Banks

July09,2013
Adarsh Parasrampuria
adarshparasrampuria@plindia.com
+91-22-66322236
Surjit Arora
SurjitArora@plindia.com
+91-22-66322235

System sectoral credit data by RBI has been exhibiting a few trends which seem
difficulttoexplainincluding(1)Increasingautoloangrowth(27%y/ygrowth)(2)
Significant pickup in Infra especially power/road credit recently and (3) High
volatility in other services/industries data (10% of system loans). We intend to
analysethe above conundrums in a series of 23 reports and this report analyses
divergenceinautoloangrowthandOEMsalesforlast1218mnts.
!

Divergence in Loan growth and OEM numbers: OEM volumes have been
moderating for the last 2 yrs with Maruti led slowdown in FY12 and overall
petrol cars slowdown in FY13 leading to just 4% volume growth in FY11-13
(down from 26% y/y growth in FY09-11) v/s ~23% CAGR growth in Auto loans in
FY11-13. Incremental RBI data also points to auto loan growth remaining strong
at 27% y/y growth in spite of expectations of moderation in auto loans as OEM
numbers continue to disappoint (-9% y/y in Apr-Jun 13).

RealisationgrowthYouranswerforFY13:Market participants fear that some

possible explanation could be increase in LTVs or extending loan tenures which
are potentially credit negative in our view. But our analysis of auto data shows
that the answer lies in realisation growth for cars in FY13.Due to dieselisation
and increase in share of UVs, ASP for cars in India jumped ~20% y/y in FY13 with
Maruti reporting a 17% ASP increase in FY13, M&M reporting a 15% increase
leading to potentially ~21% y/y growth in disbursement pool for autos assuming
no change in LTVs/loan tenures. ThisindicatesthatFY13autoloangrowthwas
genuineandpossiblynotthroughextendingloantenures/LTVs.

Sustainability a question for FY14 But Loan growth will not be as bad as
disbursements:ASP growth aided FY13 auto disbursements but with persistent
increase in diesel prices, Diesel car/UV demand has waned and this is likely to
impact both volume and realisation growth. While our auto analyst expects ~7%
volume growth and some ASP increase, there remains possibility of a negative
surprise on both volumes/realisations and hence v/s ~20% auto disbursement
growth in FY13, we expect ~5 y/y disbursement growth in FY14. But loan
growth tends to remain much more sticky and in spite of a collapse in
disbursementgrowth(from~20%to5%orunder),weexpect~15%autoloan
growth in FY14 (organically) and possibly a little more if banks increase
LTV/tenures (credit negative) or gain market share relatively (NIM dilutive).

SomePressurepointsforretailbanks:Auto loan dependency remains high for

Kotak/HDFCB/IIB (14-18% of loans) in that order followed by SBI/ICICI/Axis (<5%
of loans) and since auto loan growth has been +20% y/y growth for most
participants we expect a slowdown. Along with growth slowdown in retail credit
,we believe fee income restrictions and possible impact of dynamic provisioning
will put pressure on defensive names but opex/assets improvement is likely to
shield profitability to some extent. WemaintainourNeutralviewondefensive
banks with relative preference for HDFC Bank over HDFC Ltd (HDFCB best
placedondynamicprovisions)andIIBoverKotakbutcontinuetopreferbeta
privatesectorbanksoverdefensivenames.

Parul Gulati
parulgulati@plindia.com
+91-22-66322242
Auto disbursements realisation growth driven
ratherthanhigherLTV/tenuredriven
40.0%

Car Volumes

Car Realisations

30.0%
20.0%
10.0%
0.0%
2010 2011 2012 2013 2014 2015

Source:PLResearch
Kotak/HDFCB/IIB have largest share of auto
loans
25%

Auto%

20%
15%
10%
5%
0%

Source:PLResearch

Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that
the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision.
Please refer to important disclosures and disclaimers at the end of the report

SectorUpdate

GrowthConundrum#1:AutoLoangrowthWhysohigh?

Banks

Exhibit1: Passengervehiclesaleshavebeenmutedforthelast2yrs
80.0%

Exhibit2: UVgrowthhashelduprelativelybetter
100.0%

Passenger Vehichle % YoY

60.0%

UV % YoY

80.0%

40.0%

60.0%

20.0%

Apr-13

Jan-13

Oct-12

Jul-12

Apr-12

Jan-12

Oct-11

Jul-11

Jan-11

Jun-09
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Aug-10
Oct-10
Dec-10
Feb-11
Apr-11
Jun-11
Aug-11
Oct-11
Dec-11
Feb-12
Apr-12
Jun-12
Aug-12
Oct-12
Dec-12
Feb-13
Apr-13

Source:SIAM,CompanyData,PLResearch

Apr-11

0.0%
Oct-10

-40.0%

Jul-10

20.0%
Jan-10

-20.0%

Apr-10

40.0%

0.0%

Source:SIAM,CompanyData,PLResearch
Exhibit3: Autoloangrowthhasbeenindivergencetoautovolumegrowth

Auto volumes (%)

