1

Peerless Master Picks- October, 2019 Edition

October 4, 2019

3

October 4, 2019

ICICI Prudential Life Insurance Co. Ltd.

Rating – Accumulate | Potential Target-Rs 520 | Period- 12 months

We like IPRU’s re-engineered business model which focused on a more diversified product mix and an increasing

protection mix.

Larsen & Toubro Ltd.

Rating – Accumulate | Potential Target-Rs 1600 | Period- 12 months

L&T has consistently been delivering in terms of bagging orders, strong order execution, though with some temporary

concerns on working capital management owing to tight liquidity scenario. We believe L&T, being a strong

infrastructure play, is expected to benefit over the next few years, as the incumbent government envisages Rs. 100

lakh crore investments in infrastructure till 2024

HDFC Bank Ltd.

Rating – Accumulate | Potential Target-Rs 1350 | Period- 12 months

HDFC Bank is the largest private bank in India with the assets base of Rs 12,65,200 crore as of June 30. The retail and

wholesale lending constitute 54 percent and 46 percent of the total loan book of Rs 8,29,700 crore respectively. The

bank's distribution network was at 5,130 banking outlets. The liquidity pressure under NBFCs provides an opportunity to

gain market share for retail assets in the near to mid term. The return on equity is likely to improve by more than 60 bps

and the return on assets by 7 bps to 17.2 percent and 1.9 percent respectively in FY21 driven by income CAGR of 22

percent over the next two years.

Bajaj Finance Ltd.

Rating – Accumulate | Potential Target-Rs 4500 | Period- 12 months With the upcoming festive season and several planned online and offline mega sales events ahead, Bajaj Finance as the

best bet to play the India consumption story. We maintained that both AUM and EPS CAGRs of ~36% over FY19-21E

(after adjusting for tax cuts), backed by a solid cross-selling franchise and a high-quality sourcing mechanism. The

company's board has approved a QIP worth Rs 8,500 crore, which provides comfort over its valuations.

Key downside risks include elevated consumer leverage and prolonged rural distress.

Stock Picks in October, 2019

4

October 4, 2019

COMPANY SECTOR LTP (Rs) RATING

MARKET

CAP

(Rs BN)

POTENTIAL

TARGET

(Rs)

POTENTIAL

UPSIDE

ICICI Pru Life

Insurance Co. Ltd. Insurance-Life 458 Accumulate 670 520 14%

Larsen & Tourbo

Ltd. Infrastructure 1435 Accumulate 2049 1600 11%

HDFC Bank Ltd. Private Banking 1199 Accumulate 6685 1350 13%

Bajaj Finance Ltd. Finance 3958 Accumulate 2292 4500 14%

(Initiate price based on regular trading price as on October 4, 2019 in NSE, 1330 hrs)

(Note: All price target for next 12 months )

List of Stock Picks in October, 2019

5

SECTOR: INSURANCE-LIFE

CMP: Rs.458 Target Price: Rs.520

Period: 12 months

ICICI Prudential Life Insurance Co. Ltd Accumulate

Sector: Insurance-Life |NSE Code: ICICIPRU

Re engineered business model adds to more diversified product mix

adds scalability and edge

Since Q3FY19, the company has been trying to diversify its customer base and

has taken several initiatives in Business Growth and Product Mix. As a result of

this, the company has also witnessed a change in its product mix wherein the

share of non-linked savings has increased.

Retail business continues to dominate the product mix, contributing more than

90% of NB-APE.

The company has seen growth across product categories. Annuity and pro-

tection have grown well. Though ULIP continues to be the mainstay, its share

in the overall product mix has reduced

IPLI has a large addressable bancassurance network consisting of as many as

8,209 branches. Of this, 4,867 branches belong to parent ICICI Bank, which

exclusively sources for IPLI and does so with great cross sell culture and high

efficiency. We consider the bancassurance network of IPLI a key sustainable

competitive advantage that will serve to drive its growth for a considerable

period of time.

IPLI has the second best expense ratio among 9 key life insurer peers

IPLI has the third best persistency outcomes across time cohorts among 9 key

life insurer peers

Strong performance; VNB margins a positive surprise

1QFY20 PAT at Rs 2.8b came in marginally higher than our estimate of

INR2.7b. Gross premium was up 14.7% YoY, mainly led by robust growth in

single premiums. Group premiums grew 105% YoY to Rs 8.2b.

Total APE(Annual Premium Equivalent) grew 5.3% YoY to Rs 14.7b led by robust 88% YoY growth in Protection APE to

INR2.1b, even as Savings APE declined 2.1% YoY to Rs 12.5b. Share of Protection in total APE improved further to 14.6%

(8.2% in 1QFY19) while share of ULIPs in total APE

declined around 860bp YoY to 71.2%.

