FOR IMPORTANT DISCLOSURE INFORMATION, INCLUDING DISCLOSURES RELATED TO THE U.S. DISTRIBUTOR OF THIS REPORT, PLEASE REFER TO THE FINAL PAGES OF THIS REPORT - Please refer to the final pages of this report for important disclosures, analyst certifications and additional information. Espirito Santo Investment Bank does and 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 this report. Investors should consider this report as only a single factor in making their investment decision. This research report has been prepared in whole or in part by research analysts based outside the US who are not registered/qualified as research analysts with FINRA (v1.0.5.2)
MARKET UPDATE
India | Financials | Large Cap | 25-June-2014
HDFC Limited
Best diversified play; reiterate BUY
HDFC has underperformed the Bankex by 7% since Mar-2014 on
concerns over increasing competition and investors shifting into
cyclicals, and now trades at multi-year low valuation on its core
book despite performing strongly. In our opinion if the housing
market were to improve the company will benefit significantly given
its competitive advantage. Over the past three years, the company’s
subsidiaries have strengthened their market positioning, gained
market share and improved return ratios. HDFC Limited is holding
company for some of the best managed financial institutions in India
(banking, mortgage, life insurance, asset management, non-life
insurance). We re-iterate BUY with a revised fair value of Rs1,200.
Trading at historically low multiples despite strong performance
HDFC Limited has been one of the biggest underperformers over the past
three months given investors’ concerns on a) the competitive environment, b)
lower growth in profit and c) stress in real estate. Although the company grew
its loan book 16%YoY, had stable margins and strong credit quality, HDFC’s
focus on the retail segment against a backdrop of macroeconomic
sluggishness meant its growth in standalone profit was subdued at 12% for the
full year.
Uptick in economy will also benefit HDFC
If the economic environment were to improve and the government were to
act on its election promise of 100 new cities then the housing market should
receive a boost. In such a scenario HDFC will benefit disproportionately given
HDFC enjoys competitive advantages on account of its low cost of funds, low
operating costs and strong underwriting. This has enabled the company to
remain competitive in a commodity-like mortgage segment, growing c.20%
YoY with return ratios (RoEs) of more than 25%. Moreover, the company has
pricing power in the corporate segment where competitive intensity is low
and it charges lower interest rates compared to its competition.
Subsidiaries have strengthened their market positioning
Each of HDFC’s subsidiaries have gained market share and improved return
ratios in the last five years despite a slowdown in the economy and regulatory
intervention in their respective segments (Life Insurance and Asset
management). The subsidiaries have gained on account of a) cost efficient
distribution channel (HDFC Bank), b) strong HDFC brand, c) strong focus on
costs and d) strong parent balance sheet.
Valuation – strong compounding story
HDFC’s core mortgage book is trading at 2.7x FY16E book value, close to its
lowest valuation in the past four years. We have valued the mortgage business
at 4.0xFY16E BV which we believe is justified given its high growth visibility
and return ratios. We have increased our FV on HDFC from Rs1,000 to
Rs1,200 as a) we increase valuation for mortgage business (58% of valuation)
from Rs567 to Rs693 on account of reducing our CoE assumption by 100bps
to 13%, b) stake in HDFC Bank is now valued at Rs340 vs. Rs297 previously as
our banking team increased their FV, c) life, general insurance & asset
management now valued at Rs71, Rs19, Rs32 versus Rs61, Rs14 and Rs27
previously as we tweak our estimates and roll-over to FY16.
