November 3, 2015
Result Update
Near term growth visibility remains muted…
• Reported rating revenues were at | 77.7 crore vs. | 82.9 crore expected. Traction was lower at 5% YoY compared to higher traction seen in Q1FY16. On a QoQ basis, traction was higher at 62% owing to large part of surveillance fee income being booked in Q2
• Lower-than-expected revenue traction can be attributed to lower traction in the bank loan rating segment owing to subdued banking system credit growth. Further, stagnation in SME rating revenues continued due to MSME ministry lowering budgetary allocation for subsidising rating fees of SMEs
• Other income was muted at | 2.2 crore due to lower investible surplus and also most investments in FMPs are for a tenure of three years, income on which will be booked on maturity
• EBITDA came in at | 55.7 crore while the EBIDTA margin was at 71.3%. PAT was at | 37.9 crore (down 28% YoY) vs. | 42.6 crore estimated. It declared interim dividend of | 6 per share
Second largest rating company
CARE, the second largest rating company by market share, is a pure play on the rating business with ~99% (| 257 crore) of its FY15 core revenue generated from the rating segment. The highlight of CARE’s business is its best-in-class EBITDA margin of 60%+ & PAT margin of 50%+. The business model is asset light with not much capex (| 10-15 crore) while it generates strong operating cash flow. Post its listing, the dividend payout ratio improved from 30% (FY12) to 63% (FY14), which can grow to 72% by FY17E. PAT traction has moderated with bank credit growth slowdown impacting rating revenues. An upturn in capex cycle and development of bond market is required for healthy revenue traction. We have factored in PAT CAGR of 8% (vs. 11% earlier) in FY15-17E to | 165 crore.
Exhibiting capability to grow relatively faster since 2008
In 1993, CARE was the third credit rating agency (CRA) to be incorporated in India. However, it gained significant ground to become second largest CRA by revenue post FY09. It clocked 50% revenue CAGR in FY08-11 vs. 30% by peers. CARE is strong in the bank loan rating (BLR) and bond market while it has an insignificant presence in the SME space as of now. We expect it to maintain its rating revenue market share of ~29% ahead.
EBIDTA margin among best in rating industry
CARE earns best margin among rating agencies with 63% EBITDA margin and 55% PAT margin in FY15. These strong margins can be attributed to i) relatively lower employee cost ii) high proportion of large ticket bank loans & bonds (high margin) and iii) offices being largely owned saving on lease cost. While EBIDTA margin improved from 69.4% in Q2FY15 to 71.3% in Q2FY16, PAT margin was down from >50% levels to 48.4% due to lower income from investments. Margins are expected to moderate with rising focus on low margin SME business and rise in staff costs.
Revenue, PAT traction lowered; maintain BUY but revise TP lower
CARE emerged as a strong player in rating business with strong margins and improving market share with best brand recall after Crisil. The company has strong RoE of 39% for FY15, which is expected to be maintained by FY17E. We have lowered our EPS estimates over FY16 & FY17E by ~3% as we cut our rating revenues estimates and factored in lower other income. However, we are structurally positive on the rating
Credit Analysis & Research (CARE)
| 1310
Rating matrix
Rating : Buy
Target : | 1700
Target Period : 12 months
Potential Upside : 30%
What’s changed?