Protection mix improved to highest ever 14.6% leading to sharp increase in VNB.

VNB(Value of New Business) margins increased ~350bp YoY to 21% due to improvement in product mix, which resulted in 26.6%

YoY growth in the VNB to Rs 3.1b. Growth in the VNB was mainly led by Retail and the Group Protection business

(Management expects to double the VNB over the next 3-4 years). Thirteenth month persistency declined 140bp YoY to

84.4% (330bp YoY improvement in 61st month persistency). According to the sensitivity analysis disclosures, a 100bp change

in the interest rate could impact the VNB/EV by ~4.4%/~2.0%.

Company Data

No of Shares (Mn) 1435

Market Cap (Rs Bn) 670

52 week high (Rs) 471

52 week low (Rs) 277

6m avg. volume (NSE&BSE) 2.41 mn

Beta 0.99

Face value ( RS ) 10

Shareholding Pattern

Holder's Name

% Share

Holding as

on Jun2019

% Share

Holding as

on

Mar2019 Change %

Promoter 74.98 74.98 0

FIIs 11.48 10.08 1.40

Mutual Funds 5.67 5.92 -0.25

Insurance

Companies 0.55 0.53 0.02

Other DIIs 0.11 0.09 0.02

Non Institutional

Investors 7.21 8.4 -1.19

Source: BSE

6

Renewal premium growth was low at 7.9% YoY as large pool of policies crossed 5 year completion. While mass lapse ratio

has not increased surrender payouts increased and renewal premiums dropped.

The company reiterated its aspiration to double the FY19 VNB over the next 3-4 years on back of its four P strategy. VNB

growth in Q1FY20 was mainly attributable to improving product mix.

The company stated it is focusing on improving persistency further and is taking necessary measures. As per the company,

persistency experience continues to be better than assumptions factored into EV calculation.

The company stated that its Q1FY20 margin is based on assumptions including expense forecast for the full year. In turn,

expense forecast for the full year is the same as that experienced in FY19.

Margin expansion in FY19 over FY18, due to product mix change, was held back due to negative impact of worsening

expenses.

There is no such drag due to deterioration of expenses in Q1FY20.

Other highlights:

• The share of Banca in the distribution mix declined 320bp to 52.4%,

• Total AUM grew 15% YoY to INR1.6t with debt equity mix of 52%:48%,

• Solvency ratio stood at 217% (235% as at 1QFY19).

ULIP segment sales declined as equity market conditions remain tepid; additionally management is more focused on

protection.

Protection mix improved to highest ever 14.6% leading to sharp increase in VNB.

Reduction in cost ratios of savings business also contributed to expansion of VNB margins.

Business Metrics:

1QFY19 4QFY19 1QFY20 YOY (%) QoQ (%)

New Business Premium (Rs bn) 17.7 40.9 22.9 29.2 -44.1

Product mix on APE basis (Rs bn)

Individual Savings 12.6 21.4 12.3 -2.5 -42.5

PAR 1.4 2.3 1.4 4.4 -38

Non-PAR 0.1 0.3 0.4 238.5 57.1

ULIP 11.1 18.9 10.5 -6.1 -44.5

Group Savings 0.2 0.5 0.2 26.3 -55.6

Protection 1.1 2.6 2.1 87.7 -18

Individual Protection 0.7 2 1.4 91.7 -32.4

Group Protection 0.4 0.6 0.8 81 33.3

Total 14 24.6 14.7 5.3 -40.2

Product mix - APE Basis (%)

Individual Savings 90.5 87.2 83.8 -670bps -340bps

PAR 9.7 9.3 9.7 -10bps 30bps

Non-PAR 0.9 1.1 3 210bps 190bps

ULIP 79.8 76.7 71.2 -860bps -560bps

Group Savings 1.4 2.2 1.6 30bps -60bps

Protection 8.2 10.6 14.6 640bps 390bps

Individual Protection 5.2 8.3 9.4 420bps 110bps

Group Protection 3 2.3 5.2 220bps 290bps

Total 100 100 100

7

Risks:

PLI needs to do better on the Surrender Ratio front but has managed to make significant improvement

Persistency ratio captures all factors due to which a policy may not be ‘premium-paying’ at a given point in time including

surrender, lapse and other factors. Of these factors, surrender is a key consideration since, after surrender, the relationship

between the policyholder and insurer ends as far as the specific contract is concerned. A lapsed policy, on the other hand,

can always come back in force if a policyholder re-starts premium payment. Hence, it is important to look at the surrender

ratio metric separately, as it acutely focuses on the incidence of surrender.

The surrender ratio for IPLI at 9.8% for FY18 is in the bottom 3 among 9 key Indian life insurers. However, IPLI has turned

things around materially in 1HFY19 with its Surrender Ratio dropping to 6.9%, though it needs to do more on this front.