Accounting & corporate governance GREEN
Franchise Strength GREEN
Earnings Momentum GREEN
BUY 23% upside
Fair Value Rs1,200.00
Bloomberg ticker HDFC IN
Share Price Rs975.00
Market Capitalisation Rs1,519,196.00m
Free Float 100%
INR m Y/E 31-Mar 2013A 2014A 2015E 2016E
Total Income 72,567 81,683 95,732 112,167
Operating expenses 5,153 5,962 6,936 7,775
Operating Profit 67,414 75,721 88,796 104,392
Profit before Tax 65,728 74,402 86,760 102,041
Profit after Tax 48,483 54,402 63,334 74,490
EPS 31.6 35.4 41.2 48.5
Loan Book 1,700,462 1,971,000 2,322,235 2,760,043
Y/E 31-Mar 2013A 2014A 2015E 2016E
Core P/E 19.2 16.3 13.2 11.1
Core P/BV 4.3 3.8 3.2 2.7
Core ROA 2.5% 2.5% 2.5% 2.5%
Core ROE 29.3% 25.8% 26.3% 26.7%
Dividend Yield 1.3% 1.4% 1.7% 2.0%
All share price data as at close on 20-Jun-2014
Source: Espirito Santo Investment Bank Research, Company
Data, Bloomberg
70
80
90
100
110
120
Jul 2013
Aug 2013
Sep 2013
Oct 2013
Nov 2013
Dec 2013
Jan 2014
Feb 2014
Mar 2014
Apr 2014
May 2014
Jun 2014
HDFC IN vs BSE500 Index
Share Price Performance
Analysts Santosh Singh, CFA +91 22 43156822 [email protected] Espirito Santo Securities India Private Limited Nidhesh Jain +91 22 4315 6823 [email protected] Espirito Santo Securities India Private Limited
Page 2 of 13
Source: Espirito Santo Investment Bank Research, Company Data, Bloomberg
Valuation Metrics 2013 2014 2015E 2016E 2017E
Recommendation: BUY Core P/E 19.2 16.3 13.2 11.1 9.2
Fair Value: INR 1200 Core P/BV 4.3 3.8 3.2 2.7 2.3
Core ROA 2.5% 2.5% 2.5% 2.5% 2.6%
Share Price: INR 975 Core ROE 29% 26% 26% 27% 27%
Upside / Downside 23% Dividend Yield 1.3% 1.4% 1.7% 2.0% 2.3%
3 Month ADV ($m) 35 Standalone BVPS 163 180 202 228 259
Free Float 100% Core Mortgage BVPS 108 124 146 171 202
52 Week High / Low 532-931
Bloomberg: HDFC IN Equity Implied Valuation Ratios 2013 2014 2015E 2016E 2017E
Model Published On: 25 June 2014 P/E 28.3 24.1 19.5 16.4 13.5
P/BV 6.4 5.6 4.8 4.0 3.4
Shares In Issue (mm) 1,558
Market Cap ($bn / Rs bn) $25 bn/Rs.1519bn P&L Summary 2013 2014 2015E 2016E 2017E
FII holding 76% Net Interest Income 59,275 66,656 78,905 93,456 111,146
Fee Income 2,413 2,952 3,513 4,215 5,058
Other Income 10,879 12,075 13,314 14,496 15,788
Total Income 72,567 81,683 95,732 112,167 131,993
Operating expenses 5,153 5,962 6,936 7,775 8,649
Operating Costs 2,691 3,170 3,702 4,074 4,456
Employee Costs 2,462 2,792 3,235 3,700 4,193
Operating profit 67,414 75,721 88,796 104,392 123,344
Provisions 1,450 1,000 1,717 2,033 2,422
Espirito Santo Securities Analyst Profit after provisions 65,964 74,721 87,078 102,359 120,922
Santosh Singh, CFA Depreciation 236 319 319 319 319
(91) 22 43156822 PBT 65,728 74,402 86,760 102,041 120,603
[email protected] Less:Tax (17,245) (20,000) (23,425) (27,551) (32,563)
Nidhesh Jain PAT 48,483 54,402 63,334 74,490 88,040