Target Changed from | 2000 to | 1700
EPS FY16E Changed from | 46.1 to | 45.9
EPS FY17E Changed from | 58.8 to | 56.9
Rating Unchanged
Quarterly performance
Q2FY16 Q2FY15 YoY (%) Q1FY16 QoQ (%)
Revenue 78.2 74.3 5.3 48.4 61.5
EBITDA 55.7 51.5 8.2 24.2 130.8 EBITDA (%) 71.3 69.4 187 bps 49.9 2141 bps PAT 38 52.4 (27.8) 17.4 116.9 Key financials
(%) FY14 FY15 FY16E FY17E
Revenue 265.1 300.8 297.9 356.7 EBITDA 146.6 162.1 182.1 216.6 Net Profit 128.7 140.3 133.0 165.0 EPS 44.4 48.4 45.9 56.9 Valuation summary
FY14 FY15 FY16E FY17E
P/E 27.0 24.8 26.1 21.1 Target P/E 43.6 40.0 42.2 34.0 Mcap to sales 15.1 13.5 12.2 10.5 Dividend yield 2.7 7.7 2.7 4.0 Price/BV 7.2 9.6 8.9 8.3 RoE 26.6 38.9 33.9 39.5 Stock data
Particulars
Market Capitalization | 3816 crore
Total Debt NIL
Cash & Cash Equivalents (| Crore) | 338 crore
EBITDA Margin Q2FY16 (%) 71.0
52 week H/L (|) 1808 /1050
Equity capital 29.0
Face value | 10
DII Holding (%) 46.4
FII Holding (%) 30.2
Price performance
Return % 1M 3M 6M 12M
CARE 24.6 -2.3 -8.1 5.5
Crisil 10.8 2.1 2.0 9.3
ICRA -2.5 -7.2 -10.8 49.7
Research Analyst Kajal Gandhi [email protected] Vasant Lohiya [email protected] Vishal Narnolia [email protected]
Variance analysis
Q2FY16 Q2FY16E Q2FY15 Q1FY16 YoY (%) QoQ (%) Comments
Net Sales 78.2 82.9 74.3 48.4 5.3 61.5
On a QoQ basis revenue traction looks strong as seasonally Q2 quarter has higher surveillance income.
Expenditure
Employee Expenses 16.6 18.9 16.7 18.7 -0.7 -11.3
Employee expenses were lower QoQ as the company reduced staff to ~580 from 627. Most of the reduction was in the SME space.
As % of revenue 21.2 22.8 22.5 38.6
Other Expenses 5.9 6.7 6.0 5.6 -2.0 5.3
As % of revenue 7.5 8.1 8.1 11.5
Total Expenses 22.5 25.6 22.7 24.3 -1.1 -7.5
As % of revenue 28.7 30.9 30.6 50.1
EBITDA 55.7 57.3 51.5 24.2 8.2 130.8
EBITDA Margin 71.3 69.1 69.4 49.9 187 bps 2141 bps
EBITDA margin came in higher-than-expected, due to lower than expected expenses.
Other Income 2.2 3.4 22.7 2.9 -90.2 -24.1
Other income declined 90% from | 22.7 crore in Q2FY15 to | 2.2 crore in Q2FY16 mainly because of the rollover of sizeable investments in fixed maturity plans (FMPs). The income from these FMPs will be booked in the year of maturity
Depreciation + interest exp 1.0 1.6 1.5 1.1 -32.7 -10.9
PBT 57.0 59.1 72.8 26.0 -21.7 119.4
Taxes 19.1 16.5 20.4 8.5 -6.0 124.5 Tax was higher-than-expected
PAT 37.8 42.6 52.4 17.4 -27.8 116.9
PAT was lower than estimated largely owing to reduced revenue and lower other income
PAT Margin 48.4 51.3 70.6 36.0 -2220 bps 1236 bps
Source: Company, ICICIdirect.com Research
Change in estimates
(| Crore) Old New % Change Old New % Change
Net Sales 287 286 -0.5 334 330 -1.3
EBITDA 181 182 0.4 211 217 2.7
EBITDA Margin % 63.2 63.7 54 bps 63.1 65.6 251 bps
PAT 133 133 -0.3 170 165 -3.2
EPS 46.0 45.9 -0.3 59 57 -3.2
FY16E FY17E
Source: Company, ICICIdirect.com Research Assumptions
FY14 FY15E FY16E FY17E FY16E FY17E
Revenue growth (%) 15.4 12.1 11.1 15.4 11.7 16.3
Staff expenses to revenue (%) 26.4 27.5 27.3 26.1 27.7 27.8
Total expenses to revenue (%) 36.1 37.0 36.3 34.4 36.8 36.9
EBITDA growth (%) 9.5 10.5 12.4 18.9 12.0 16.3
EBITDA margin (%) 63.9 63.0 63.7 65.6 63.2 63.1
Tax rate (%) 28.3 29.6 29.6 30.6 29.6 30.6
PAT growth (%) 13.5 9.1 -5.2 24.1 -5.0 27.8
PAT margin (%) 56.1 54.6 46.5 50.0 46.4 51.0
Current Earlier
Company Analysis
Gaining market share
Almost entire revenue of CARE is derived from the rating business unlike Crisil and Icra that derive 37% and 58%, respectively, from the rating business.