Outlook & Valuation:

We like IPRU’s re-engineered business model which focused on a more diversified product mix and an increasing protection

mix. Sharp increase in VNB margin (to 21%) drive up. We rate ICICIPRU to ‘ACCUMULATE’ with target price of Rs 520 in time

frame of 12 months.

8

Larsen & Tourbo Ltd. Accumulate Sector: Infrastructure |NSE Code: LT

Profitability intact with strong order book

L&T posted a robust 9.7% YoY revenue growth in 1QFY20 (at Rs 29635

crore), largely driven by Infra, Hydrocarbon and the Services business.

EBIDTA margin improved 99bps YoY to 9.74%, led by a favorable

segmental mix.

L&T registered strong order inflows of Rs 38700 crore, up 11% YoY at the

group level, predominantly led by domestic orders that grew 15.5% to Rs

29700 crore. Key drivers for order inflows were infrastructure Rs 17492

crore) and hydrocarbon segments Rs 3444 crore) and power Rs 6700

crore).

While orders from the central and state governments were impacted

during general elections, strong PSU and private sector orders enabled

growth for the quarter. The expected strong bid pipeline of Rs 8.5 lakh

crore is expected to ensure 10-12% order inflow growth in FY20E.

Reasonable performance across business verticals

The management has maintained its guidance of 12-15% revenue growth

in FY20E. During the quarter, net working capital as percentage of sales

deteriorated 200 bps to 23%, YoY, due to sluggishness of payments from

state, central governments and vendor support on account of liquidity

crunch in the system.

Ramp up in Heavy Engineering is on the back a robust opening order

backlog of Rs 47000 crore.

In Defence, 2 year old tracked artillery gun order continues to drive

revenue and margins. Large order allocation in this segment accrues to

public sector amidst slow policy changes

IT and TS segment continues to be plagued by increasing protectionist

policies and mandated localization (in the US) leading to higher staffing

costs

Infrastructure margins continued to be weak and Larsen attributed the

same to seasonal volatility and the stage of completion on individual

projects

Key Financials Indicators: \

Indicator Jun '19 Jun '18 YoY(%)

Net Sales/Income from Operations 29,635.95 27,004.77 9.74%

Extra Ordinary Items 112.08 85.38 31.27%

Net Profit/(Loss) For the Period 1,878.97 1,213.07 54.89%

Equity Share Capital 280.62 280.35 0.10%

Diluted EPS 10.5 8.65 21.39%

(Rs Crore)

Shareholding Pattern

Holder's Name

% Share Holding as on

Jun2019

% Share Holding as on

Mar2019

Change %

Promoter

0

0

0

FIIs

20.03

19

1.03

Mutual Funds

17.43

16.59

0.84

Insurance Companies

19.52

21.33

-1.81

Other DIIs

0.93

0.91

0.02

Non Institutional Investors

42.09

42.17

-0.08

SECTOR: INFRASTRUCTURE

CMP: Rs.1435

Target Price: Rs.1600

Period: 12 months

Key Stock Data

No of Shares (mn) 1403

Market Cap ( Rs bn) 2049

52 week high (Rs) 1607

52 week low (Rs) 1182.50

6m avg Volume (NSE &BSE) 3 mn

Beta 1.35

Face value ( RS ) 2

9

Key Ratio: Indicators Mar-19 Mar-18 Mar-17

EPS(Consolidated) 63.4 52.49 43.05

Net Profit Margin 7.26 7.05 6.29

P/E 39 33.4 46.6

P/BV(X) 3.12 3.31 2.94

RoE% 14.31 13.27 12.06

ROA% 3.19 3.00 2.84

Segmental Quarterly Performance: Consolidated

Segment

Q1 FY20 Q1 FY19

Net

Revenue

EBITDA EBITDA

%

Net

Revenue

EBITDA EBITDA

%

Ex-Services business:

Infrastructure Segment 13,865 881 6.40% 12,135 830 6.80%

Power Segment 561 18 3.30% 1,080 44 4.10%

Hydrocarbon Segment 3,763 285 7.60% 3,511 247 7.00%

Heavy Engineering Segment 874 171 19.50% 333 120 36.10%

Defence & Aerospace 965 160 16.50% 727 81 11.10%

E&A Segment 1,359 230 16.90% 1,279 169 13.30%

Other Segment 1,148 277 24.10% 1,342 356 26.50%

Total (ex-services) 22,535 2,021 9.00% 20,407 1,848 9.10%

Services Business:

IT & TS Segment 3,819 888 23.20% 3,324 824 24.80%

Financial Services Segment 3,462 762 22.00% 3,058 740 24.20%

Developmental Projects Segment 1,178 118 10.00% 1,494 454 30.40%

Total (Services) 8,460 1,768 20.90% 7,876 2,019 25.60%

Total 30,994 3,788 12.20% 28,283 3,867 13.70%

Less: Segment Depreciation 492 456

Less: One-time Realty Provisions - -754

Segment PBIT 3,296 2,657

(Rs in crores)