(91) 22 43156823 EPS 32 35 41 48 57
Balance Sheet Summary 2013 2014 2015E 2016E 2017E
Shareholding Pattern (Mar'14)
Equity 3,093 3,121 3,121 3,121 3,121
Reserves and Surplus 246,907 273,310 307,257 347,184 394,373
Networth 250,000 276,431 310,378 350,305 397,494
Borrowings 1,588,281 1,842,980 2,163,057 2,563,869 3,055,248
Total Sources of funds 1,838,281 2,119,411 2,473,436 2,914,173 3,452,742
Loan Book 1,700,462 1,971,000 2,322,235 2,760,043 3,295,535
Investments 136,135 139,127 141,907 144,827 147,893
Fixed Assets 2,379 2,805 2,805 2,805 2,805
Other Assets 6,314 6,299 6,299 6,299 6,299
Net working Capital (7,008) 181 190 200 210
Total Application of funds 1,838,281 2,119,411 2,473,436 2,914,173 3,452,742
Key Ratios 2013 2014 2015E 2016E 2017E
Loan Book Growth Yield on Loans 12.2% 11.9% 11.7% 11.6% 11.6%
Cost of funds 9.3% 9.3% 9.1% 9.0% 9.0%
Spread 2.9% 2.6% 2.6% 2.6% 2.6%
NIM 3.8% 3.6% 3.7% 3.7% 3.7%
Gross NPAs 0.7% 0.7% 0.7% 0.7% 0.7%
Net NPAs 0.0% 0.0% 0.0% 0.0% 0.0%
Capital Ratios 2013 2014 2015E 2016E 2017E
CAR 16% 18% 17% 17% 16%
Tier 1 CAR 14% 15% 14% 14% 14%
Asset/Equity (x) 7.4 7.7 8.0 8.3 8.7
Efficiency Ratios 2013 2014 2015E 2016E 2017E
RoE & RoA Trends Fee Income/Total Income 3% 4% 4% 4% 4%
Cost/Total Income 7% 7% 7% 7% 7%
Cost/Average Assets 0.3% 0.3% 0.3% 0.3% 0.3%
Growth Ratios 2013 2014 2015E 2016E 2017E
Loan Book 21% 16% 18% 19% 19%
NII 19% 12% 18% 18% 19%
PAT 18% 12% 16% 18% 18%
HDFC
Promoter
0%
FII
76%
DII
12%
Others
12%
-
500
1,000
1,500
2,000
2,500
3,000
FY13A FY14A FY15E FY16E
Rs. b
n
0%
5%
10%
15%
20%
25%
30%
35%
FY13A FY14A FY15E FY16E
RoA RoE
Page 3 of 13
HDFC has underperformed in the past two years
HDFC Limited has seen a de-rating in the past three years post the conversion
of call option by NCD holders in August 2012 and is now trading one standard
deviation below its historical mean. The company also was one of the biggest
underperformers among financials post 31-Mar-2014 (up 9% vs Bankex 18%). In
our opinion, the reasons for this underperformance are
Concerns on increasing competitive intensity: Over the past two years
PSU banks have started focusing on retail loans, especially housing loans
as growth avenues from other sectors were bleak. Moreover, the removal
of pre-payment penalties by the regulator in October 2011 further
increased the expectation of pressure on spreads.
Reported profitability growth declined: HDFC Limited’s reported
standalone PAT growth declined from > 20% in FY10 and FY11 to 12% in
FY14 (see figure 2).
Stress in the real estate sector: The weak macro economy had an impact
on the real estate sector, with players across the sector weighed down
(LINK) and multiple instances of defaults by developers including Hirco
PLC, Orbit Corp were mentioned in the media. HDFC Limited had
exposure to Hirco which it was able to recover in Q4FY14.