Within the rating business, CARE is mainly active in the bank loan rating (BLR) segment (60% of fresh debt volume rated, 63% of the fresh assignments and ~52% of rating revenues in FY15) followed by corporate debt rating (CDR). It is still at a very nascent stage in SME rating. Going ahead, we expect the BLR and bond market segment to drive overall rating revenue growth. SME segment expected to be muted in FY16E owing to reduction in budgetary allocation towards subsidising rating fees of SME’s to | 26 crore from | 85 crore earlier.
In terms of rating revenues, the company remained the third largest rating agency for most years since its incorporation. However, implementation of Basel II guidelines in FY08 helped in increasing rating volumes for rating agencies, in general, and proved to be a game changer for CARE, in particular. In the past six years, CARE has outpaced the industry in terms of rating revenue CAGR. It witnessed a CAGR of 28% over FY08-14 vs. 22% for all three rating companied combined.
Exhibit 1:CARE consistently second largest rating agency by revenue since FY09
52.1 90.5
130.1
188.8
238.9
284.1 326.0
396.4 413.9
445.0
24.8
178
31.3
88.5
139.5 182.3
21.0 52
97 138
171
199 229
257
38.9
60.3 106.1 129.1
149.6 164.3
0 50 100 150 200 250 300 350 400 450 500
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
(|
cr
or
e)
Crisil CARE Icra CARE climbs to second spot in terms of revenue market share
CARE has grown at 35% CAGR while Crisil and Icra have grown at 30% CAGR and 23% CAGR, respectively, over FY06-14
Source: Company, ICICIdirect.com Research
Exhibit 2:CARE has been gaining market share; expect it to maintain its second slot
50.8 49.6 48.6 50.7 53.2 51.4 50.3
23.8 22.1 22.1 21.7 20.1 20.4 20.6
25.4 28.3 29.2 27.7 26.7 28.2 29.1
0.0 20.0 40.0 60.0 80.0 100.0 120.0
FY09 FY10 FY11 FY12 FY13 FY14 FY15
(%
)
Crisil (Ratings business) Icra CARE
Source: Company, ICICIdirect.com Research CARE is mainly active in the BLR segment. It derives 60%
of fresh debt volume rated, 63% of the fresh assignments and ~52% of rating revenues from the BLR segment
Quarterly revenue performance
Exhibit 3:Rating revenue traction reduced in Q2FY16; expect 13% CAGR over FY15-17E
96.1 137.6
169.7 176.8197.3 226.9
42.7 74.3 62.4 77.9 257.2 48.4 78.2 285.9 330.0 0 50 100 150 200 250 300 350 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 Q1F Y15 Q2F Y15 Q3F Y15 Q4F
Y15 FY15
Q1F Y16 Q2F Y16 FY 16 E FY 17 E (| Cro re ) -10 0 10 20 30 40 50 60 70 80 90 100 (% )
Rating revenues Growth (RHS)
Source: Company, ICICIdirect.com Research
During Q2FY16, volume in BLR was up 6%YoY to | 124000 crore while the same in debt market instruments stood at | 97000 crore, up 31.1% YoY. Overall volume of debt rated was up 13.7% YoY to | 241000 crore n Q2FY16. However, the same traction was reflected in rating revenue which stood at | 78.2 crore, up 5% YoY. The non linearity in the traction of volume rated and rating revenues is due to “fee cap” on certain clients which are charged at particular fixed rate irrespective of increase in volumes.
CARE’s SME segment is low compared to peers (comprising ~5.5% of revenue). Though the company was focused on improving the SME rating revenue proportion by increasing the locations and hiring employees, we believe the segment’s contribution would decline, going ahead. This is due to a reduction in budgetary allocation towards subsidising rating fees of SMEs to | 26 crore from | 85 crore earlier by the MSME ministry. Going ahead, expect revenue traction of 13% CAGR over FY15-17E
As stated above, the company has grown its rating revenues at 26% CAGR to | 257 crore over FY08-15. However, growth has moderated considerably in the past three years at 13% CAGR during FY12-15 in line with the slowdown in the economy and credit growth.