10

Strong order book continues to support growth going forward:

Order Inflow momentum sustained through PSU & Private Sector orders. Award delays slow down International Order

Inflow. Robust Order Book provides hedge against cyclicality

Broad breakup of prospect pipeline (Rs 8.4tn): Infra – Rs 5.4tn, Power T&D – Rs 1tn, Power Generation – Rs 0.5tn,

Hydrocarbon – Rs 1tn and Others – Rs 0.5tn

In 1QFY20, private orders (45% share) and PSUs (45% share) have contributed significantly to inflows while both State

and Central Govt. inflows were largely muted

Outlook:

The company continues to post strong growth on the back of its strong business model with robust order book, diverse

skill sets, strong execution capabilities and increased focus on improving return ratios by exiting non-core assets. L&T

continued its strong order inflow momentum with 11% YoY growth at Rs387700 crore in 1QFY20 (FY19 +16% YoY), led

by Infrastructure and Power sector. We estimate a robust 11% top line growth for FY20/21E which will be driven by

Infra, hydrocarbon and the services segments

We maintain our ‘ACCUMULATE’ recommendation on L&T with current base business at 20.3X FY 20EPS with price

target of Rs 1600 in next12 months.

11

HDFC Bank

Accumulate Sector: Private Banking |NSE Code: HDFCBANK

Higher scale of Operation and Leverage Technology to bring down

costs for both the bank and his customers.

HDFC Bank continues to achieve more scale in operations and leverage

technology as it will cut down its cost-to-income ratio by 500 basis points

in five years. This would be achieved in focusing more on internet mobile

and digital platform based banking system which will help in reducing

costs significantly.

For the quarter ended Jun 30, HDFC Bank's cost-to-income ratio was am-

ong the lowest in industry at 39.4%. Scale will help the bank to not just cut

costs, but also allow to invest more, and go into semi-urban and rural

areas which constitutes 60% of the Indian population. The scale of operat-

-ions is genuinely bringing down costs for both the bank and his customers.

To bring down costs, the bank has been tying up with business correspond-

dents, cutting branch size, using more digital touch points and focusing on

data mining, without any strain on credit quality

The bank has been investing in technological infrastructure and instead

going slow on physical network addition. This strategy is stood well in terms

of better cost management (down since the past few quarters). We believe

digital banking is likely to continue providing operating leverage benefits

with reduced human cost and more process-driven business.

We opine HDFC Bank will continue to see compounding benefits as its

digitalisation, semi-urban and rural market penetration strategy witness

further pick up and gain traction. Management has been exploring

innovative solutions such as mobile POS App, business and technological

tie-ups with global search and social networking giants to offer banking

payment and other solutions, among others. These initiatives may take

time to meaningfully manifest, we believeour crucial and important growth

drivers for the bank.

Overall, the demand for credit was higher than supply, and that HDFC Bank

continued to see a rise in demand for loans, albeit led by working capital

and consumer lending at the moment.

Shareholding Pattern

Holder's Name

% Share Holding as on Jun2019

% Share Holding as on Mar2019

Change %

Promoter 26.25 26.5 -0.25

FIIs 38.64 38.71 -0.07

Mutual Funds

13.76

13.32

0.44

Insurance Companies

2.74

2.77

-0.03

Other DIIs

0.56

0.51

0.05

Non Institutional Investors

18.05

18.19

-0.14

SECTOR: Private Banking

CMP: Rs.1199

Target Price: Rs.1350

Period: 12 months

Key Stock Data

No of Shares (mn) 5420

Market Cap ( Rs bn) 6685

52 week high (Rs) 1282

52 week low (Rs) 942

6m avg Volume (NSE &BSE) 7.5 mn

Beta 1.19

Face value ( RS ) 1

12

Focus on strong credit growth to drive its profitability

HDFC Bank is starting to see growth in the market. If you see our portfolio, it spread along the same lines the government's

GDP between consumer and wholesale. We have gone in a big way into semi-urban and rural India. We are lending to lot of

people who did not get credit such as small shopkeepers and small and medium enterprises. Despite everything, working

capital demand is there. Private investment (will take off), the moment we see some growth coming.

Let's not colour everything with automobile sector. Capacity utilisation is around 77%, people generally start investing

around 80%. That will take some time and be a major fillip, till then, you will see gradual improvement in GDP.

So, as of now credit growth is being driven by working capital, semi-urban and rural India, consumer and small businesses.