30.0%

Auto Loan growth (%)

25.0%
Autoloangrowthat+20%hasbeenat
significantdivergencetoautovolume

20.0%

growth(whichhasbeenmutedforlast12

15.0%

18mnts)

10.0%
5.0%
0.0%
-5.0%
FY08

FY09

FY10

FY11

FY12

Source:CompanyData,PLResearch
Exhibit4: ASPforMarutihasinchedupsignificantlyinFY13drivenby Exhibit5: ASP for M&M has also seen a significant jump due to
Dieselisationdrivingsignificantvaluegrowth
productmixchangedrivingsignificantvaluegrowth
20.0%

20.0%

Maruti Realisations (y/y)

M&M realisation (y/y)

15.0%

15.0%

10.0%
10.0%

5.0%

5.0%

0.0%
-5.0%

0.0%
2009

2010

2011

Source:CompanyData,PLResearch

July 09, 2013

2012

2013

2014E

2009

2010

2011

2012

2013

2014E

Source:CompanyData,PLResearch

Banks

Exhibit6:

LargepartofthegrowthinFY13wasrealisationlinkedandpossiblynotthroughincreaseinLTVs/tenures

2008

2009

2010

2011

2012

2013

2014E

Growthrate
2010 2011 2012

AutoLoansbyBanks(Rsbn) 517 620638 730 892

1,111 1,284

y/ygrowth

24.5%

25.0%

20.0%

2.9%

14.5%

22.2%

15.6%
TotalDisbursememts(Rsbn) 254 291 266 324 428543 570
y/ygrowth

15%
9%
22%
32%
27%
5%
TotalPassengervehicle
volumes(mn)
Total2WVolumes(mn)
Avg. Passenger vehicle
realisations
Avg. 2W Realisations
PassengervehicleValue
Sales(Rsbn)
2WValueSales(Rsbn)

1.45 1.45

2013 2014E

1.80 2.29 2.40

2.49 2.54 24.4% 27.1% 4.7%

3.9%

2.0%

7.2 7.49.4 11.8 13.4

13.8 14.2 26.0% 25.6% 13.9%

2.9%

3.0%

305,119

316,680

324,568

348,317

369,799

445,639

459,009

2.5%

7.3%

6.2% 20.5%

3.0%

41,835

41,835

43,314

45,395

47,237

50,000

51,613

3.5%

4.8%

4.1%

5.8%

3.2%

442 458 584 797 886 1,109 1,165 27.5% 36.4% 11.1% 25.2%

5.1%

303 311 406 534 633690 734 30.5% 31.6% 18.6%

6.3%

CarFinancing(%ofTotal)

75%

75%

60%

67%

75%

75.0%

75.0%

2WFinancing(%ofTotal)

40%

40%

40%

40%

40%

40.0%

40.0%

8.9%

LTVs(assumption)
75%
75%
65%
70%
75%
75.0%
75.0%

Valueofvehiclesfinanced
453 468 513 748 918 1,108 1,167 9.6% 45.8% 22.7% 20.7%
(Rsbn)
ValueofFinancingatabove
339 351333 523 688831 876 5.0% 57.0% 31.5% 20.7%
LTVs(Rsbn)
Potentialgrowthin

3.4%
5.0%
57.0%
31.5%
20.7%
5.4%

disbursements

5.4%
5.4%

Source:CompanyData,PLResearch
Exhibit7: CarSalesgrowth(includingvolumesandrealisation)
Car Volumes

40.0%

Car Realisations

Exhibit8: 2WSalesgrowth(includingvolumesandrealisation)
35.0%

2-W Volumes

2-W Realisations

30.0%
30.0%

25.0%
20.0%

20.0%

15.0%
10.0%

10.0%

5.0%
0.0%

0.0%
2010

2011

2012

2013

2014

Source:CompanyData,PLResearch

2015

2010

2011

2012

2013

2014

2015

Source:CompanyData,PLResearch

July 09, 2013

Banks

Sustainability a question for FY14 But Loan growth may not be as

badasdisbursements
Autovolumesaredown~9%y/y

Exhibit9: 1Q14autonumbersaredown~9%y/y
PassengerVehicles(Units)

1QFY13

1QFY14

YoY%

Passenger Cars

490802

439005

-10.6%

Utility Vehicles

117711

117893

0.2%

Total

608513

556898

8.5%

Commercial Vehicles (CVs)

Total M&HCVs

66055

54629

-17.3%

Total LCVs

117160

110007

-6.1%

TotalCommercialVehicles

183215

162636

11.2%

Source:SIAM,CompanyData,PLResearch
Dieseldemandwhichhadincreasedby
+50%inFY13isnowwaning.Accordingto
ourAutoanalyst,Dieselvolumedemandis
down10%y/yin1Q14

Exhibit10: PetrolvehicledemandandDieselvehicledemand
SegmentParticulars

FY10

FY11

FY12

FY13E

Maruti - Diesel Sales

163,000

199,000

243,000

368,000

88,000

22.1%

22.1%

51.4%

-10.0%

870,790

1,132,739

1,006,316

1,051,047

245,346

30.1%

-11.2%

4.4%

18.7%

17.6%

24.1%

35.0%

% growth
Maruti - Total Volumes
% growth
DieselSales(%)

