 3 9 (0) 4 63 (6) (0) (0) (1)
Services 23.9 24.2 23.7 23.7 24.2 23.5 23.5 25.4 26.7 28.0 28.2 27.6 27.4 27.3 23 14 13 16 6 9 17 14 18 12 3 9 13
Transport operators 1.7 1.9 1.8 1.6 1.7 1.5 1.5 1.6 1.6 1.5 1.4 1.4 1.4 1.4 33 9 4 16 (1) 9 11 10 6 3 8 9 9
Aviation 0.3 0.2 0.3 0.2 0.2 (14) 17 (13) (23)
Professional Services 1.4 1.2 1.1 1.2 1.4 1.4 1.6 1.9 2.0 2.0 1.8 1.1 1.1 1.1 4 5 19 41 6 24 32 13 10 (1) (36) 8 10
Trade 5.4 5.0 5.2 5.7 5.9 6.1 5.8 6.0 6.1 6.1 5.8 6.3 6.3 6.5 13 21 22 18 12 4 12 9 13 5 13 11 17
Real Estate 3.0 2.6 2.6 2.6 2.8 2.8 2.7 2.6 2.4 2.3 3.0 2.9 2.6 2.7 6 16 12 22 9 7 4 — 9 43 — 1 3
NBFCs 3.7 5.0 5.3 5.3 5.3 5.2 5.4 5.5 6.5 8.1 10.0 9.7 9.8 9.8 62 24 14 13 6 13 11 27 41 36 1 11 21
HFCs 1.6 2.0 2.8 2.5 2.5 41 44 1 12
Other Services 7.2 7.0 6.4 6.0 5.9 5.5 5.5 6.8 7.3 6.9 5.2 5.2 5.1 4.9 17 6 7 11 2 9 35 16 5 (16) 5 7 4

Personal Loans 19.3 19.0 18.4 18.4 18.3 19.4 21.3 22.8 24.8 25.7 28.3 29.9 30.7 31.3 19 13 14 12 16 19 16 18 16 22 11 13 18
Consumer Durables 0.3 0.2 0.2 0.2 0.2 0.3 0.3 0.3 0.3 0.1 0.2 0.2 0.3 0.3 (24) 13 17 53 19 16 17 (5) (68) 155 7 60 77
Housing 9.9 9.7 9.4 9.4 9.7 10.5 11.4 12.1 12.7 13.4 14.2 14.9 15.3 15.5 19 12 13 18 17 19 15 13 19 18 9 13 15
Credit card 0.7 0.5 0.5 0.5 0.4 0.5 0.6 0.7 0.9 1.0 1.2 1.3 1.3 1.4 (10) 13 22 (0) 23 24 38 32 29 36 9 13 31
Education 1.2 1.2 1.2 1.1 1.1 1.1 1.0 1.0 0.9 0.8 0.7 0.8 0.8 0.7 17 16 10 9 6 8 3 (1) (2) (4) 19 6 8
Vehicle 2.1 2.0 2.1 2.3 1.9 2.1 2.3 2.4 2.5 2.3 2.9 3.7 3.7 3.8 14 22 24 (4) 17 23 12 11 7 38 32 9 18
Loans against gold jewellery 0.3 0.4 0.7 0.7 0.7 36 120 1 1
Other Personal Loans 3.4 4.0 3.7 3.6 3.6 3.9 4.5 5.3 6.6 6.8 7.9 7.6 8.0 8.2 42 8 11 13 18 25 27 35 15 30 1 15 24
Loans against FD 1.6 1.3 1.3 1.3 1.2 1.0 1.0 0.9 0.9 1.0 0.8 0.7 0.7 0.7 2 15 7 4 (2) 7 (1) 10 14 (13) 1 8 12

Source: RBI, Kotak Institutional Equities

KOTAK INSTITUTIONAL EQUITIES RESEARCH 59

India Banks

Exhibit 12: We expect the revival in corporate credit growth to Exhibit 13: A similar slowdown was seen over FY1998-2002
be gradual Corporate loan growth, March fiscal year-ends, 1998-2002 (%)
Corporate loan growth, March fiscal year-ends (%)
18
30.0

14
22.5

11
15.0

7
7.5

4
0.0

1998

2002
1999

2000

2001
(7.5)
2025E
2023E
2024E
2007
2008
2009
2010
2011

2015
2016
2017
2018
2019
2020
2021
2012
2013
2014

2022

Source: RBI, Kotak Institutional Equities

Source: RBI, Kotak Institutional Equities estimates

60 KOTAK INSTITUTIONAL EQUITIES RESEARCH

 INDIA
Economy
Monetary Policy AUGUST 19, 2022
UPDATE
BSE-30: 59,646

MPC minutes restate the need for further rate hikes. The minutes of the August
MPC meeting highlighted the need for continued rate hikes to ensure monetary policy
credibility. Members noted that while inflation may have peaked, significant
uncertainties, and upside risks warrant further rate hikes to anchor inflation
expectations. We retain our view of the repo rate at 5.75-6% and the operating target
rate shifting from current SDF rate to the repo rate by end-CY2022.

MPC members wary of elevated inflation and near-term risks to inflation

While the moderation in inflation till June from April’s peak provided some comfort, members
expressed caution in the durability of the moderating momentum and called for further rate
hikes. Members were wary of near-term upside risks to inflation stemming from (1) INR
depreciation, (2) rise in GST rates, and (3) uneven distribution of the southwest monsoon.
Additionally, Dr Patra and Dr Ranjan emphasized the need for pre-emptive monetary policy
action to ensure monetary policy credibility and to tackle second round effects of elevated
inflation.

Members cautious on global growth; optimistic on domestic growth

Members’ emphasis on further rate hikes was supported by their optimistic growth outlook.
Most members expressed comfort with the current growth trajectory. Governor Das pointed to
resilience, giving space for the MPC with high frequency indicators in 1QFY23 and in the
following quarters “evolving on the expected trajectory”. Dr Goyal noted that Indian exports
would be supported by (1) diversification from China, (2) India’s digital advantage, and (3)
government’s efforts to promote exports. Dr Bhide also expressed comfort with the growth
outlook with demand conditions expected to improve further in 2HFY23. On the other hand, Dr
Varma was of the view that the weakening of the July exports reflected that India would not be
immune to global growth shocks.

Need for aggressive rate hikes lower; rate hikes to continue

The MPC minutes restate our view that the frontloaded rate hikes by the MPC will temper the
need for aggressive future rate hikes amid (1) global disinflationary pressures, and (2) the likely
lagged impact of monetary tightening on inflation. However, given the near-term uncertainties,
we see the need for additional rate hikes to manage inflationary expectations.

Accordingly, we retain our view of the repo rate at 5.75-6% by end-CY2022. Notably, with the
weighted average call rates (WACR) currently staying closer to the SDF rate (5.15%), we expect
the liquidity tightness to lead to an effective policy rate hike of 60-75 bps. Once the WACR is
sustainably near the repo rate, we expect the MPC to drop the phrase “withdrawal of Upasna Bhardwaj
accommodation” from the resolution and shift towards a neutral stance (likely in the December
policy).
Suvodeep Rakshit

Anurag Balajee

[email protected]
Contact: +91 22 6218 6427

For Private Circulation Only.

India Economy

Exhibit 1: Summary of MPC members' views and policy decision

Member Rationale for action Stance / Vote

- O n the domestic front, though inflation has moderated and plateaued since its recent peak of April 2022, it remains unacceptably and uncomfortably
high. The high level of inflation continues to be broad-based with 13 out of 23 CPI subgroups/groups, comprising close to 60 per cent of the CPI
basket, registering more than 6 per cent inflation in June 2022.
- Domestic growth, on the other hand, remains resilient and gives us the space to act. High-frequency indicators for Q 1:2022-23 and thereafter are
evolving on the expected trajectory. The southwest monsoon has picked up and is progressing well. Contact-intensive services have rebounded and
Hawkish / 50 bps
Shri Shaktikanta Das have been driving consumer demand and growth. Government expenditure, both of Centre and states, is expected to provide support to aggregate
increase
demand.
- Sustained high inflation, unless addressed effectively, could result in unanchoring of inflation expectations and their second order effects. This
necessitates appropriate monetary policy response to prevent upward drift in inflation from the target rate.
- O ur actions today are tailored towards first bringing the CPI inflation within the target band and then taking it close to the target of 4.0 per cent
over the medium term, while supporting growth.
- With inflation remaining elevated worldwide and a pervasive sense of guilt about the consequences of the pandemic stimulus having been
underestimated, central banks have launched into the most aggressive, front loaded and synchronous monetary policy tightening in decades.
Consequently, the probability of a recession or hard landing has risen to levels that preceded actual recessions in the past.
- For instance, inflation in India is lower than the weighted average of its major trading partners. High frequency indicators suggest that there is some
moderation in momentum in the first quarter of 2022-23 relative to the previous quarter, but the momentum is still positive in sharp contrast to the rest
of the world.
- India’s real GDP growth is tracking the RBI’s projections, in spite of the downside bias imparted by the highly unsettled global environment.
- The front-loaded and pre-emptive actions so far are already working into inflation expectations of households. Their perception of current inflation as
Hawkish / 50 bps
Dr Michael D. Patra well as their expectations three months and one year ahead have declined appreciably... Furthermore, uncertainty around their perceptions and
increase
expectations (measured by their respective coefficients of variation) has reduced, indicative of anchoring.
- Although inflation seems to have peaked, it is still unconscionably high. Risks to the trajectory of inflation in the form of currency depreciation,
seasonal pressures and the monsoon’s uneven progress could upend the moderation in momentum recently recorded.
- Higher credibility can reduce – not substitute for – the monetary policy response to second round effects of repeated supply shocks. By frontloading
monetary policy actions, credibility is demonstrated by showing commitment to the inflation target.
- At the current juncture, shocks are large and recurring. Combined with the rebound in spending liberated from the pandemic, they carry the risk of
un-anchoring inflation expectations. Frontloading of monetary policy actions can keep inflation expectations firmly anchored, re-align inflation with the
target and reduce the medium-term growth sacrifice as it is timed into the recovery underway.