Strong loan growth to remain key strength

We expect the loan growth trajectory to range between 18-20% for HDFC Bank. HDFC Bank has been gaining market share

consistently, which appears to sustain as competition from other peers, especially PSU banks and NBFCs, has weakened

significantly.

HDFC Bank has been gaining market share consistently, which appears to sustain as competition from other peers,

especially PSU banks and NBFCs, has weakened significantly. During Q1FY2020, HDFC Bank witnessed slower (by a tad) loan

book traction, as advances grew by 17.1% y-o-y on account of a 19.6% y-o-y increase in its domestic corporate book and

16.5% growth in its retail portfolio. While retail lending has comparatively grown at a slower rate during the quarter, we

believe the bank is calibrating its incremental growth in the retail segment, so as to optimise its credit cost margins mix

� High Quality Deposit Franchise with Low Funding Cost provides health margins

� Growing economy / banking industry, Gaining market share

� Nationwide urban & rural branch network and multiple channels

� Healthy balance sheet and revenue growth

� Leading player across multiple products / customer segments

� Leveraging analytics, AI/ML digital platforms

� Strong risk management, focus on asset quality

� Disciplined margin and capital management with a focus on RoA/RoE

� Proven ability to generate Shareholder Value

Strong Financial performance continues

In Q1FY20, loans and advances grew 17.1% YoY, with domestic wholesale loans registering 19.6% YoY growth.

The bank’s deposit base increased 18.5% YoY, aided by term deposit growth of 22.5% YoY and CASA growth of 12.8% YoY.

Net interest income recorded strong growth of 22.9% YoY helped by asset growth and improved Net Interest Margin

(+10bps YoY to 4.3%).

GNPA/NNPA ratio stood at 1.40%/0.43% in Q1FY20 versus 1.36%/0.39% in Q4FY19.

Gross advances increased by 17.1% to Rs 8,378 Bn

Deposits up by 18.5% to Rs 9,546 Bn

Core Net interest margin at 4.3%

Capital adequacy ratio (CAR)* - Total 16.9% of which Tier I at 15.6%

Business Metrics: Standalone quarterly performance

Rs In million Siource: Company website

Valuation Ratios:

Outlook & Valuation:

HDFC Bank currently trades at 3.3x its FY2021E BVPS, which we believe is attractive for a bank with its strengths and

consistency. The cut in corporate tax rate would likely benefit HDFC Bank in terms of increased net profit.

We rate HDFC BANK to ‘ACCUMULATE’ rating on the stock with a target price of Rs. 1350 in next 12 months.

13

Mar 19 18-Mar % Change Basic EPS (Rs.) 78.65 67.76 16.07%

Book Value [Incl. Reval Reserve]/Share (Rs.)

547.89 409.6 33.76%

Dividend/Share (Rs.) 15 13 15.38%

Operating Revenue / Share (Rs.) 363.43 309.2 17.54%

Net Profit/Share (Rs.) 77.4 67.38 14.87%

Key Performance Ratios

Net Profit Margin (%) 21.29 21.79 -2.29%

Operating Profit Margin (%) 3.48 2.82 23.40%

Return on Assets (%) 1.69 1.64 3.05%

Return on Equity / Networth (%) 14.12 16.45 -14.16%

Net Interest Margin (X) 3.87 3.76 2.93%

Valuation Ratios

Enterprise Value (Rs. Cr) 1624316.4 1298053.5 25.13%

EV Per Net Sales (X) 16.41 16.18 1.42%

Price To Book Value (X) 4.23 4.62 -8.44%

Price To Sales (X) 6.37 6.12 4.08%

Retention Ratios (%) 80.77 100 -19.23%

Earnings Yield (X) 0.03 0.04 -25.00%

Bajaj Finance Ltd. Accumulate Sector: Finance |NSE Code: BAJFINANCE

Market leader in consumer lending business with diversified retail play:

With 40% business contribution from consumer lending, BAF is well placed

to leverage upon the rapidly expanding consumption market in India.

Recording 43% business CAGR over FY10-19 led by core consumer durable

(CD) & lifestyle product financing, it maintains its leadership position across

consumer electronics, white goods and digital products and personal loans.

(Refer Exhibit 76) Over past 3 years, BAF has reported 2x increase in consumer

lending business led by 5x increase in digital product finance, 4x increase

in home loan portfolio and 3x increase in personal loan cross sell. BAF has

developed a formidable technology-led diversified lending model spread

across more than 50 products encompassing consumer, SME, commercial

and rural segments.

Mortgage Spin off to accelerate growth:

It has spin off mortgage business into a separate step down entity (Bajaj

Home Finance Ltd) which will enable lean opex business structure, access to

low cost funding (NHB, ECB) and cross sell opportunity to BAF’s credit filtered

customer base (27mn).

SME Lending – Huge prospective customer base:

With 37% of the overall AUM share, SME lending forms second biggest

portfolio for BAF that has grown at 40% CAGR over the past decade.