Overall, rating revenues of CARE are estimated to grow at 13% CAGR to | 330 crore over FY15-17E. The focus would be on expanding the CDR segment whose proportion in terms of volumes of debt rated and rating revenue would increase. However, the BLR segment would continue to remain the key segment for at least the next few years.
This is owing to expected improvement in GDP growth and likely decline in interest rates that may lead to improved volume traction than witnessed in the past two or three years in both BLR and CDR segments. PAT margins to moderate but to continue to stay best in class….
Limited competition in the rating industry and pricing power enable rating agencies to earn healthy margins. Even among rating agencies, CARE has managed to earn superior EBITDA margins of ~63% and PAT margin of 50%+.
Going ahead, we are factoring in a dip in PAT margin from 54.6% in FY15 to 50% by FY17E. This is due to the lower other income expected in FY17E.
Going ahead, with the expected improvement in GDP growth and likely decline in interest rates, we believe the volume traction in both BLR as well as CDR segment should be better than that witnessed in the past two or three years
Among rating agencies, CARE has managed to earn superior EBITDA margins of ~63% and PAT margin of 50%+
Exhibit 4:Although dipping margin look lucrative
73.7 79.0 79.6
76.4
69.2 67.4
63.9 63.0 63.7 65.6 51.0
56.8 63.2
53.2 60.4
57.0 56.1 54.6
46.5 50.0 30
40 50 60 70 80 90
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E
(%
)
EBITDA margin PAT margin
Source: Company, ICICIdirect.com Research EBITDA growth to remain healthy
In the past four years, owing to a substantial decline in EBITDA margin from 76% in FY11 to 63% by FY15, the EBITDA traction fell to 6% over FY11-15. Going ahead, we expect it to grow at 16% CAGR to | 217 crore over FY15-17E largely reflecting an improvement in the topline growth. For Q2FY16, the calculated EBIDTA margin improved from 69.4% to 71.3% YoY.
Exhibit 5:EBITDA growth to be healthy
76.9
109.8 130.5 123.2
133.9 146.6
162.1 182.1 216.6 99.9
42.7 18.8
-5.6
8.7 9.5 10.5 12.4 18.9
0 50 100 150 200 250
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E
(|
cr
or
e)
-20 0 20 40 60 80 100 120
(%
)
EBITDA EBITDA growth (RHS)
Source: Company, ICICIdirect.com Research
SME segment may be additional leg up in long run but to remain subdued near term SME remains the growth area but is a low ticket size and low margin business. However, it is mainly the volume business for CRAs. At present, merely ~1,00,000 SMEs among 3 crore SMEs has been rated in India. Hence, the current penetration is very low at ~0.3%.
In the SME rating space, Crisil is the leader. It rated ~12,857 SME instruments in FY14 compared to 1407 by CARE and 1563 by Icra.
An SME rating does not contribute much to the overall revenues of CARE at present. It has begun investing in manpower but is yet to enter the SME market at full throttle.
Earlier in Q3FY15, the management reiterated about its focus on strengthening the SME rating segment. The company is present in 80 locations across the country and had plans to reach to 150 locations in Going ahead, we expect EBITDA to grow at 16% CAGR to
the next two or three years with revenue from SME rating segment to rise to ~20% of total revenue over next few years from 7-8% currently.
However, Q4FY15 proved to be dampener from the SME segment side owing to a reduction in MSME ministry’s allocation towards subsidising rating fees by SME as explained earlier. Hence, we believe in the medium term the contribution from the SME segment may remain muted. Even H1FY16 continued the same trend of lower SME business.
Enjoys healthy operating cash flows
Owing to the nature of its business, the capex requirement in the rating business is very low. In the past three years, CARE has incurred a capex of ~| 16 crore. To enhance revenue, the major expenses incurred, if required, are for increasing the employee strength (the cost of which is managed well by CARE compared to its peers) rather than for any major capex. Hence, CARE enjoys healthy operating cash flows. As on FY15, on a gross block of | 69 crore, CARE garnered revenues of | 257 crore and PAT of | 140 crore.