- In terms of contributions, while the deceleration in headline price momentum in May was primarily on account of core (CPI excluding food and fuel),
food also started to contribute to the slowdown in headline price pressures by June. The deceleration in price momentum was broadbased across
items within the food group. O n the other hand, the softening in core momentum was primarily influenced by the one-off petrol and diesel price
declines (reflecting the full direct impact of excise duty cut).
- Unmooring of inflation expectations, in the context of the spike in inflation following the conflict in Europe, is the biggest risk which the MPC
addressed through the off-cycle meet and frontloaded rate actions so as to increase the efficacy of the actions.
- Going forward, though the fall in international commodity prices and the progress of the monsoon provide room for optimism, there is considerable
uncertainty, particularly from the spatial and temporal distribution of monsoon and its implication for kharif paddy production, the depreciation of the
INR exchange rate and pending pass-through in services. Importantly, the global geo-political scenario – the source of much of the price shocks –
continues to remain unsettled.
Hawkish / 50 bps
Dr Rajiv Ranjan - the full pass-through of high inputs costs reflected in WPI to CPI inflation was tempered by weak pricing power due to the prevailing slack in the
increase
economy. As the slack wanes and pricing power of firms return, there is a risk that the passthrough of past increases in input costs could continue,
partly offsetting the favourable impact of recent fall in global commodity prices.
- Moreover, the recent depreciation of the INR exchange rate could also temper the beneficial impact of fall in commodity prices. These could keep core
CPI inflation at elevated levels throughout this year. Moreover, if high cost of living conditions persists, the household inflation expectations could edge
up feeding into wages in a broad-based manner and pushing up services inflation, which has been muted so far.
- Though pass-through is relatively lower in case of retail term deposit rates, banks have increased their bulk deposit rates significantly. As credit
growth is gathering momentum, banks can be expected to further increase rates on retail deposits to fund their lending.
- ... inflation is likely to remain above 6 per cent till Q 3:2022-23. This would require monetary policy to persevere with its exit from accommodation to
ensure that frontloaded policy rate hikes dampen inflation expectations, anchor second round effects and firmly establish our commitment to price
stability. The frontloading of policy actions is expected to strengthen monetary policy credibility and temper the need for aggressive rate hikes in future.

- Even if global growth slows, diversification from China, India’s digital advantage and government efforts to promote exports would support Indian
exports.
- The repo rate rise, which is reversing the large pandemic-induced cut of 115 bps in a more calibrated fashion, has not as yet slowed the recovery. Real
rates remain negative and there are lags in pass through. Even so, rising rates may have prevented over-heating. Coordinated fiscal and monetary
policy action to reduce inflation while maintaining adequate demand has worked well.
- Inflation, however, is still above the tolerance band, and shows signs of being so for the first 3 quarters of 2022-23. This can be destabilizing for Hawkish / 50 bps
Dr Ashima Goyal
inflation expectations. That policy responds strongly to ensure its inflation commitments is important for the credibility of an inflation targeting regime. increase
Some rise in GST tax rates, electricity tariffs, energy costs and rupee depreciation, although the rupee is showing signs of mean reversion towards real
equilibrium values, are short-term risks for inflation.
- My research showed Indian real rates were required to be negative in slumps but low positive in booms. The healthy recovery suggests we are no
longer in a slump. Crude oil prices have fallen, but their persistence above $100, is a negative supply shock, raising the required one-year ahead real rate
into positive territory. O ne year ahead inflation is expected to be around 5 per cent.

- Inflation is at unacceptably high levels, and the projected trajectory is also above target during the entire forecast horizon. Economic growth has on
the other hand proved resilient in the face of an adverse global environment. In this situation, there is clearly a need for front loaded hikes in the policy
rate.
- Because the rate hike in this meeting takes the policy rate above the pre-pandemic level, “withdrawal of accommodation” cannot refer to the
withdrawal of the pandemic era accommodation. It can only mean withdrawal of the pre-pandemic accommodation that began with the rate cut from
Hawkish / 50 bps
Prof. Jayanth R. Varma 6.50% to 6.25% in February 2019.
increase
- ... though the Indian economy has been highly resilient to geopolitical and commodity price shocks so far, the weakening of exports in July indicates
that India would not be immune to growth shocks emanating from the rest of the world. In short, it is easy to imagine that a few months from now,
the economic data could point to a terminal repo rate that is well below 6.50%.
- The resolution should in my view be interpreted only as stating that there is a high likelihood of further front-loaded tightening without restricting
the freedom of the MPC to respond to the changing environment in a data driven manner.

- The headline consumer inflation rate for Q 1: FY 2022-23 is at 7.3 per cent, although lower than the level projected in the June MPC meeting. At 7.3
per cent, it is also higher than any of the previous four quarters of 2021-22. … But in each of the three major components of the headline, the year-on-
year (YO Y) inflation rate remained at or above 6 per cent in June, highlighting the continued broad-based inflationary pressures.
- The softening of the international crude oil prices appears to be a consequence of expected slowing down of global growth as monetary policies
across countries tightened to rein in inflationary pressures. Slowing down of Chinese economy has also been a factor in the emerging global weak
demand conditions as Covid 19 continues to cast a shadow on economic activities there.
- The direct impact of supply disruptions, even if targeted to some geographies, is quickly transmitted elsewhere to meet the overall demand supply
imbalances. Weakening of many currencies against the US dollar also imparts inflationary pressures on the domestic economies of the other countries. Neutral to hawkish /
Dr Shashanka Bhide
- The impact of recent changes to GST rates, somewhat uneven distribution of the southwest monsoon rainfall with deficiency in the eastern region of 50 bps increase
the country, could be source of upward pressure on prices.
- The present pattern of trends and assessments suggest a gradual decline in inflation rate during FY 2022-23 but still above the upper level of the
tolerance band around the target of 4 per cent. Going forward, the food inflation scenario would be affected by the overall rainfall conditions in the
remaining period of the present monsoon and the crop prospects, besides the global price conditions. ... The upside risks to any declining inflation
trajectory in the short term are significant.
- Performance of a number of sectors showed sustained growth in Q 1: FY 2022-23, particularly in manufacturing. ... Although there are concerns over
demand conditions in the case of services and infrastructure sectors in H1, improvement in conditions is expected in H2: FY 2022-23.

Notes:
(a) Stance is our interpretation of the members' views in the minutes.
(b) Emphasis in text is our addition.