Commercial lending expansion:

Contributing 15% to overall AUMs, commercial has grown at 53% CAGR over

FY14-19. However, competitive intensities and challenging funding

environment in the market called for selective expansion with adequate

provisioning for key account.

Rural lending – key business driver:

Banking on the underpenetrated rural consumption market, BAF caters to the needs of rural consumer and MSME

customers with a unique hub and spoke business model pan India. With diversified offerings across 10 rural products

namely: durable loans, digital lifestyle, personal loans, loans to salaried and gold loans in consumer category, the rural

MSME business offers unsecured and secured loans to self-employed clients in rural markets. Business loans form part of

unsecured loans and professional loans (Doctors, Engineers and CA’s) loans are offered as secured LAP.

14

Shareholding Pattern

Holder's

Name

% Share Holding as on

Jun2019

% Share Holding as on

Mar2019

Change

%

Promoter 58.26 55.17 3.09

FIIs 21.28 20.67 0.61

Mutual Funds

6.99

7.17

-0.18

Insurance Companies

0.71

0.79

-0.06

Other DIIs 0.56 0.54 0.02

Non Institutional Investors

12.2

15.66

-3.46

SECTOR: FINANCE

CMP: Rs.3958

Target Price: Rs.4500

Period: 12 months

Key Stock Data

No of Shares (mn) 580

Market Cap ( Rs bn) 2292

52 week high (Rs) 4111

52 week low (Rs) 1912

6m avg Volume (NSE &BSE) 2.18 mn

Beta 1.36

Face value ( RS ) 2

Retail credit to expand:

10.3% CAGR in consumer durable credit market, changing consumer behaviour, evolving spending patterns and improved

credit access has enabled huge growth in retail credit market over last few years. Retail lending grew 4x over past decade

and poised for 1.5x expansion over next 2 years

Business Metrics: Financial performance Financials snapshot Q1 FY20 Q1 FY19 Y-o-Y FY19 FY18 Y-o-Y

Assets under management 1,28,898 91,287 41% 1,15,888 82,422 41%

Assets under finance 1,25,113 87,877 42% 1,12,513 79,103 42%

Interest income 5,101 3,510 45% 16,349 11,586 41%

Fee and other income 707 428 65% 2153 1,171 84%

Total Income 5808 3,938 47% 18502 12,757 45%

Interest expenses 2,113 1,359 55% 6,624 4,614 44%

Net Interest Income 3695 2,579 43% 11878 8,143 46%

Operating Expenses 1293 955 35% 4198 3,270 28%

Loan losses and provisions (ECL stage 1 & 2)

130 93 40% 260 129 102%

Loan losses and provisions (ECL stage 3 & write off)

421 234 80% 1241 901 38%

Profit before tax 1851 1,297 43% 6179 3,843 61%

Profit after tax 1,195 836 43% 3,995 2,496 60%

Ratios

Total Opex to Net Interest Income

35.00% 37.00% 35.30% 40.20%

Loan loss to AUM* 0.43% 0.36% 1.30% 1.25%

Earning per share- Basic (`) * 20.7 15 69.3 44

Return on Average Assets* 1.0% 1.0% 4.2% 3.7%

Return on Average Equity * 5.9% 5.1% 22.5% 20.1%

Source: Company website

Results Highlights:

Robust AUM portfolio growth BFL reported strong growth in asset under management during Q1FY20 (+41.2% YoY to Rs.

128,898 cr), as mentioned in the provisional release on 9th July, with Consumer business segment being the highest

contributor at 38.4% of total AUM and mortgage lending at 28.3%. Strong operating performance but provisions up

significantly YoY Net Interest income grew 43.1% YoY to Rs. 3,688 cr, while operating expenses were only 35.4% higher YoY

as cost-to-income ratio improved by 200bps YoY to 35.0% in Q1FY20. Pre-provision profit increased strongly by 47.9% YoY

to Rs. 2,402cr, but was partly offset by higher provisions (up 68.6% YoY to Rs. 551cr), resulting in net income growth of

43.0% YoY to Rs. 1,195 cr in Q1FY20. While the significant growth in provisions can be partly attributed to tough comp in

Q1FY19 (7% YoY growth), provisions also increased 34.6% QoQ.

15

Key Risks

Asset quality deteriorated slightly The company’s GNPA ratio deteriorated marginally in Q1FY20 (+6bps QoQ) to 1.60% as

GNPA increased to Rs. 2,094cr on higher slippages, although NNPA ratio remained stable at 0.64% (+1bps QoQ). Capital

adequacy ratio decreased to 19.5% in Q1FY20 as compared to 20.7% in Q4FY19, while liquidity buffer surplus was at Rs.

6,343 cr.