Potential for return ratios to scale up higher
With limited capital requirement, the incremental profit growth is expected to further enhance return ratios. As discussed earlier, the dividend payout ratio is also expected to improve to ~73-74% by FY17E, aiding the improvement in return ratios. We expect CARE to report a RoE of 34% in FY16E and 39.5% in FY17E.
The company has a cash and investment pile of >| 300 crore, which may be utilised for acquisition, buyback or returned to shareholder in the form of dividend. The optimum utilisation of this investment pile is key to generate return ratios and shareholder returns from a long term perspective.
Exhibit 6:Return ratios to improve, going ahead
31.5
40.4 39.8
30.0 28.5 26.7
26.6 38.9
33.9 39.5 43.8
54.6 49.1
42.0
31.9 30.7 29.4
43.2 44.9
50.4
0 10 20 30 40 50 60
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E
(%
)
RoE RoCE
Source: Company, ICICIdirect.com Research
CARE earns decent return ratios with RoCE of 44% and RoE of 39% as on FY15, which are higher than Icra and lower than Crisil. From a long-term perspective, CARE has huge potential to improve its return ratios significantly as and when growth improves. Currently, the credit growth in the economy is sluggish and in line with modest GDP growth. As the economy revives, the credit and debt market volume levels would pick up, the impact of which would be reflected in improving sales and profit traction of CARE. As the business is asset light in nature, the major chunk of higher profits is expected to flow to shareholders in the form of dividend, thereby improving the return ratios significantly.
CARE generates strong operating cash flow of > | 100 crore+ while on an average its capex is merely | 4-5 crore each year
We estimate the return ratios to be maintained at healthy levels
Valuation
CARE has emerged as a strong player in the rating business with strong margins and improving market share with best brand recall after Crisil. Currently, CARE is trading at ~35% discount to the consolidated business of Crisil and Icra. The company has strong RoE of 39% for FY15. We have lowered our EPS estimates as we cut the rating revenues and factor in lower other income. However, we are structurally positive on the rating business over the next three to five years. We maintain the target multiple of around 30x FY17E EPS but reduce the target price to | 1700 as we reduce our FY17E EPS by ~3%. Maintain BUY.
CARE’s major shareholders are Indian banks and financial institutions with no foreign partner compared to its other listed peers. Any interest on part of a strategic investor in the company would be an upside risk to our call.
Exhibit 7:DuPont analysis; RoE expected to improve
(%) FY13 FY14 FY15 FY16E FY17E
PAT/Sales 57.0 56.1 54.6 46.5 50.0 Sales/Asset 46.5 47.0 70.8 72.6 78.8 Asset/Equity 100.9 100.8 100.8 100.5 100.2 ROE 26.7 26.6 38.9 33.9 39.5 Source: Company, ICICIdirect.com Research
Prospects for the rating business remain benign and CARE has proved its ability to gain market share in the rating segment along with maintaining best-in-class margins. Hence, we remain bullish on the stock from a long term perspective.
Company snapshot 0 500 1,000 1,500 2,000 2,500 De c-12 Feb -1 3 Ap r-1 3 Ju n-13 Au g-13 Oc t-13 De c-13 Feb -1 4 Ap r-1 4 Ju n-14 Au g-14 Oc t-14 De c-14 Feb -1 5 Ap r-1 5 Ju n-15 Au g-15 Oc t-15 De c-15 Feb -1 6 Ap r-1 6 Ju n-16
Target price: | 1700
Source: Bloomberg, Company, ICICIdirect.com Research Key Events
Date Event
FY05 Signs MoU with NSIC as approach rating agency for SSIs
FY06 Launches new products such as rating of SMEs, SSIs, mutual funds, issuer rating and IPO grading FY07 Develops grading methodolgy for infra projects, ultra mega power projects
FY08 Executes MoUs with 19 banks to provide rating facilities under Basel II framework
FY10 Establishes CARE Knowledge Centre at Ahmedabad. Commences providing technical assistance to rating agency in Ecuador FY11 Acquires license to operate in Maldives. Launches new products including equigrade, ESCO grading, etc.