Source: RBI, Kotak Economics Research

62 KOTAK ECONOMIC RESEARCH

 Kotak Institutional Equities: Valuation summary of KIE Universe stocks
63

Price (Rs) Fair Value Upside Mkt cap. O/S shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) ADVT-3M
Company Rating 19-Aug-22 (Rs) (%) (Rs bn) (US$ bn) (mn) 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E (US$ mn)
Automobiles & Components
Amara Raja Batteries SELL 516 48 0 (7) 88 1.1 171 30 37 45 (21) 23 24 17 14 11 9 7 6 1.9 1.7 1.5 12 13 14 0.9 1.4 1.8 3
Apollo Tyres REDUCE 260 220 (15) 165 2.1 638 10 13 16 (20) 25 30 26 21 16 8 7 6 1.4 1.3 1.3 6 7 8 1.1 1.4 1.6 8
Ashok Leyland ADD 148 160 8 434 5.4 2,936 1 3 7 153 48 5 132 274 47 20 45 21 12 5.7 5.3 4.6 2 12 24 0.7 0.9 2.0 29
Bajaj Auto ADD 4,075 4,200 3 1,179 15 28 3 165 207 241 5 25 17 25 20 17 18 15 12 4.4 4.1 4.0 19 21 24 3.4 4.1 4.7 26
Balkrishna Industries SELL 2,169 1,700 (22) 419 5.3 193 74 79 80 22 6 2 29 28 27 19 17 16 6.0 5.3 4.7 22 20 18 1.3 1.2 1.3 10
Bharat Forge REDUCE 736 720 (2) 343 4.3 466 23 25 34 948 9 36 32 29 22 20 17 13 5.2 4.6 3.9 18 17 20 0.7 0.8 0.9 15
CEAT SELL 1,371 1,000 (27) 55 0.7 40 20 24 75 (8 3) 24 209 70 56 18 11 10 7 1.7 1.7 1.6 2 3 9 0.2 0.9 1.3 2
Eicher Motors SELL 3,424 2,58 0 (25) 936 11.7 272 62 98 124 25 59 27 56 35 28 39 24 21 8 .6 7.4 6.3 16 23 25 0.6 0.7 0.7 31
Endurance Technologies ADD 1,442 1,430 (1) 203 2.5 141 34 42 61 (8 ) 22 45 42 34 24 21 17 12 5.2 4.6 4.0 12 13 17 0.4 0.7 0.9 2
Escorts Kubota SELL 1,775 1,48 0 (17) 196 2.9 111 76 64 82 (12) (15) 28 23 28 22 20 22 17 2.3 2.3 2.1 10 8 10 0.4 0.5 0.7 10
Exide Industries REDUCE 160 155 (3) 136 1.7 8 50 9 10 11 1 15 8 18 15 14 10 9 8 1.3 1.2 1.1 9 8 8 1.2 1.6 1.6 4
Hero Motocorp REDUCE 2,8 39 2,500 (12) 567 7.1 200 124 147 18 0 (17) 19 22 23 19 16 14 11 9 3.6 3.4 3.2 16 18 21 3.3 3.6 4.4 24
Mahindra CIE Automotive SELL 272 235 (14) 103 1.3 378 11 19 21 277 79 9 26 14 13 11 8 7 2.0 1.8 1.6 8 13 13 — — — 2
Mahindra & Mahindra BUY 1,239 1,450 17 1,541 19.3 1,159 44 60 73 54 36 22 28 21 17 21 15 12 3.7 3.2 2.8 14 17 17 0.9 0.7 0.9 62
Maruti Suzuki SELL 8 ,779 8 ,150 (7) 2,652 33.2 302 125 271 336 (11) 117 24 70 32 26 39 18 15 4.9 4.5 4.1 7 14 16 0.7 1.2 1.5 78
Motherson Sumi Systems ADD 128 135 5 579 7.3 4,518 1 2 6 (28 ) 47 220 107 72 23 15 14 9 2.8 2.7 2.5 3 4 12 0.5 0.5 0.5 11
MRF SELL 8 6,8 26 62,500 (28 ) 368 4.6 4 1,578 1,607 3,242 (48 ) 2 102 55 54 27 17 16 11 2.6 2.5 2.3 5 5 9 0.2 0.1 0.2 10
Schaeffler India ADD 2,950 2,600 (12) 461 5.8 156 40 57 68 116 42 18 73 52 44 46 33 28 12.6 11.0 9.6 19 23 23 0.1 0.1 0.1 4
SKF SELL 4,557 3,400 (25) 225 2.8 49 80 107 122 33 34 14 57 43 37 40 30 26 11.9 9.7 8 .0 21 23 21 0.3 0.4 0.4 3
Sona BLW Precision REDUCE 521 550 6 304 3.8 58 3 6 7 11 65 17 51 84 72 48 54 42 29 15.2 12.9 10.6 21 19 25 0.1 0.3 0.4 21
Tata Motors BUY 471 500 6 1,8 03 21.1 3,8 29 (28 ) 7 40 (654) 125 473 NM 67 12 10 6 4 4.0 3.8 2.9 NM 6 28 0.0 0.0 0.0 93
Timken SELL 2,8 95 2,500 (14) 218 2.7 75 43 64 79 128 47 23 67 45 37 42 30 24 13.1 10.6 8 .5 22 26 26 0.0 0.1 0.1 4
TVS Motor SELL 959 775 (19) 455 5.7 475 19 30 37 46 62 23 51 32 26 24 17 14 9.4 7.6 6.2 20 27 26 0.3 0.5 0.6 20
Uno Minda ADD 543 550 1 310 3.9 571 6 11 14 65 69 35 87 52 38 36 27 21 9.0 7.7 6.4 10 15 17 0.1 0.2 0.3 4
Varroc Engineering ADD 336 400 19 51 0.6 153 (72) 14 19 (76) 120 35 NM 24 18 18 12 8 2.5 2.5 2.2 NM 11 13 — — — 1
Automobiles & Components Cautious 13,795 171.9 (30.1) 162.3 58.5 83.9 32.0 20.2 18.6 12.9 9.7 4.4 4.0 3.5 5.3 12.7 17.5 0.9 1.1 1.3 477
Banks
AU Small Finance Bank SELL 639 550 (14) 425 5.3 630 18 19 25 (4) 5 30 36 34 26 — — — 5.5 4.8 4.1 16 15 16 — — — 20
Axis Bank BUY 758 960 27 2,327 29.2 3,070 42 59 72 97 40 21 18 13 11 — — — 2.1 1.8 1.7 12 15 16 0.1 1.2 0.6 71
Bandhan Bank ADD 28 2 360 28 454 5.7 1,611 1 32 41 (94) 3,944 28 361 9 7 — — — 2.8 2.4 1.8 1 26 26 — 0.6 2.2 24

India Daily Summary - August 22, 2022

Bank of Baroda ADD 120 125 4 622 7.8 5,178 14 20 27 777 45 32 9 6 4 — — — 0.9 0.8 0.7 10 13 15 2.4 3.4 4.5 37
Canara Bank ADD 231 260 13 418 5.2 1,8 14 31 33 40 102 6 21 7 7 6 — — — 0.9 0.8 0.7 9 9 10 3— 3— 4— 27
City Union Bank ADD 176 170 (3) 130 1.6 740 10 12 14 28 12 20 17 15 13 — — — 2.3 2.0 1.8 12 12 13 0.6 1.3 1.6 5
DCB Bank BUY 86 145 69 27 0.3 311 9 17 21 (14) 80 27 9 5 4 — — — 0.8 0.7 0.6 8 13 15 1.2 3.1 3.9 1
Equitas Small Finance Bank ADD 45 56 26 56 0.7 1,252 2 4 5 (34) 78 33 20 11 8 — — — 1.4 1.2 1.1 7 11 13 — — — 1
Federal Bank BUY 108 120 12 226 2.8 2,103 9 13 14 13 44 10 12 8 8 — — — 1.3 1.1 1.0 11 14 13 1.7 2.4 2.6 15
HDFC Bank BUY 1,493 1,650 11 8 ,298 104.0 5,546 67 76 79 18 14 4 22 20 19 — — — 3.5 3.1 2.5 17 16 16 1.0 1.2 1.2 117
ICICI Bank BUY 8 70 1,025 18 6,058 75.9 6,950 34 45 46 43 33 3 26 19 19 — — — 3.7 3.3 2.8 15 17 15 0.6 1.0 1.1 115
IndusInd Bank ADD 1,063 1,100 3 8 24 10.3 775 60 86 106 62 44 24 18 12 10 — — — 1.8 1.6 1.4 10 13 15 0.8 1.2 1.4 39
Karur Vysya Bank BUY 64 70 9 51 0.6 8 00 8 12 16 87 48 29 8 5 4 — — — 0.8 0.7 0.6 9 13 15 2.5 5.0 6.5 3
Punjab National Bank REDUCE 33 30 (10) 367 4.6 11,011 3 4 6 63 37 44 11 8 5 — — — 0.6 0.5 0.4 4 5 7 1.9 2.6 3.7 11
KOTAK INSTITUTIONAL EQUITIES RESEARCH

SBI Cards and Payment Services BUY 921 1,150 25 8 69 10.9 943 17 27 34 64 60 24 54 34 27 — — — 11.2 8 .5 6.6 23 29 27 0.1 0.2 0.2 17
State Bank of India BUY 520 700 35 4,644 58 .2 8 ,925 35 50 60 55 40 20 15 10 9 — — — 2.0 1.7 1.4 12 15 16 1.4 1.7 2.1 81
Ujjivan Small Finance Bank BUY 21 22 6 36 0.5 1,728 (3) 3 4 (4,058 ) 216 33 NM 7 5 — — — 1.4 1.2 1.0 NM 17 19 0.0 0.0 0.0 1
Union Bank ADD 40 45 12 275 3.4 6,8 35 8 8 11 72 (2) 50 5 5 4 — — — 0.5 0.5 0.4 8 7 10 4.7 4.6 7.0 3
YES Bank SELL 17 13 (21) 415 5.2 28 ,751 0 0 0 131 (45) 95 39 70 36 — — — 1.5 1.4 1.3 3 2 3 0.0 0.0 0.0 23
Banks Attractive 26,523 332.4 54.8 33.0 24.5 19.1 14.4 11.6 2.1 1.8 1.5 10.8 12.8 13.2 0.9 1.3 1.6 611

Source: Company, Bloomberg, Kotak Institutional Equities estimates

KOTAK ECONOMIC RESEARCH 63

 Kotak Institutional Equities: Valuation summary of KIE Universe stocks

India Daily Summary - August 22, 2022

Price (Rs) Fair Value Upside Mkt cap. O/S shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) ADVT-3M
Company Rating 19-Aug-22 (Rs) (%) (Rs bn) (US$ bn) (mn) 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E (US$ mn)
Building Products
KOTAK INSTITUTIONAL EQUITIES RESEARCH