Outlook & Valuation: Given formidable franchise in consumer financing, strong growth momentum in rural finance and expected uptick in

mortgage business post spin off in step down subsidiary. BAF has emerged strong in the recent NBFC rout. Robust growth

across segments, increasing customer base, expanding presence across rural and urban India are expected to support the

company’s overall margins and growth.

We recommend ‘ACCUMULATE’ with our target price to Rs 4500 in next 12 months, based on 46X PE Jun21E (expected

growth of 35%) on account of robust earnings growth in EPS which is likely to continue for next few years.

16

Disclaimer

RATING PARAMETER

BUY We expect the stock to deliver more than 15% return over the next 12months

ACCUMULATE We expect the stock to deliver 6% - 15% return over the next 12months

REDUCE We expect the stock to deliver 0% - 5% return over the next 12months

SELL We expect the stock to deliver negative return over the next 12months

NOTE: Target prices are for a period of 12-month perspective unless specified. Returns stated in the rating parameter are for our internal benchmark.

TECHNICAL CALL RATING PARAMETER

BUY: A condition that indicates a good time to buy a stock. The exact circumstances of the signal will be determined by the indicator that an analyst is using.

SELL: A condition that indicates a good time to sell a stock. The exact circumstances of the signal will be determined by the indicator that an analyst is using.

A recommendation to buy or sell stock when it trades at specified price. They serve to either protect your profits or limit your losses.

DISCLOSURE / DISCLAIMER Peerless Securities Ltd (PSL) e s t a b l i s h e d in 1995, is a subsidiary of Peerless General Finance & Investment Co Ltd. PSL is a corporate trading member of

Bombay Stock Exchange Limited (BSE) & National Stock Exchange of India Limited (NSE). Our businesses include stock broking, services rendered in connection with

distribution of primary market issues and financial products like mutual funds and fixed deposits, and depository services.

Peerless Securities Ltd is also a depository participant with National Securities Depository Limited (NSDL) and also registered as a Research Analyst under SEBI

(Research Analyst) Regulations, 2014.

We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in last five years.

We have not been debarred from doing business by any Stock Exchange/ SEBI or any other authorities; nor has our certificate of registration been cancelled by SEBI at

any point of time.

We offer our research services to clients as well as our prospects.

This document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person.

Persons into whose possession this document may come are required to observe these restrictions. Past performance is not indicative for future performance. The

investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile. Investments in securities are subject

to market risk, please read all the related documents carefully before investing. Investors are also requested to take their profession advice before investing.

This material is for the personal information of the authorized recipient, and we are not soliciting any action based upon it. This report is not to be construed as an offer to

sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It is for the general information of clients of

Peerless Securities Ltd. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of

individual clients.

We have reviewed the report, and in so far as it includes current or historical information, it is believed to be reliable though its accuracy or completeness cannot be

guaranteed. Neither Peerless Securities Ltd, nor any person connected with it, accepts any liability arising from the use of this document. The recipients of this material

should rely on their own investigations and take their own professional advice. Price and value of the investments referred to in this material may go up or down.

All such information and opinions are subject to change without notice. This document is for information purposes only. Descriptions of any company or companies or

their securities mentioned herein are not intended to be complete and this document is not, and should not be construed as an offer or solicitation of an offer, to buy or

sell any securities or other financial instruments.

If this report is inadvertently sent or has reached any person in such country, especially, United States of America, the same should be ignored and brought to the

attention of the sender. This document may not be reproduced, distributed or published in whole or in part, directly or indirectly, for any purposes or in any manner.

Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or

the income derived from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency

risk.

It should not be considered to be taken as an offer to sell or a solicitation to buy any security. PSL may from time to time solicit from, or perform broking, or other services

for, any company mentioned in this mail and/or its attachments.

Certain transactions -including those involving futures, options and other derivatives as well as non-investment grade securities - involve substantial risk and are not

suitable for all investors. Reports based on technical analysis centers on studying charts of a stock's price movement and trading volume, as opposed to focusing on a

company's fundamentals and as such, may not match with a report on a company's fundamentals.

Opinions expressed are our current opinions as of the date appearing on this material only. While we endeavor to update on a reasonable basis the information

discussed in this material, there may be regulatory, compliance or other reasons that prevent us from doing so. Prospective investors and others are cautioned that any

forward-looking statements are not predictions and may be subject to change without notice. Our proprietary trading and group company/associate companies may make

investment decisions that are inconsistent with the recommendations expressed herein.

PSL shall not be liable for any delay or any other interruption which may occur in presenting the data due to any reason including network (Internet) reasons or snags in

the system, break down of the system or any other equipment, server breakdown, maintenance shutdown, breakdown of communication services or inability of the PSL

to present the data. In no event shall PSL be liable for any damages, including without limitation direct or indirect, special, incidental, or consequential damages, losses

or expenses arising in connection with the data presented by the PSL through this report.