FY12 Acquires 75.1% stake in Kalypto Technologies
FY12 Acquires indirect recognition as an external credit assessment institution from Hong Kong Monetary Authority FY13 Comes out with IPO at | 750 with objective to provide exit to existing investors
FY15 Pays dividend of | 71 in H1FY15 (| 65 per share special dividend in Q2FY15) Source: Bloomberg, Company, ICICIdirect.com Research
Top 10 Shareholders Shareholding Pattern
Rank Name Latest Filing Date % O/S Position (m) Change (m)
1 Life Insurance Corporation of India 30-Jun-15 9.94 2.9 0.0
2 Canara Bank Ltd 20-Oct-15 9.48 2.8 0.0
3 Franklin Templeton Asset Management (India) Pvt. Ltd. 30-Jun-15 7.14 2.1 0.4
4 Franklin Advisers, Inc. 31-Jul-15 6.03 1.8 0.0
5 IDBI Bank Ltd 30-Jun-15 5.21 1.5 -0.2
6 State Bank of India 30-Jun-15 5.19 1.5 0.2
7 Reliance Capital Asset Management Ltd. 30-Sep-15 3.51 1.0 0.0
8 Bajaj Group of Industries 30-Jun-15 3.46 1.0 0.0
9 Norges Bank Investment Management (NBIM) 30-Jun-15 3.10 0.9 0.0
10 Russell Investments 30-Jun-15 1.83 0.5 0.0
(in %) Sep-14 Dec-14 Mar-15 Jun-15 Sep-15
Promoter 0.0 0.0 0.0 0.0 0.0
FII 25.7 29.0 31.2 31.3 30.2
DII 49.7 47.7 45.5 44.7 46.4
Others 24.6 23.3 23.3 24.0 23.5
Source: Reuters, ICICIdirect.com Research Recent Activity
Investor name Value Shares Investor name Value Shares
HDFC Standard Life Insurance Company Limited 8.33m 0.38m BNP Paribas Investment Partners Asia Ltd. -11.81m -0.49m Franklin Templeton Asset Management (India) Pvt. Ltd. 7.98m 0.36m Goldman Sachs Asset Management (Singapore) Pte. Ltd. -4.14m -0.20m
Macquarie Funds Management Hong Kong Ltd. 7.05m 0.30m IDBI Bank Ltd -2.63m -0.19m
State Bank of India 3.24m 0.15m Driehaus Capital Management, LLC -2.50m -0.14m
Morgan Stanley Investment Management Inc. (US) 1.83m 0.10m Mellon Capital Management Corporation -0.81m -0.05m
Buys Sells
.
Financial summary
Profit and loss statement | Crore
(| Crore) FY14 FY15 FY16E FY17E
Net Sales 229.5 257.2 285.9 330.0
Growth (%) 15.4 12.1 11.1 15.4
Other Income 35.7 43.6 12.1 26.7
Total Revenue 265.1 300.8 297.9 356.7
Raw Material Expenses 0.0 0.0 0.0 0.0
Employee Expenses 60.6 70.7 78.2 86.1
Marketing Expenses 0.0 0.0 0.0 0.0
Other operating expenses 22.2 24.5 25.5 27.2
Total Operating Expenditure 82.8 95.1 103.7 113.4
EBITDA 146.6 162.1 182.1 216.6
Growth (%) 9.5 10.5 12.4 18.9
Interest 0.0 1.3 0.0 0.0
PBDT 182.3 204.3 194.2 243.3
Depreciation 2.9 5.0 5.3 5.6
PBT 179.4 199.4 188.9 237.7
Total Tax 50.7 59.0 55.9 72.7
PAT 128.7 140.3 133.0 165.0
Growth (%) 13.5 9.1 -5.2 24.1
EPS 44.4 48.4 45.9 56.9
Source: Company, ICICIdirect.com Research