Astral SELL 2,054 1,530 (26) 413 5.2 201 26 31 39 28 18 29 80 67 52 50 43 34 17.7 14.8 12.4 25 24 26 0.2 0.4 0.6 7
Building Products Cautious 413 5.2 28.0 18.5 28.5 79.7 67.3 52.4 50.4 42.6 33.8 17.7 14.8 12.4 22 22 24 0.2 0.4 0.6 7
Capital goods
ABB ADD 2,8 8 8 2,900 0 612 7.7 212 19 28 42 140 42 53 149 105 69 105 66 49 15.1 12.8 11.2 11 13 17 0.2 0.2 0.3 10
Bharat Electronics REDUCE 28 5 250 (12) 695 8 .7 2,437 10 10 11 14 6 6 29 27 26 19 18 16 5.7 5.2 4.8 21 20 19 0.5 1.7 1.8 23
BHEL SELL 54 32 (41) 18 8 2.4 3,48 2 1 (0) 2 115 (130) 696 46 NM 26 22 95 10 0.7 0.7 0.7 2 NM 3 0.0 (0.2) 1.2 13
Carborundum Universal ADD 8 09 900 11 154 1.9 190 18 22 28 17 25 30 46 37 28 28 23 18 6.5 5.7 4.9 15 16 19 0.4 0.5 0.7 2
Cochin Shipyard BUY 338 450 33 44 0.6 132 45 32 31 (4) (29) (1) 8 11 11 2 4 4 1.0 1.0 0.9 14 9 9 1.1 4.1 4.3 1
Cummins India BUY 1,224 1,360 11 339 4.3 277 30 34 42 30 14 24 41 36 29 37 33 26 7.0 6.5 5.9 18 19 21 0.9 1.5 1.9 8
G R Infraprojects SELL 1,373 1,200 (13) 133 1.7 97 79 88 99 (3) 11 13 17 16 14 11 10 9 3.0 2.5 2.2 17 16 16 0.0 0.0 0.0 0
IRB Infrastructure BUY 250 320 28 151 1.9 604 6 14 15 208 142 1 42 17 17 11 9 8 1.2 1.1 1.1 4 7 7 0.6 1.1 1.5 5
Kalpataru Power Transmission BUY 367 450 23 55 0.7 164 20 35 44 (36) 75 27 19 11 8 6 5 4 1.4 1.3 1.1 8 12 14 1.8 0.9 1.1 0
KEC International BUY 406 500 23 104 1.3 257 15 19 34 (32) 31 79 28 21 12 14 11 7 2.9 2.6 2.2 11 13 20 0.3 0.5 0.9 3
L&T BUY 1,936 2,000 3 2,721 34.1 1,405 61 74 95 26 22 27 32 26 20 21 18 15 3.9 3.7 3.4 13 15 17 1.1 1.6 2.0 46
Siemens SELL 2,8 50 2,350 (18 ) 1,015 12.7 356 38 46 55 27 21 21 76 63 52 50 42 35 9.0 8 .2 7.4 12 14 15 0.3 0.4 0.5 12
Thermax ADD 2,263 2,100 (7) 270 3.4 113 28 37 53 20 33 43 82 61 43 63 44 32 62.6 44.4 31.6 9 12 16 0.4 1.0 1.4 2
Capital goods Attractive 6,481 81.2 52.6 17.8 28.4 38.1 32.3 25.2 22.5 19.6 16.2 4.0 3.7 3.4 10.4 11.5 13.6 0.7 1.1 1.4 126
Commercial & Professional Services
SIS BUY 450 550 22 66 0.8 148 22 23 31 (10) 4 36 20 20 14 14 13 10 3.2 2.9 2.5 17 15 18 1.2 1.2 1.7 1
TeamLease Services REDUCE 3,300 3,735 13 56 0.7 17 23 81 111 (33) 250 38 143 41 30 38 33 25 8 .1 6.8 5.5 5.9 18 .1 21 — — — 1
Commercial & Professional Services
Attractive 123 1.5 (14.2) 30.2 36.4 33.6 25.8 18.9 19.5 17.7 13.7 4.4 3.9 3.3 13.2 15.1 17.6 0.6 0.7 0.9 2
Commodity Chemicals
Asian Paints REDUCE 3,48 3 2,950 (15) 3,340 41.9 959 33 46 56 0 40 23 106 76 62 69 50 42 24.2 21.5 19.0 24 30 33 0.5 0.8 1.0 55
Berger Paints REDUCE 697 600 (14) 677 8 .5 971 9 12 14 16 37 19 81 59 50 51 38 32 17.2 14.7 12.5 23 27 27 0.4 0.7 0.8 9
Kansai Nerolac REDUCE 506 460 (9) 273 3.4 539 7 11 14 (31) 64 28 73 45 35 43 29 23 6.5 6.1 5.7 9 14 17 0.4 1.2 1.7 3
Tata Chemicals BUY 1,124 1,240 10 28 6 3.6 255 50 89 83 393 80 (7) 23 13 14 12 7 7 1.6 1.4 1.3 8 12 10 1.1 1.5 1.7 19
Commodity Chemicals Cautious 4,576 57.4 20.6 50.1 14.6 81.5 54.3 47.4 50.2 34.3 30.1 11.4 10.2 9.3 14.0 18.9 19.53 0.6 0.8 1.1 86
Construction Materials
ACC REDUCE 2,351 2,075 (12) 441 5.5 18 8 97 57 110 29 (41) 92 24 41 21 12 19 11 3.1 3.0 2.8 14 7 14 2.5 1.2 2.3 10
Ambuja Cements REDUCE 420 345 (18 ) 8 35 10.5 1,98 6 15 11 16 8 (28 ) 49 29 40 27 12 15 10 3.3 3.1 2.8 12 8 11 1.5 0.5 0.7 22
Dalmia Bharat ADD 1,616 1,8 00 11 303 3.8 18 5 62 40 61 (6) (36) 55 26 41 26 12 12 9 1.9 1.8 1.7 8 5 7 1 — 1 5
Grasim Industries ADD 1,606 1,675 4 1,057 13.3 658 109 118 138 60 8 18 15 14 12 8 7 6 1.4 1.3 1.2 10 10 10 0.6 0.4 0.4 20
J K Cement SELL 2,709 2,150 (21) 209 2.6 77 89 81 112 (5) (9) 37 30 33 24 16 15 12 4.8 4.3 3.7 17 14 16 0.6 0.4 0.4 5
Nuvoco Vistas Corp ADD 341 390 14 122 1.5 357 1 5 16 209 411 259 379 74 21 12 11 7 1.4 1.4 1.3 0 2 6 0.0 0.0 0.0 2
Orient Cement ADD 121 130 7 25 0.3 205 13 8 13 23 (42) 67 9 16 10 5 7 7 1.6 1.5 1.3 19 10 15 2.1 1.6 1.6 1
Shree Cement SELL 21,423 15,8 50 (26) 773 9.7 36 659 500 742 3 (24) 48 33 43 29 21 23 16 4.5 4.1 3.7 15 10 13 0.4 0.3 0.5 10
The Ramco Cements SELL 759 575 (24) 179 2.2 236 38 18 37 17 (53) 110 20 43 20 17 18 12 2.7 2.6 2.3 14 6 12 0.0 0.2 0.5 4
UltraTech Cement REDUCE 6,648 6,500 (2) 1,919 24.1 28 9 249 242 320 29 (2) 32 27 27 21 17 15 12 3.8 3.4 3.0 15 13 15 0.6 0.5 0.7 35
Construction Materials Cautious 5,863 73.5 26.5 (10.8) 37.3 24.0 26.9 19.6 12.2 12.0 9.3 2.7 2.5 2.2 11.1 9.1 11.4 0.8 0.5 0.7 114

Source: Company, Bloomberg, Kotak Institutional Equities estimates

64 KOTAK ECONOMIC RESEARCH

64
 Kotak Institutional Equities: Valuation summary of KIE Universe stocks
Price (Rs) Fair Value Upside Mkt cap. O/S shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) ADVT-3M
65

Company Rating 19-Aug-22 (Rs) (%) (Rs bn) (US$ bn) (mn) 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E (US$ mn)
Consumer Durables & Apparel
Crompton Greaves Consumer ADD 396 410 4 251 3.1 628 9 11 13 (4) 16 23 42 37 30 34 26 22 10.1 8 .4 6.8 27 25 25 0.6 0.6 0.6 11
Havells India SELL 1,345 1,025 (24) 8 42 10.6 626 19 21 25 15 11 18 70 64 54 46 43 37 14.0 12.6 11.2 21 21 22 0.6 0.6 0.7 15
Page Industries SELL 50,032 42,000 (16) 558 7.0 11 48 1 658 799 58 37 21 104 76 63 71 53 43 51.3 42.6 36.3 54 61 63 0.7 1.0 1.3 12
Polycab REDUCE 2,420 2,105 (13) 362 4.5 149 57 76 86 0 34 14 43 32 28 28 22 19 6.5 5.7 5.0 16 19 19 0.6 0.8 0.9 11
TCNS Clothing Co. SELL 58 3 500 (14) 36 0.5 69 (1) 10 14 92 1,313 37 NM 56 41 43 18 14.3 6.4 5.4 4.6 NM 10 12 — — — 1
Voltas SELL 1,015 8 95 (12) 336 4.2 331 15 16 22 (4) 2 44 67 65 45 49 48 34 6.1 5.8 5.4 10 9 12 0.5 0.6 0.8 15
Whirlpool SELL 1,8 39 1,460 (21) 233 2.9 127 19 23 41 (31) 22 75 96 79 45 52 42 26 6.9 6.5 5.8 8 8 13 0.3 0.2 0.3 3
Consumer Durables & Apparel Cautious 2,619 32.8 6.9 21.4 24.9 67.0 55.2 44.2 44.7 36.9 29.8 10.7 9.5 8.4 15.9 17.3 19.09 0.6 0.7 0.8 67
Consumer Staples
Britannia Industries ADD 3,663 4,000 9 882 11.1 241 63 70 85 (18 ) 11 21 58 52 43 41 37 30 34.5 34.1 26.6 50 65 69 1.9 1.5 2.0 17
Colgate-Palmolive (India) ADD 1,567 1,650 5 426 5.3 272 40 39 44 4 (0) 12 40 40 35 27 26 24 24.6 24.1 22.9 74 61 66 2.6 2.4 2.7 6
Dabur India ADD 58 7 605 3 1,040 13.0 1,768 10 11 13 7 9 15 57 52 45 46 43 37 12.4 11.4 10.5 23 23 24 0.9 1.0 1.2 12
Godrej Consumer Products BUY 906 960 6 926 11.6 1,023 18 18 22 2 2 25 52 51 41 39 35 29 8 .0 7.6 7.1 17 15 18 1.0 1.3 1.5 16
Hindustan Unilever ADD 2,635 2,750 4 6,190 77.6 2,350 37 42 51 10 13 21 71 63 52 49 44 36 12.7 12.3 11.7 18 20 23 1.3 1.4 1.7 59
ITC ADD 312 337 8 3,8 64 48 .4 12,342 12 14 15 15 15 10 26 22 20 19 16 15 6.3 6.0 6.0 23 26 29 3.7 3.9 4.2 57
Jyothy Laboratories ADD 178 18 5 4 65 0.8 367 4 6 8 (26) 34 36 40 30 22 26 20 15 4.5 4.2 3.8 11 15 18 1.4 1.7 2.0 1
Marico REDUCE 516 510 (1) 667 8 .4 1,290 9 11 12 5 12 13 54 49 43 39 34 30 19.9 18 .6 17.3 37 40 42 1.5 1.7 1.9 10
Nestle India ADD 19,441 19,750 2 1,8 74 23.5 96 247 259 314 14 5 21 79 75 62 53 49 42 8 9.9 79.2 69.6 116 112 120 1.0 1.2 1.4 16
Tata Consumer Products ADD 78 7 8 00 2 725 9.1 922 11 13 16 11 24 22 73 59 49 41 35 30 4.8 4.6 4.4 7 8 9 0.8 0.9 1.0 18
United Breweries ADD 1,669 1,725 3 441 5.5 264 14 23 35 204 66 52 121 73 48 62 44 30 11.2 10.3 9.3 10 15 21 0.6 1.0 1.6 5
United Spirits ADD 792 8 90 12 575 7.2 727 13 14 17 112 1 22 59 58 48 38 39 31 11.1 8 .7 7.9 21 17 17 0.0 0.6 0.9 14
Varun Beverages ADD 98 8 1,025 4 642 8 .0 650 11 20 25 75 90 23 92 49 39 41 26 22 15.7 12.1 9.5 18 28 27 0.2 0.1 0.2 15
Consumer Staples Attractive 18,320 229.6 12.6 14.1 16.6 49.8 43.6 37.4 35.3 30.8 26.5 10.8 10.2 9.7 22 23 26 1.7 1.8 2.1 248
Diversified Financials
Aavas Financiers REDUCE 2,256 2,250 (0) 178 2.2 79 45 52 64 23 15 23 50 44 35 — — — 6.3 5.5 4.8 14 14 15 0.0 0.0 0.0 2
Aptus Value Housing Finance ADD 309 315 — 153 1.9 497 8 9 10 36 22 12 41 34 30 — — — 5.3 4.5 4.0 15 14 14 0.0 0.0 0.0 1
Bajaj Finance SELL 7,302 5,400 (26) 4,421 55.4 603 116 172 194 59 47 13 63 43 38 — — — 10.1 8 .3 6.9 17 21 20 0.3 0.2 0.3 104
Bajaj Finserv REDUCE 16,28 8 14,050 (14) 2,594 32.5 159 28 6 516 633 2 80 23 57 32 26 — — — 6.4 6.2 5.2 12 20 22 0.1 0.1 0.1 64
Cholamandalam ADD 778 790 2 639 8 .0 8 21 26 30 35 42 15 16 30 26 22 — — — 5.8 4.8 4.1 20 19 19 0.3 0.3 0.3 15
Computer Age Management Services SELL 2,256 2,050 (9) 110 1.4 49 59 55 67 39 (7) 23 38 41 34 — — — 17.0 14.7 12.6 49 38 40 1.7 1.6 1.9 5
HDFC BUY 2,468 2,750 11 4,478 56.1 1,8 13 76 79 94 14 4 19 33 31 26 — — — 3.7 3.4 3.1 12 11 12 0.9 1.0 1.1 90