We and our affiliates/associates, group companies, officers, directors, and employees, Research Analysts may: (a) from time to time, have long or short positions in,

17

and buy or sell the securities thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or

other compensation or act as a market maker in the financial instruments of the subject company/company (ies) discussed herein or act as advisor or lender / borrower to

such company (ies) or have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of

publication of Research Report or at the time of public appearance. Peerless Securities Ltd (PSL) may have proprietary long/short position in the above mentioned

scrip(s) and therefore may be considered as interested. The views provided herein are general in nature and does not consider risk appetite or investment objective

of particular investor; readers are requested to take independent professional advice before investing. This should not be construed as invitation or solicitation to

do business with PSL. Peerless Securities Ltd does not provide any promise or assurance of favorable view for a particular industry or sector or business group in any

manner. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and take professional

advice before investing.

The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies

and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this

report.

Details of Associates and group companies are available on our website i.e. www.peerlesssec.co.in

Research Analyst has served as an officer, director or employee of subject company(ies): No

Research Analyst’s financial interest in the subject company(ies): No

Peerless Securities Limited may have financial interest in the subject company (ies) from time to time.

Research Analyst has actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately preceding the date of

publication of Research Report: No

Peerless Securities Ltd has actual/beneficial ownership of 1% or more securities of the subject company (ies) at the end of the month immediately preceding the date

of publication of Research Report: No

We or our associates may have received compensation from the subject company (ies) in the past 12 months. We or our associates may have received compensation

for investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12 months. We or our associates may have received any

compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company(ies) in the past 12

months. We or our associates may have received compensation or other benefits from the subject company (ies) or third party in connection with the research report.

Our associates may have financial interest in the subject company(ies).

Our associates/Group Companies may have actual/beneficial ownership of 1% or more securities of the subject company(ies) at the end of the month immediately

preceding the date of publication of Research Report.

Subject company (ies) may have been client during twelve months preceding the date of distribution of the research report.

"A graph of daily closing prices of securities is available at www.nseindia.com (Choose a company from the list on the browser and select the "three years" icon in the

price chart)."

Analyst Certification

I/We, author/s (Research Team) and the name/s subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect

my/our views about the subject issuer(s) or securities. I/we (Research Analyst) also certify that no part of my/our compensation was, is, or will be directly or indirectly

related to the specific recommendation(s) or view(s) in this report. I/we or my/our relative or PSL may have financial interest in the subject company. Also I/we or

my/our relative or PSL or its associates does not have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the

date of publication of the research report. Since associates/group of PSL is engaged in various financial service businesses, they might have financial interests or

beneficial ownership in various companies including the subject company/s mentioned in this report. I/we have not served as officer/director etc in the subject

company.

The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and the like and take

professional advice before investing. Investments in securities are subject to market risk, please read all the related documents carefully before investing. Please read

the SEBI prescribed Combined Risk Disclosure Document (refer to SEBI website) prior to investing. Derivatives are a sophisticated investment device. The investor is

requested to take into consideration all the risk factors before actually trading in derivative contracts.

Peerless Securities Limited: Registered Office: Peerless Mansion, 1 Chowringhee Square, 2nd Floor, Kolkata 700069.

Telephone No.: 033 4050 2700, Fax No.: 033 2243 6941. Website: www.peerlesssec.co.in

SEBI Registration No: INZ000263738; AMFI Reg No: ARN 2103; NSDL: IN-DP-NSDL-96-99,

DP ID: IN300958; SEBI Research Analyst Reg. No: INH300002365, CIN: U67120WB1995PLC067616

Compliance Officer: Mr. Raj Kumar Mukherjee. Call: 033-4050-2700, e-Mail: compliance@peerlesssec.com

Our research should not be considered as an advertisement or advice, professional or otherwise. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and the like and take professional advice before investing. Investments in securities are subject to market risk, please read all the related documents carefully before investing. Please read the SEBI prescribed Combined Risk Disclosure Document (refer to SEBI website) prior to investing. Derivatives are a sophisticated investment device. The investor is requested to take into consideration all the risk factors before actually trading in derivative contracts.

Compliance Officer: Mr. Raj Kumar Mukherjee. Call: 033-4050-2700, Email: compliance@peerlesssec.com

Peerless Securities Limited Registered Office:

1, Chowringhee Square, 2nd Floor, Kolkata- 700 069

Phone: +91-33-4050-2700/2243-5942, Fax: +91-33-2243 6941

Institutional Office:

11-A, Mittal Towers, 1st floor, Nariman Point, Mumbai – 400 021

Phone: +91-22-2284 1411, 22-6630 3810, Fax: +91-22-2284 1316