Cash Flow statement
(| Crore) FY14 FY15 FY16E FY17E
Profit after Tax 128.7 140.3 133.0 165.0
Add: Depreciation 2.9 5.0 5.3 5.6
Cash Flow before WC changes 131.6 146.6 138.3 170.6
Net Increase in Current Assets 4.7 1.7 -1.7 -4.5
Net Increase in Current Liabilities 12.3 -8.4 -10.7 12.8 Net Cash Flow from Operating Activities 148.6 139.9 125.9 178.9 (Purchase)/Sale of liquid investments -77.6 122.1 -10.0 -12.0
(Purchase)/Sale of Fixed Assets -3.2 -9.6 -4.7 -4.8
Net Cash flow from Investing Activities -80.9 111.5 -15.6 -17.8 Proceeds from issues of Equity Shares 1.9 -1.4 0.0 0.0 One time adj. in P&L Appropriation
Adj. in General Reserves 26.0 0.0 0.0 0.0
Dividend and Dividend Tax Paid -94.7 -268.8 -95.0 -139.1 Interest Paid
Net Cash flow from Financing Activities -66.8 -266.9 -101.7 -139.1
Net Cash flow 0.9 -15.5 8.6 22.0
Opening Cash / Cash Equivalent 27.4 28.4 12.9 21.5
Closing Cash / Cash Equivalent 28.4 12.9 21.5 43.5
Source: Company, ICICIdirect.com Research
Balance sheet | Crore
(| Crore) FY14 FY15 FY16E FY17E
Liabilities
Equity Capital 29.0 29.0 29.0 29.0
Reserve and Surplus 455.3 331.4 363.0 388.8
Total Shareholders funds 484.3 360.4 392.0 417.8
Deferred Tax Liability 3.9 2.9 2.0 1.0
Source of Funds 488.2 363.4 394.0 418.9
Assets
Total Gross Block 64.6 75.1 79.9 84.7
Less: Accumulated Depreciation 13.1 19.0 24.3 29.9
Net Block 51.5 56.1 55.6 54.8
Total Fixed Assets 51.5 56.2 55.6 54.8
Liquid Investments 467.7 345.6 355.6 367.6
Debtors 14.2 14.6 17.0 19.6
Loans and Advances 14.2 12.7 11.6 12.9
Other Current Assets 3.9 3.2 3.6 4.1
Cash 26.7 12.6 21.5 43.5
Total Current Assets 58.9 43.1 53.6 80.1
Creditors 1.3 1.5 1.7 2.7
Provisions 47.7 44.3 39.4 44.8
Application of funds 488.2 363.4 394.0 418.9
Source: Company, ICICIdirect.com Research
Key Ratios
FY14 FY15 FY16E FY17E
Per share data (|)
EPS 44.4 48.4 45.9 56.9
Cash EPS 45.4 50.1 47.7 58.8
BV 167.0 124.3 135.2 144.1
Operating profit per share 50.6 55.9 62.8 74.7
Cash Per Share 170.5 123.5 130.0 141.8
Operating Ratios (%)
EBITDA Margin 63.9 63.0 63.7 65.6
PAT Margin 56.1 54.6 46.5 50.0
Return Ratios (%)
RoE 26.6 38.9 33.9 39.5
RoCE 29.4 43.2 44.9 50.4
Valuation Ratios (x)
P/E 27.0 24.8 26.1 21.1
EV / EBITDA 20.3 19.2 17.0 14.1
EV / Net Sales 13.0 12.1 10.8 9.3
Sales / Equity 0.5 0.7 0.7 0.8
Market Cap / Sales 15.1 13.5 12.2 10.5
Price to Book Value 7.2 9.6 8.9 8.3
Solvency Ratios (x)
Current Ratio 0.7 0.5 0.8 1.0
Quick Ratio 0.7 0.5 0.8 1.0
ICICIdirect.com coverage universe (Banking & Financial Services)
CMP M Cap
(|) TP(|) Rating (| Cr) FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E