India Daily Summary - August 22, 2022

HDFC AMC ADD 2,157 1,950 (10) 460 5.8 214 65 66 77 5 1 18 33 33 28 — — — 8 .3 7.5 6.8 27 24 26 1.9 2.0 2.3 20
Home First Finance BUY 903 970 7 79 1.0 88 21 26 30 85 21 17 43 35 30 — — — 5.0 4.4 3.8 13 13 14 — — — 1
IIFL Wealth BUY 1,68 4 1,950 16 150 1.9 89 64 68 81 54 6 19 26 25 21 — — — 5.2 4.7 4.5 20 20 22 3.3 3.0 3.6 1
L&T Finance Holdings ADD 76 95 26 18 7 2.3 2,474 4 5 8 13 14 72 17 15 9 — — — 0.9 0.8 0.7 5 6 9 0.7 0.7 0.7 6
LIC Housing Finance BUY 392 600 53 216 2.7 550 42 65 70 (23) 56 8 9 6 6 — — — 1.1 1.0 0.9 10 14 13 2.2 3.4 3.7 12
Mahindra & Mahindra Financial ADD 194 215 11 240 3.0 1,233 8 15 19 193 89 22 24 13 11 — — — 1.6 1.5 1.4 7 12 13 1.9 3.5 1.9 10
Muthoot Finance ADD 1,044 1,200 15 419 5.3 401 99 94 126 6 (5) 35 11 11 8 — — — 2.3 2.0 1.6 24 19 22 1.9 1.8 2.4 14
Shriram City Union Finance BUY 1,8 8 0 2,600 38 125 1.6 67 163 178 218 6 9 22 12 11 9 — — — 1.5 1.3 1.2 13 13 14 2.0 1.4 1.7 3
Shriram Transport BUY 1,347 1,675 24 364 4.6 271 100 153 167 2 52 9 13 9 8 — — — 1.4 1.3 1.1 11 15 14 1.5 1.7 1.9 16
Diversified Financials Attractive 14,815 185.7 17.9 28.4 18.6 34.7 27.0 22.7 4.3 3.8 3.4 12.4 14.2 14.8 0.7 0.7 0.8 366
KOTAK INSTITUTIONAL EQUITIES RESEARCH

Source: Company, Bloomberg, Kotak Institutional Equities estimates

KOTAK ECONOMIC RESEARCH 65

 Kotak Institutional Equities: Valuation summary of KIE Universe stocks

India Daily Summary - August 22, 2022

Price (Rs) Fair Value Upside Mkt cap. O/S shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) ADVT-3M
Company Rating 19-Aug-22 (Rs) (%) (Rs bn) (US$ bn) (mn) 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E (US$ mn)
Electric Utilities
KOTAK INSTITUTIONAL EQUITIES RESEARCH

CESC BUY 79 100 26 105 1.3 1,326 10 13 15 2 27 13 8 6 5 6 5 4 0.9 0.8 0.7 11 13 14 5.6 5.0 5.5 2
JSW Energy SELL 316 120 (62) 520 6.5 1,640 7 7 7 36 0 7 48 48 45 18 18 17 3.0 2.8 2.7 7 6 6 0.6 0.6 0.6 6
NHPC ADD 35 38 9 351 4.4 10,045 4 4 4 5 17 1 10 9 8 11 9 8 1.0 1.0 0.9 10 12 11 4.8 6.8 6.9 4
NTPC ADD 158 165 5 1,530 19.2 9,8 95 17 18 20 3 7 11 9.4 8 .7 8 9 8 7 1.1 1.0 1.0 12 12 13 4.3 4.3 4.8 34
Power Grid BUY 228 250 10 1,591 19.9 6,975 19 21 21 4 8 3 11.9 11.0 11 8 7 6 2.1 1.9 1.8 18 18 18 6.8 5.7 5.9 29
Tata Power SELL 233 230 (1) 743 9.3 3,196 7 9 10 84 22 16 32 26 22 16 17 14 3.3 2.9 2.6 11 12 12 — — — 53
Electric Utilities Attractive 4,840 60.7 7.0 9.7 7.6 12.6 11.5 10.7 9.4 8.4 7.6 1.6 1.5 1.4 12.7 12.9 12.9 4.2 3.9 4.2 127
Fertilizers & Agricultural Chemicals
Bayer Cropscience SELL 5,249 4,8 45 (8 ) 236 3.0 45 134 160 18 9 3 19 18 39 33 28 28 23 20 9.3 7.6 6.2 24 26 25 0.5 0.6 0.7 1
Godrej Agrovet ADD 512 540 5 98 1.2 192 22 20 25 34 (6) 24 23 25 20 17 16 13 3.7 3.3 3.0 16 14 16 1.9 1.8 2.1 1
Rallis India REDUCE 226 210 (7) 44 0.6 195 8 9 11 (26) 12 18 27 24 20 16 14 12 2.6 2.4 2.3 10 11 12 1.3 1.5 1.8 1
UPL ADD 768 8 75 14 577 7.2 751 46 54 64 26 19 18 17 14 12 8 7 6 2.7 2.4 2.1 18 18 19 1.3 1.3 1.8 21
Fertilizers & Agricultural Chemicals
Neutral 955 12.0 20.1 14.7 18.2 20.4 17.8 15.0 10.5 9.0 7.6 3.3 3.0 2.6 16.4 17.0 17.3 1.2 1.2 1.6 24
Gas Utilities
GAIL (India) SELL 133 115 (14) 58 4 7.3 4,38 3 23 15 11 115 (36) (26) 6 9 12 5 7 10 1.1 1.0 1.0 20 11 8 7.5 5.3 5.6 20
GSPL SELL 245 260 6 138 1.7 564 17 10 10 5 (44) 1 14 25 25 6 9 9 1.7 1.6 1.5 12 6 6 1.2 0.9 1.1 2
Indraprastha Gas BUY 418 515 23 293 3.7 700 22 26 29 31 19 11 19 16 14 15 12 10 4.2 3.7 3.2 24 25 24 1.3 1.9 2.4 13
Mahanagar Gas BUY 8 68 1,050 21 86 1.1 99 60 80 83 (4) 32 4 14 11 10 9 7 6 2.4 2.1 1.9 17 21 19 2.9 4.3 4.9 5
Petronet LNG REDUCE 213 225 6 319 4.0 1,500 22 16 20 14 (26) 22 10 13 11 5 7 6 2.4 2.2 2.0 27 18 20 5.4 4.0 4.9 6
Gas Utilities Attractive 1,420 17.8 60.5 (27.4) (7.8) 8.4 11.6 12.6 5.9 7.7 8.3 1.6 1.5 1.4 19.1 12.9 11.3 4.9 3.8 4.3 46
Health Care Services
Apollo Hospitals BUY 4,135 4,8 50 17 595 7.5 144 53 75 98 749 42 30 78 55 42 28 26 21 10.5 9.4 8 .3 15 18 21 0.7 0.7 0.9 31
Aster DM Healthcare BUY 209 245 17 104 1.3 500 9 11 14 220 16 26 22 19 15 8 7 6 2.6 2.4 2.1 13 13 15 — — — 2
Dr Lal Pathlabs SELL 2,451 1,725 (30) 204 2.6 83 44 33 40 26 (25) 21 55 74 61 36 37 32 13.5 12.3 11.1 27 18 19 0.8 0.6 0.7 10
Max Healthcare ADD 379 425 12 367 4.6 970 9 10 12 77 13 13 42 37 32 28 25 21 5.5 4.8 4.2 14 14 14 0.0 0.0 0.0 23
Metropolis Healthcare REDUCE 1,415 1,400 (1) 72 0.9 51 39 32 40 7 (19) 27 36 45 35 21 24 20 8 .2 7.3 6.4 25 17 19 0.9 0.7 0.8 8
Narayana Hrudayalaya ADD 719 700 (3) 147 1.8 204 17 19 20 2,490 13 7 43 38 36 23 19 17 9.9 7.8 6.4 26 23 20 — — — 2
Health Care Services Attractive 1,490 18.7 153.3 14.1 21.1 49.3 43.2 35.7 23.2 21.5 18.2 7.4 6.5 5.7 15.0 15.0 15.9 0.4 0.4 0.5 75
Hotels & Restaurants
Devyani International REDUCE 198 179 (10) 239 3.0 1,204 1 2 3 304 40 26 136 97 77 50 34 26 34.8 25.6 19.2 44 30 28 0.0 0.0 0.0 7
Jubilant Foodworks ADD 597 615 3 394 4.9 660 7 9 10 89 29 19 90 70 59 35 29 24 20.1 16.2 13.0 26 26 24 0.2 0.2 0.2 28
Lemon Tree Hotels ADD 71 74 5 56 0.7 791 (1) 1 3 31 225 110 NM 51 24 61 16 12 6.7 6.5 5.8 NM 13 25 0.0 1.3 1.9 4
Restaurant Brands Asia ADD 129 126 (2) 64 0.8 493 (2) (0) 1 57 80 264 NM NM 209 65 29 19 3.3 3.3 3.2 NM NM 2 0.0 0.0 0.0 1
Sapphire Foods BUY 1,28 4 1,550 21 82 1.0 64 7 14 21 147 96 48 176 90 61 26 18 14 8 .1 7.4 6.6 6 9 12 0.0 0.0 0.0 3
Westlife Development ADD 611 640 5 95 1.2 156 (0) 7 10 98 6,917 43 NM 84 59 51 25 21 20.6 16.5 12.9 NM 22 25 0.0 0.0 0.0 1
Hotels & Restaurants Attractive 929 11.6 237.1 131.8 39.2 195.2 84.2 60.5 40.7 26.3 20.9 13.5 11.9 10.1 6.9 14.1 16.7 0.1 0.1 0.2 43