Q1FY14E

35.9%

Source:SIAM,CompanyData,PLResearch
Exhibit11: HencedisbursementgrowthlikelytogetimpactedinFY14
35%
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%

Disbursement % YoY

2009

2010

2011

2012

2013

2014E

Source:CompanyData,PLResearch

July 09, 2013

Banks

Alldefensivenameshavehigherexposure

Exhibit12: DependenceonautoloanshighforKotak/HDFCB/IIB
25%

toAutoloansbetween1418%oftheir

Auto%

totalloans.Axis/ICICI/SBIhave<5%
exposuretoautoloans

20%
15%
10%
5%
0%
Kotak

HDFCB

IIB

Axis

ICICI

SBI

Source:CompanyData,PLResearch
Exhibit13: Growthhasbeenstrongforallretailbanks
3Q12

4Q12

1Q13

2Q13

3Q13

4Q13

HDFCBank
Car Loans

257,620

263,980

275,130

290,040

300,410

309,420

YoY%

16.2%

19.3%

18.5%

17.9%

16.6%

17.2%

%ofLoans

14.5%

14.8%

14.1%

13.7%

13.7%

14.2%

Car Loans

97,710

106,000

111,610

117,480

122,170

127,500

YoY%

22.2%

24.0%

24.3%

19.2%

25.0%

20.3%

%AutoLoans

18.5%

19.9%

19.6%

19.2%

18.2%

19.2%

Car Loans

80,084

87,739

91,174

95,115

100,081

109,540

YoY%

13.9%

13.9%

17.3%

23.6%

25.0%

24.8%

%AutoLoans

3.3%

3.5%

3.4%

3.5%

3.5%

3.8%

Auto Loans

43,243

48,841

52,768

57,572

57,682

75,544

YoY%

56.0%

60.0%

50.2%

51.0%

33.4%

54.7%

%AutoLoans

2.9%

2.9%

3.1%

3.3%

3.2%

3.8%

122,00

13,950

16,110

181,20

19,950

20,510

KotakBank

ICICIBank

AxisBank

IIB
Auto

YoY%

69.2%

68.1%

70.1%

68.6%

63.5%

47.0%

32540

34120

35770

37840

40070

40400

YoY%

45.1%

34.6%

32.5%

27.5%

23.1%

18.4%

% Auto Loans

13.8%

13.7%

13.9%

14.2%

14.1%

13.7%

174,090

183,050

190,400

202,410

228,460

248,000

12.1%

20.9%

22.5%

28.3%

31.2%

35.5%

2.0%

2.0%

2.0%

2.1%

1.8%

2.3%

2/3 veheeler loan

SBI
Auto

YoY%

%AutoLoans

Source:CompanyData,PLResearch

July 09, 2013

Banks

Exhibit14: Marketshareofvehicleloans(withinbanks)
(Rsm)

FY09

FY10

FY11

FY12

FY13

Vehicle Loans

619,950

637,910

730,380

892,420

1,110,890

Y/Y Growth %

25.0%

2.9%

14.5%

22.2%

24.5%

ICICI Bank

22.3%

12.4%

10.5%

9.8%

9.9%

HDFC Bank

28.1%

30.8%

33.0%

32.4%

30.6%

7.7%

10.3%

11.7%

11.9%

11.5%

BankingSystemLoans

MarketShare

Kotak
Indusind
SBI

2.2%

3.6%

4.6%

5.4%

5.5%

15.7%

22.1%

20.7%

20.5%

22.3%

Source:CompanyData,PLResearch

July 09, 2013

Banks

Prabhudas Lilladher Pvt. Ltd.

3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India
Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
RatingDistributionofResearchCoverage

%ofTotalCoverage

60%

53.6%

50%
40%
30%

25.6%
19.2%

20%
10%

1.6%

0%
BUY

Accumulate

Reduce

PLsRecommendationNomenclature

Sell

BUY

Over 15% Outperformance to Sensex over 12-months

Accumulate

Outperformance to Sensex over 12-months

Reduce

Underperformance to Sensex over 12-months

Sell

Over 15% underperformance to Sensex over 12-months

TradingBuy

Over 10% absolute upside in 1-month

TradingSell

Over 10% absolute decline in 1-month

NotRated(NR)

No specific call on the stock

UnderReview(UR)

Rating likely to change shortly

This document has been prepared by the Research Division of Prabhudas Lilladher Pvt. Ltd. Mumbai, India (PL) and is meant for use by the recipient only as
information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be
considered or taken as an offer to sell or a solicitation to buy or sell any security.
The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy
or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accept any responsibility of whatsoever nature for the information,
statements and opinion given, made available or expressed herein or for any omission therein.
Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The
suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an
independent expert/advisor.
Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or
engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication.
We may from time to time solicit or perform investment banking or other services for any company mentioned in this document.

July 09, 2013