Figure 1 HDFC Limited has de-rated in the past three years Figure 2 Standalone PAT growth declined in last three years
Source: Espirito Santo Investment Bank Research, Company Data Source: Espirito Santo Investment Bank Research, Company Data
Figure 3 HDFC Limited remained one of the biggest underperformers since Jan2013
Since 15-May-14 Since 01-Jan-13 Since 31-Mar-14
Absolute
performance
Relative to
Bankex
Absolute
performance
Relative to
Bankex
Absolute
performance
Relative to
Bankex
Mahindra Finance 10% 4% 21% 15% 8% -8%
HDFC Limited 7% 1% 16% 10% 9% -7%
Sundaram Finance 22% 15% 76% 67% 38% 17%
Rural Electrification 26% 20% 37% 30% 50% 27%
Shriram Transport Finance 6% 0% 14% 8% 13% -4%
Power Finance 27% 21% 44% 37% 55% 31%
LIC Housing 7% 2% 7% 2% 36% 15%
Bajaj Finance 19% 13% 56% 48% 15% -2%
IDFC 6% 1% -26% -30% 5% -11%
BANKEX 6% 18% 18%
Source: Espirito Santo Investment Bank Research, Company Data
1.0
2.0
3.0
4.0
5.0
6.0
7.0
3/0
6
3/0
7
3/0
8
3/0
9
3/10
3/11
3/12
3/13
3/14
PB Std Dev(-2) Std Dev(-1)
Mean Std Dev(+1) Std Dev(+2)
24%25%
17%18%
12%
0%
5%
10%
15%
20%
25%
30%
2010 2011 2012 2013 2014
Sta
nd
alo
ne
PA
T g
row
th
Page 4 of 13
Concerns on future loan book growth outlook: HDFC is the largest NBFC
in India with a loan book of around Rs2trillion ($33bn) as of FY14 and
market share of more than 15% in individual housing. Investors’ concern
that outlook for future loan book growth is bleak is overdone in our view.
Concerns, though justified, are largely exaggerated
We believe that the investors’ concerns are overly exaggerated given:
Gained market share & retained spreads: In the past two years, HDFC
Limited has gained market share in the individual segment it operates in
despite increasing competitive intensity (see figure 5). In addition to this
the company maintained spreads in its individual business (see charts
below). We expect the company to continue gaining market share from
banks on account of a) reduced focus from banks on housing loans as
growth in wholesale portfolio starts and b) inherent competitive
advantages the company enjoys in terms of cost of funding, cost of
operations and strong underwriting.
Reduction in NIMs was by choice and not forced: The main reason behind
the company showing lower growth in PAT for the year was reduction in
NIMs on a blended basis (see table below), which was mainly due to the
fact that the company relied on the individual segment for growth rather
than the corporate segment (see figure 9). This was clearly by choice
given that the company didn’t want to grow its corporate portfolio faster
when the economic environment was deteriorating. However, the
company clearly holds a competitive advantage in this segment which it
has shown over the last many years. We think as the economic
environment improves, NIMs will return to a growth trajectory. We expect
the company to maintain 18% CAGR loan book growth over the next five
years.
Figure 4 HDFC is able to maintained spreads Figure 5 HDFC Limited maintained market share in retail home loans
Source: Espirito Santo Investment Bank Research, Company Data Source: Espirito Santo Investment Bank Research, Company Data
Accounting profit growth remained strong: Though the reported profit
growth declined in FY13 and FY14 on account of a) decline in ‘Profit from
Sale of Investments’, b) shift towards the individual segment from the
corporate segment (Individual business has first year strain on account of
acquisition cost), and c) decline in zero coupon bonds adjustments from
balance sheet (see charts below).
HDFC’s credit quality remained impeccable: Despite increased stress in
the real estate sector, HDFC’s credit quality remained strong with GNPA
of just 0.69% in the non-housing segment as of FY14. In one large account
which turned delinquent, the company was able to recover entire money
with a year.
2.24%
2.25%
2.26%
2.27%
2.28%
2.29%
2.30%
2.31%
2.32%
2.33%
2.34%
FY10 FY11 FY12 FY13 FY14
13.0%
13.5%
14.0%
14.5%
15.0%
15.5%
20
10
20
11
20
12
20
13
20
14
HD
FC
Mark
et
Sh
are
in
re
tail
ho
usin
g l
oan
s
Page 5 of 13
Figure 6 Premium amortised through Balance Sheet (Rs Mn) Figure 7 Profit from Sale of Investments (Rs Mn)
Source: Espirito Santo Investment Bank Research, Company Data Source: Espirito Santo Investment Bank Research, Company Data
India mortgage market is long way from maturity: Despite the concerns
on the size of the company and size of the sector, we are upbeat on the
growth potential of the sector. We expect the sector to growth at 17%-
18% CAGR over next five years and HDFC Limited to gain market share on
account of a) lower penetration of mortgages at just 9% of GDP versus
20% for other emerging markets and more than 30% for developed
markets, b) favorable demographics with median age of less than 30
years versus average house acquisition age of 35 years and c)
comfortable ticket size for (Rs2.2mn).