Source: Company, Bloomberg, Kotak Institutional Equities estimates

66 KOTAK ECONOMIC RESEARCH

66
 Kotak Institutional Equities: Valuation summary of KIE Universe stocks
Price (Rs) Fair Value Upside Mkt cap. O/S shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) ADVT-3M
67

Company Rating 19-Aug-22 (Rs) (%) (Rs bn) (US$ bn) (mn) 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E (US$ mn)
Insurance
HDFC Life Insurance BUY 577 710 23 1,219 15.3 2,020 6 7 8 (15) 21 22 101 83 68 — — — 7.9 7.6 7.2 10 9 11 0.3 0.3 0.4 30
ICICI Lombard REDUCE 1,28 9 1,300 1 633 7.9 491 26 37 44 (20) 44 19 50 35 29 — — — 6.9 6.0 5.2 15 19 19 0.7 0.7 0.9 13
ICICI Prudential Life BUY 577 650 13 8 29 10.4 1,437 5 6 7 (22) 15 15 110 95 83 — — — 9.0 8 .4 7.8 8 9 10 0.6 0.6 0.6 10
Max Financial Services BUY 8 10 1,100 36 28 0 3.5 345 3 11 12 3 28 1 8 272 72 66 — — — — — — 2 6 6 0.0 0.0 0.0 5
PB Fintech BUY 555 700 26 249 3.1 467 (18 ) (13) (6) (343) 27 54 NM NM NM — — — NM NM NM 0.0 0.0 0.0 10
SBI Life Insurance BUY 1,297 1,600 23 1,298 16.3 1,003 15 17 19 3 14 12 86 76 68 — — — 11.4 10.1 9.0 14 14 14 0.2 0.2 0.2 18
Star Health and Allied Insurance REDUCE 700 700 (0) 403 5.1 576 (18 ) 11 18 (9) 162 58 NM 63 40 — — — 8 .8 7.8 6.5 NM 13 18 0.0 0.0 0.0 7
Insurance Attractive 4,910 61.5 (32.2) 112.0 27.5 165.6 78.1 61.3 7.9 7.3 6.7 4.8 9.4 10.9 0.2 0.2 0.2 92
Internet Software & Services
Cartrade Tech REDUCE 634 690 9 30 0.4 51.5 (26) 6 10 (234) 123 61 NM 105 65 (15) 47 30 1.6 1.6 1.6 NM 1.6 2.5 0.0 0.0 0.0 1
FSN E-commerce Ventures BUY 1,399 1,770 26 664 8 .3 479.2 1 2 6 (36) 18 2 148 1,624 576 233 404 228 123 50.0 46.0 38 .4 4.5 8 .3 18 .0 — — — 10
Info Edge ADD 4,454 4,8 30 8 575 7.2 128 .7 (46) 51 69 (315) 212 34 NM 87 65 119 77 57 4.1 4.0 3.8 NM 4.6 6.0 7.4 0.3 0.4 25
Just Dial BUY 600 880 47 51 0.6 8 3.6 8 9 32 (75) 3 266 71 69 19 (670) 14 7 1.4 1.4 1.3 3.0 2.1 7.2 — — — 3
Zomato BUY 61 80 30 48 7 6.1 8 ,966 (1) (1) (0) 16 31 54 NM NM NM (18 ) (24) (38 ) 3.1 2.6 2.7 NM NM NM 0.0 0.0 0.0 101
Internet Software & Services Attractive 1,805 22.6 (945) 98 3,501 NM NM 170 (116) (525) 196 4.8 4.3 4.1 NM NM 2.4 2.3 0.1 0.1 140
IT Services
HCL Technologies BUY 970 1,165 20 2,632 33.0 2,714 50 52 57 4 4 11 20 19 17 12 11 10 4.3 4.1 3.9 22 22 23 4.5 4.6 5.2 43
Infosys BUY 1,597 1,690 6 6,720 8 4.2 4,204 52 56 65 15 7 15 30 28 25 21 19 17 8 .9 8 .0 7.2 29 30 31 1.9 2.2 2.8 125
L&T Infotech REDUCE 4,8 93 4,150 (15) 8 58 10.8 176 131 152 173 19 17 14 37 32 28 27 23 20 9.8 8 .1 6.7 28 28 26 0.8 0.8 0.9 27
L&T Technology Services REDUCE 3,793 2,8 50 (25) 400 5.0 106 91 108 118 44 19 9 42 35 32 27 23 21 9.6 8 .1 6.9 25 25 23 0.8 0.7 0.8 17
Mindtree REDUCE 3,521 3,150 (11) 58 1 7.3 165 100 122 131 49 21 7 35 29 27 25 21 19 10.6 8 .7 7.3 34 33 29 1.1 1.4 1.5 30
Mphasis ADD 2,394 2,58 0 8 450 5.6 18 8 76 90 103 17 18 15 31 27 23 21 17 15 6.5 5.9 5.3 21 23 24 1.9 2.3 2.5 17
TCS ADD 3,38 6 3,400 0 12,38 9 155.3 3,660 104 113 128 16 9 14 33 30 26 22 20 18 13.7 12.5 11.4 43 43 45 1.3 2.7 3.0 106
Tech Mahindra BUY 1,104 1,200 9 968 12.1 889 63 58 68 23 (8 ) 17 18 19 16 11 11 9 3.6 3.5 3.3 22 19 21 3.5 3.6 3.8 47
Wipro REDUCE 432 410 (5) 2,371 29.7 5,48 7 22 21 23 17 (5) 10 19 20 19 13 12 11 3.6 3.2 2.9 20 17 16 1.4 1.2 2.1 43
IT Services Attractive 27,369 343.1 14.1 5.3 13.4 27.9 26.5 23.4 18.8 17.3 15.3 7.9 7.2 6.6 28.4 27.1 28.1 1.8 2.5 2.9 455
Media
PVR BUY 1,8 09 2,200 22 110 1.4 61 (69) 51 59 37 174 17 NM 36 31 (51) 15 13 4.6 4.2 3.7 NM 12 13 (0.4) 0.3 0.3 14
Sun TV Network BUY 48 6 550 13 192 2.4 394 42 44 52 8 5 18 12 11 9 7 7 6 2.3 2.1 1.9 22 20 21 2.8 4.1 5.1 7
Zee Entertainment Enterprises ADD 260 260 (0) 250 3.1 960 11 11 14 (2) (1) 26 23 23 18 14 14 11 2.3 2.1 2.0 10 10 11 1.5 1.0 1.2 25
Media Attractive 552 6.9 17.1 34.5 20.8 23.8 17.7 14.6 14.2 10.8 8.8 2.6 2.4 2.1 10.8 13.3 14.6 1.6 1.9 2.4 46