Bank of India (BANIND) 134 125 Sell 8,264 26 18 26 5.2 7.6 5.0 0.8 0.8 0.8 0.3 0.2 0.3 6 4 6
Bank of Baroda (BANBAR) 163 190 Hold 35,992 15 19 21 10.6 8.7 7.7 1.2 1.1 1.0 0.5 0.6 0.6 9 10 10
Punjab National Bank (PUNBAN) 131 129 Hold 23,643 17 16 19 7.9 8.3 6.8 1.1 1.0 0.9 0.5 0.5 0.5 8 8 9
State Bank of India (STABAN) 239 300 Buy 178,207 16 19 22 14.7 12.7 11.1 1.8 1.5 1.4 0.6 0.7 0.7 10 11 11
Indian Bank (INDIBA) 133 184 Buy 5,695 21 23 29 6.3 5.8 4.6 0.6 0.6 0.5 0.5 0.5 0.6 7 7 9
Axis Bank (UTIBAN) 481 600 Buy 114,178 31 35 42 15.5 13.8 11.5 2.6 2.2 1.9 1.7 1.7 1.7 18 17 17
City Union Bank (CITUNI) 90 105 Buy 5,378 6 7 8 14.0 12.7 11.0 2.2 1.9 1.7 1.4 1.4 1.5 16 15 15
Development Credit Bank (DCB) 88 92 Sell 2,277 7 6 4 12.9 15.4 21.2 1.7 1.6 1.5 1.3 0.9 0.6 15 10 7
Federal Bank (FEDBAN) 55 60 Hold 9,433 6 5 5 9.3 11.6 10.1 1.2 1.3 1.2 1.3 0.9 0.9 14 10 11
HDFC Bank (HDFBAN) 1,086 1,220 Buy 271,588 41 49 61 26.7 22.1 17.8 4.5 3.8 3.2 1.9 1.9 1.9 19 18 19
Indusind Bank (INDBA) 918 1,050 Buy 53,445 34 39 50 27.1 23.3 18.5 4.7 3.1 2.7 1.8 1.9 2.0 18 16 15
Jammu & Kashmir Bank (JAMKAS) 84 98 Hold 4,062 10 16 20 8.0 5.2 4.2 0.8 0.8 0.7 0.7 1.0 1.1 9 12 14
Kotak Mahindra Bank (KOTMAH) 688 677 Hold 125,783 14 11 13 50.4 64.6 53.6 6.0 5.7 5.2 1.5 1.0 1.0 12 9 9
South Indian Bank (SOUIN0) 21 23 Hold 2,780 2 3 3 9.0 7.6 6.6 0.9 0.9 0.8 0.5 0.6 0.6 9 10 11
Yes Bank (YESBAN) 772 850 Buy 32,344 48 57 67 16.1 13.5 11.6 2.8 2.4 2.0 1.6 1.6 1.6 21 19 19
NBFCs
LIC Housing Finance (LICHF) 485 545 Buy 24,455 27 33 41 17.6 14.5 11.8 3.2 2.5 2.1 1.3 1.4 1.4 18 19 19
Reliance Capital (RELCAP) 423 515 Buy 10,291 41 35 42 10.3 12.1 10.0 1.0 0.9 0.9 2.1 1.6 1.6 8 7 8
HDFC (HDFC) 1,222 1,410 Buy 192,770 38 43 50 32.1 28.6 24.3 6.3 5.7 5.1 2.5 2.5 2.5 20 21 22
PTC India Financial Services (PTCIND)
46 55 Buy 2,618 3 8 6 16.1 6.1 8.2 1.9 1.6 1.2 2.6 5.5 3.7 12 27 17
CARE (CARE) 1,319 1,700 Buy 3,824 48 46 57 27.3 28.8 23.2 10.6 9.8 9.2 43.2 44.9 50.4 39 34 39
Bajaj Finserv (BAFINS) 1,985 2,155 Buy 31,609 106 129 160 18.7 15.4 12.4 2.9 2.4 2.0 2.0 2.1 2.3 17 17 18
Bajaj Finance (BAJAF) 5,250 6,000 Buy 75,564 180 229 282 29.2 23.0 18.6 5.5 3.7 3.2 3.1 3.1 3.1 20 20 19
Sector / Company
RoE (%)
EPS (|) P/E (x) P/ABV (x) RoA (%)
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%; Sell: -10% or more;
Pankaj Pandey Head – Research [email protected]
ICICIdirect.com Research Desk, ICICI Securities Limited,
1st Floor, Akruti Trade Centre, Road No 7, MIDC,
Andheri (East) Mumbai – 400 093
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