India Daily Summary - August 22, 2022

Metals & Mining
Hindalco Industries BUY 427 550 29 960 12.0 2,220 61 43 51 140 (31) 19 7 10 8 4.7 5.3 4.9 1.2 1.1 1.0 19 11 12 0.9 1.0 1.2 67
Hindustan Zinc REDUCE 28 0 265 (5) 1,18 3 14.8 4,225 23 28 21 22 20 (23) 12 10 13 6.2 5.4 6.6 3.5 3.5 3.5 29 34 26 6.4 9.9 7.6 4
Jindal Steel and Power REDUCE 404 360 (11) 412 5.2 1,011 86 38 40 38 (56) 6 5 11 10 3.2 5.7 5.8 1.1 1.0 0.9 26 10 10 0.7 0.5 0.5 35
JSW Steel SELL 665 48 0 (28 ) 1,606 20.1 2,417 88 41 56 166 (53) 36 8 16 12 5.6 9.1 7.7 2.4 2.1 1.8 37 14 17 2.6 1.0 1.3 39
National Aluminium Co. ADD 79 85 7 145 1.8 1,8 37 17 10 10 217 (43) 1 5 8 8 2.3 4.0 4.1 1.2 1.1 1.0 27 14 13 6.3 3.8 3.8 17
NMDC REDUCE 116 115 (1) 340 4.3 2,931 32 16 13 43 (49) (22) 4 7 9 2.3 4.7 6.2 1.0 0.9 0.9 29 13 10 12.7 7.1 5.5 19
SAIL SELL 82 55 (33) 338 4.2 4,130 30 7 7 208 (75) (13) 3 11 13 2.4 6.1 6.0 0.6 0.6 0.6 25 6 5 4.1 4.1 4.1 33
Tata Steel REDUCE 110 102 (7) 1,344 16.8 12,224 33 20 11 363 (39) (48 ) 3 5 10 2.9 4.1 5.4 1.2 1.0 0.9 43 20 9 46.3 2.7 1.1 117
Vedanta REDUCE 262 230 (12) 974 12.2 3,717 53 39 33 59 (25) (16) 5 7 8 3.0 3.8 4.2 1.5 1.6 1.5 31 23 19 17.2 19.5 8 .3 56
Metals & Mining Cautious 7,303 91.5 128.5 (39.3) (15.0) 5.3 8.7 10.2 3.7 5.2 5.6 1.5 1.3 1.2 27.8 15.5 12.2 13.5 5.7 3.5 387
KOTAK INSTITUTIONAL EQUITIES RESEARCH

Source: Company, Bloomberg, Kotak Institutional Equities estimates

KOTAK ECONOMIC RESEARCH 67

 Kotak Institutional Equities: Valuation summary of KIE Universe stocks

India Daily Summary - August 22, 2022

Price (Rs) Fair Value Upside Mkt cap. O/S shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) ADVT-3mo
Company Rating 19-Aug-22 (Rs) (%) (Rs bn) (US$ bn) (mn) 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E (US$ mn)
Oil, Gas & Consumable Fuels
KOTAK INSTITUTIONAL EQUITIES RESEARCH

BPCL SELL 338 245 (28 ) 734 9.2 2,093 42 (43) 6 (37) (203) 114 8 NM 56 5.3 (15.9) 13.0 1.4 1.6 1.6 17 NM 3 4.7 (4.9) 0.7 19
Coal India REDUCE 217 225 4 1,338 16.8 6,163 28 35 22 37 25 (38 ) 8 6 10 7.0 4.3 8 .1 3.1 2.5 2.5 44 45 25 7.8 9.2 9.2 30
HPCL SELL 264 165 (37) 374 4.7 1,419 44 (79) 12 (45) (279) 115 6 NM 22 8 .2 (9.5) 17.8 1.0 1.4 1.3 17 NM 6 5.3 - 1.8 16
IOCL SELL 72 55 (24) 1,019 12.8 9,18 1 26 (37) 14 2 (240) 137 3 NM 5 3.8 (7.3) 5.8 0.5 0.7 0.6 20 NM 12 17.5 - 9.4 18
Oil India SELL 18 9 150 (21) 205 2.6 1,08 4 35 29 31 241 (18 ) 9 5 7 6 5.8 6.3 5.6 0.7 0.6 0.6 14 10 10 7.5 6.1 6.6 16
ONGC SELL 135 105 (22) 1,693 21.2 12,58 0 38 32 31 205 (15) (3) 4 4 4 2.9 2.7 2.6 0.7 0.6 0.6 20 15 13 7.8 9.3 9.6 59
Reliance Industries BUY 2,614 2,98 0 14 16,596 208 .0 6,352 91 113 135 26 24 19 29 23 19 15.8 11.6 9.7 2.1 2.0 1.8 8 9 10 0.3 0.3 0.3 268
Oil, Gas & Consumable Fuels Neutral 21,959 275.2 36.0 (50.0) 89.6 13.2 26.5 14.0 8.6 11.4 7.4 1.6 1.6 1.5 12.5 6.0 10.5 2.2 1.4 2.0 426
Pharmaceuticals
Aurobindo Pharma ADD 569 630 11 334 4.2 58 6 45 46 51 (19) 3 12 13 12 11 7 7 6 1.4 1.3 1.2 11 10 10 0.8 1.9 2.3 14
Biocon REDUCE 308 325 5 370 4.6 1,202 6 9 14 (2) 47 50 50 34 23 20 15 11 3.9 3.6 3.1 8 10 14 - 1.0 1.5 9
Cipla BUY 1,030 1,215 18 8 31 10.4 8 06 31 41 53 5 33 29 33 25 19 18 14 11 3.9 3.5 3.1 12 14 16 0.5 0.8 1.0 20
Divis Laboratories REDUCE 3,696 3,475 (6) 98 1 12.3 265 112 96 105 49 (14) 9 33 38 35 25 27 24 8 .4 7.3 6.5 25 19 18 0.5 0.9 1.0 28
Dr Reddy's Laboratories ADD 4,204 4,520 8 700 8 .8 166 18 8 198 256 20 5 29 22 21 16 15 13 10 3.6 3.1 2.7 16 15 16 0.6 0.8 0.8 29
Gland Pharma REDUCE 2,412 2,325 (4) 397 5.0 164 74 73 88 21 (1) 21 33 33 27 24 25 20 5.5 4.7 4.0 17 14 15 — — — 12
Laurus Labs REDUCE 58 2 510 (12) 313 3.9 536 15 24 25 (16) 53 7 38 25 23 23 15 14 9.3 6.8 5.2 25 27 23 — — — 10
Lupin ADD 68 9 700 2 313 3.9 450 24 18 37 (13) (25) 108 29 39 19 14 14 9 2.5 2.4 2.2 9 6 12 — 0.4 0.8 11
Sun Pharmaceuticals ADD 901 1,040 15 2,163 27.1 2,406 33 34 40 32 4 19 28 27 22 20 18 15 4.5 4.0 3.5 17 15 15 1.0 0.8 0.9 36
Torrent Pharmaceuticals ADD 1,543 1,600 4 522 6.5 338 37 43 54 1 15 27 41 36 28 22 18 15 8 .8 7.3 6.0 21 20 21 1.3 0.5 0.6 8
Pharmaceuticals Neutral 6,923 86.8 13.1 7.0 23.9 28.7 26.8 21.6 18.0 15.9 12.8 4.3 3.8 3.3 14.8 14.0 15.2 0.5 0.5 0.6 177
Real Estate
Brigade Enterprises BUY 500 565 13 115 1.4 230 3 14 15 249 302 7 143 36 33 20 11 9 4.0 3.6 3.3 3 11 10 0.5 0.5 0.5 2
Brookfield India Real Estate Trust ADD 337 335 (1) 113 1.4 335 8 8 14 88 (6) 77 41 44 25 26 17 15 1.1 1.3 1.3 3 3 5 5.0 4.0 4.6 0
DLF BUY 374 410 10 925 11.6 2,475 6 9 18 41 40 103 60 43 21 55 50 31 2.5 2.4 2.2 4 6 11 0.5 0.5 0.5 24
Embassy Office Parks REIT ADD 366 405 11 347 4.3 948 9 11 13 27 18 19 39 33 28 19 17 14 1.3 1.4 1.5 3 4 5 6.0 5.7 6.7 6
Godrej Properties SELL 1,365 1,310 (4) 379 4.8 278 13 35 41 28 5 175 17 108 39 33 28 8 97 263 4.4 3.9 3.5 4 11 11 — — — 13
Macrotech Developers BUY 1,096 1,320 20 528 6.6 48 2 25 36 54 97 43 52 44 31 20 30 23 15 4.4 3.8 3.2 14 13 17 — — — 7
Mindspace REIT ADD 368 38 0 3 218 2.7 593 9 11 13 65 28 23 43 34 27 19 17 15 1.4 1.4 1.4 3 4 5 5.2 5.6 6.1 0
Oberoi Realty ADD 962 950 (1) 350 4.4 364 29 40 45 41 37 13 33 24 21 31 19 13 3.4 3.0 2.6 11 13 13 0.2 0.2 0.2 8
Phoenix Mills BUY 1,390 1,405 1 248 3.1 179 17 40 52 471 127 31 80 35 27 35 16 12 3.8 3.4 3.1 5 10 12 0.2 0.2 0.3 4
Prestige Estates Projects BUY 455 560 23 18 2 2.3 401 9 18 30 2,615 107 68 53 26 15 13 11 8 2.0 1.9 1.7 4 8 12 0.3 0.3 0.3 3
Sobha BUY 715 880 23 68 0.8 95 12 44 50 84 258 13 58 16 14 10 7 6 2.7 2.4 2.1 5 16 15 1.0 1.0 1.0 4
Sunteck Realty BUY 469 540 15 69 0.9 140 2 18 20 (53) 889 13 262 27 23 79 20 18 2.4 2.2 2.0 1 9 9 0.2 0.2 0.2 4
Real Estate Attractive 3,542 44.4 96.6 59.9 45.3 53.3 33.3 22.9 29.5 21.2 15.9 2.5 2.4 2.2 4.7 7.1 9.7 1.3 1.3 1.4 75
Retailing
Aditya Birla Fashion and Retail BUY 28 4 38 0 34 266 3.3 965 (1) 5 7 86 541 30 NM 56 43 25 14 11 9.6 6.8 4.7 NM 14 13 — — — 8
Avenue Supermarts SELL 4,38 2 3,650 (17) 2,8 39 35.6 648 23 39 49 35 69 28 192 114 89 113 72 56 20.8 17.5 14.6 11 17 18 — — — 23
Titan Company ADD 2,441 2,600 7 2,167 27.2 888 25 34 42 131 36 22 96 71 58 65 46 38 23.2 19.1 15.8 27 30 30 0.3 0.5 0.6 46
Vedant Fashions SELL 1,18 6 1,075 (9) 28 8 3.6 248 13 16 19 137 30 15 93 72 62 57 43 37 27.2 21.5 17.2 29 33 31 — — — 2
Retailing Neutral 5,272 69.7 168.4 64.1 25.0 141.2 86.0 68.8 74.4 49.2 40.1 20.7 16.9 13.6 14.7 19.6 19.7 0.1 0.2 0.2 79

Source: Company, Bloomberg, Kotak Institutional Equities estimates

68 KOTAK ECONOMIC RESEARCH

68
 Kotak Institutional Equities: Valuation summary of KIE Universe stocks
Price (Rs) Fair Value Upside Mkt cap. O/S shares EPS (Rs) EPS growth (%) P/E (X) EV/EBITDA (X) P/B (X) RoE (%) Dividend yield (%) ADVT-3mo
69

Company Rating 19-Aug-22 (Rs) (%) (Rs bn) (US$ bn) (mn) 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E 2022 2023E 2024E (US$ mn)
Specialty Chemicals
Aarti Industries SELL 8 15 730 (10) 295 3.7 363 22 23 29 48 4 29 38 36 28 24 22 18 5.0 4.4 3.9 17 13 15 0.4 0.3 — 8
Atul SELL 9,151 8 ,020 (12) 270 3.4 30 204 250 307 (8 ) 23 23 45 37 30 30 25 20 6.1 5.4 4.7 15 16 17 0.3 0.3 0.5 4
Castrol India BUY 115 130 13 114 1.4 98 9 8 9 10 27 14 12 15 13 12 9 8 8 6.9 6.8 6.5 50 52 57 4.8 7.4 7.8 1
Clean Science & Technology REDUCE 1,745 1,630 (7) 18 5 2.3 106 22 26 33 15 20 27 81 68 53 62 48 39 24.1 18 .5 14.3 35 31 30 0.2 0.2 0.3 3
Navin Fluorine ADD 4,295 4,300 0 213 2.7 50 52 70 111 18 33 60 82 62 39 60 43 27 11.5 10.0 8 .2 15 17 23 0.3 0.3 0.4 11
Pidilite Industries REDUCE 2,721 2,450 (10) 1,38 3 17.3 508 24 33 43 6 38 29 115 83 64 75 55 44 21.6 18 .9 16.2 20 24 27 0.4 0.6 0.6 13
PI Industries ADD 3,321 3,270 (2) 504 6.3 152 56 77 96 12 39 25 60 43 34 43 32 26 8 .2 7.0 6.0 15 18 19 0.2 0.3 0.4 10
S H Kelkar and Company BUY 143 175 22 20 0.2 138 12 9 11 21 (21) 23 12 16 13 12 9 8 2.0 1.8 1.7 16 12 14 1.7 2.3 3.0 0
SRF BUY 2,455 2,660 8 728 9.1 296 64 81 94 55 27 17 39 30 26 24 19 16 8 .5 6.8 5.5 24 25 23 0.4 0.4 0.5 20
Vinati Organics ADD 2,199 2,305 5 226 2.8 104 34 44 63 29 31 42 65 50 35 52 38 27 12.4 9.7 8 .0 21 22 25 0.3 0.3 0.6 2
Specialty Chemicals Attractive 3,938 49.4 25.2 25.2 24.8 55.6 44.4 35.6 36.8 29.5 23.9 10.2 8.7 7.4 18.4 19.7 20.8 0.5 0.6 0.7 72
Telecommunication Services
Bharti Airtel BUY 732 8 30 13 4,208 52.7 5,759 5 23 41 191 38 5 76 154 32 18 9 7 5 6.2 5.2 4.0 4 18 25 0.4 0.5 0.8 64
Indus Towers ADD 197 215 9 530 6.6 2,695 21 17 22 4 (22) 31 9 12 9 4 4 4 2.4 2.2 1.9 30 19 23 5.6 4.1 5.3 10
Vodafone Idea RS 9 — — 28 3 3.5 32,119 (9) (8 ) (8 ) NM NM NM NM NM NM 13 12 11 (0.5) (0.3) (0.2) 57 36 24 — — — 14
Tata Communications ADD 1,125 1,150 2 321 4.0 28 5 53 59 55 21 11 (7) 21 19 21 9 9 8 34.6 16.1 11.1 28 8 114 64 1.8 2.0 1.9 9
Telecommunication Services Attractive 5,341 66.9 8 59 191 NM NM 77.9 9.1 7.9 6.3 19 29 21 NM NM 27 0.9 0.9 1.3 97
Transportation
Adani Ports and SEZ REDUCE 8 72 8 10 (7) 1,8 42 23.1 2,157 27 33 41 35 24 22 33 26 22 22 17 14 4.9 4.3 3.6 17 17 18 0.6 0.0 0.4 38
Container Corp. ADD 68 3 730 7 416 5.2 609 17 24 31 81 35 30 39 29 22 22 18 14 3.9 3.5 3.2 10 13 15 — 0.7 1.3 15
Gateway Distriparks BUY 70 95 35 35 0.4 500 4 4 5 (41) 0 17 16 16 13 11 8 7 2.1 1.9 1.7 14 13 14 1.1 1.1 1.1 -
GMR Infrastructure BUY 35 43 24 210 2.6 6,036 (0) (1) (2) 58 (152) (50) NM NM NM 21 25 18 (25.7) (16.2) (10.0) 20 61 57 — — — 5
Gujarat Pipavav Port BUY 85 108 28 41 0.5 48 3 4 5 6 (9) 31 15 21 16 14 8 7 6 2.0 2.0 2.0 10 13 15 4.7 6.1 6.9 1
InterGlobe Aviation BUY 1,970 2,710 38 759 9.5 38 3 (161) 80 132 (12) 149 65 NM 25 15 116 6 4 (12.5) (25.3) 4.3 207 NM NM — — — 17
Mahindra Logistics ADD 497 540 9 36 0.4 71 6 11 19 18 91 71 83 43 25 19 13 10 6.0 5.4 4.7 7 13 20 — — — 1
Transportation Attractive 3,339 41.9 196.8 1,225.5 33.0 382.5 28.9 21.7 24.8 13.0 10.2 7.2 5.9 4.8 1.9 21 22 0.4 0.2 0.5 78
KIE universe 195,704 2,452 39.7 0.1 28.3 25.1 25.1 19.6 13.3 13.5 11.0 3.4 3.1 2.8 13.6 12.5 14.2 1.7 1.5 1.7

Notes:
(a) We have used adjusted book values for banking companies.
(b) 2022 means calendar year 2021, similarly for 2023 and 2024 for these particular companies.
(c) Exchange rate (Rs/US$)= 79.78

India Daily Summary - August 22, 2022

Source: Company, Bloomberg, Kotak Institutional Equities estimates
KOTAK INSTITUTIONAL EQUITIES RESEARCH

KOTAK ECONOMIC RESEARCH 69

Disclosures

Kotak Institutional Equities Research coverage universe

Distribution of ratings/investment banking relationships
Percentage of companies covered by Kotak Institutional
70%
Equities, within the specified category.

60%
Percentage of companies within each category for which Kotak
Institutional Equities and or its affiliates has provided
50%
investment banking services within the previous 12 months.

40% * The above categories are defined as follows: Buy = We expect

34.8%
31.7% this stock to deliver more than 15% returns over the next 12
30% months; Add = We expect this stock to deliver 5-15% returns
over the next 12 months; Reduce = We expect this stock to
18.1% deliver -5-+5% returns over the next 12 months; Sell = We
20% 15.4% expect this stock to deliver less than -5% returns over the next
12 months. Our target prices are also on a 12-month horizon
10% basis. These ratings are used illustratively to comply with
4.8% 4.0%
1.3% 1.8% applicable regulations. As of 30/06/2022 Kotak Institutional
Equities Investment Research had investment ratings on 227
0%
equity securities.
BUY ADD REDUCE SELL

Source: Kotak Institutional Equities As of June 30, 2022

Ratings and other definitions/identifiers

Definitions of ratings

BUY. We expect this stock to deliver more than 15% returns over the next 12 months.

ADD. We expect this stock to deliver 5-15% returns over the next 12 months.

REDUCE. We expect this stock to deliver -5-+5% returns over the next 12 months.

SELL. We expect this stock to deliver <-5% returns over the next 12 months.

Our Fair Value estimates are also on a 12-month horizon basis.

Our Ratings System does not take into account short-term volatility in stock prices related to movements in the market. Hence, a particular Rating may not
strictly be in accordance with the Rating System at all times.

Other definitions

Coverage view. The coverage view represents each analyst’s overall fundamental outlook on the Sector. The coverage view will consist of one of the following
designations: Attractive, Neutral, Cautious.

Other ratings/identifiers

NR = Not Rated. The investment rating and fair value, if any, have been suspended temporarily. Such suspension is in compliance with applicable regulation(s)
and/or Kotak Securities policies in circumstances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic transaction
involving this company and in certain other circumstances.

CS = Coverage Suspended. Kotak Securities has suspended coverage of this company.

NC = Not Covered. Kotak Securities does not cover this company.

RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and fair value, if any, for this stock, because there is not a sufficient
fundamental basis for determining an investment rating or fair value. The previous investment rating and fair value, if any, are no longer in effect for this stock
and should not be relied upon.

NA = Not Available or Not Applicable. The information is not available for display or is not applicable.

NM = Not Meaningful. The information is not meaningful and is therefore excluded.

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