Figure 8 Core PBT (Rs Bn) Figure 9 Individual proportion has increased in last two years
Source: Espirito Santo Investment Bank Research, Company Data Source: Espirito Santo Investment Bank Research, Company Data
New government can provide further impetus to this segment
Most of the stocks in the Indian financial sector are up as the market expects
the new government to speed up reforms. While analyzing the government’s
focus areas, we found many reasons to be upbeat on the housing space
Prime Minister, Mr. Narendra Modi, has promised housing for all by 2022
(LINK).
In the election manifesto, the BJP had promised to build 100 new hi-tech
cities (LINK).
Affordable housing a top priority for Modi government (LINK).
-
1,000
2,000
3,000
4,000
5,000
6,000
2011 2012 2013 2014
Pre
miu
m a
mo
rtis
ed
th
rou
gh
Bala
nce
Sh
ee
t
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2011 2012 2013 2014
Pro
fit
fro
m S
ale
of
Inve
stm
en
ts
-
10
20
30
40
50
60
70
2008 2009 2010 2011 2012 2013 2014
Co
re P
BT
(R
s B
n)
66
%
66
%
66
%
65
%
66
%
66
%
68
%
71%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
Individuals Corporate Others
Page 6 of 13
According to NHB, as of 2013 there was a shortage of 18.78 mn units in urban
areas only. Assuming Rs3.0mn housing cost per unit and 80% financing this
provides a housing finance opportunity of Rs4.5trn from the urban market
alone versus housing loan industry size of Rs7.5trn as of Mar’13.
HDFC Limited is now one of the cheapest among tier-1 NBFCs
Our analysis suggests HDFC Limited is now the cheapest among the NBFCs,
with the lowest premium for future business/growth. We have compared the
inherent value, defined as the addition of value of existing loan book and net
worth, of HDFC with Tier-1 NBFCs (MMFS and SHTF). Housing being a long
term business and with very little additional operating cost for recovery adds
significant value versus NBFCs which average loan book tenure of less than 3
years and significant operating cost involved in collections.
Adjusted for value of current business, HDFC is trading at 1.8x FY14 Inherent
value versus 2.2x for MMFS and 1.7x for SHTF (see table below).
Figure 10 Home loans contribute higher than vehicle loan in value creation
Home Loan - Cash Flow @ 1.75% of Loans
Years 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Loan Outstanding 100 97 94 90 87 82 77 72 66 59 52 43 34 23 12 -
Average loan
99 96 92 88 84 80 75 69 63 55 47 39 29 18 6
Cash Flow
1.7 1.7 1.6 1.5 1.5 1.4 1.3 1.2 1.1 1.0 0.8 0.7 0.5 0.3 0.1
Present Value of Cash Flow
1.6 1.4 1.2 1.0 0.9 0.7 0.6 0.5 0.4 0.3 0.2 0.2 0.1 0.1 0.0
Total Present Value
9.1 Vehicle Loan - Cash Flow @ 3.5% of Loans
Years 0 1 2 3 4
Loan outstanding 100 79 55 28 - Average loan
89 67 42 14
Cash Flow
3.1 2.3 1.5 0.5 Present Value of Cash Flow
3 2 1 0
Total Present Value
6.3
Source: Espirito Santo Investment Bank Research, Company Data
Figure 11 HDFC has one of the lowest premium for growth
AUM (A) Net Worth (B) Multiple (C)
Inherent Value (IV)
= (A*C+B) Market Cap Mkt Cap/IV
MMFS 341,331 50,942 6.3% 72,446 156,410 2.2
SHTF 531,021 82,732 6.3% 116,187 198,330 1.7
HDFC 2,177,630 192,924 9.10% 391,088 721,471 1.8
Source: Espirito Santo Investment Bank Research, Company Data
In addition to the long term nature of the housing finance business, we believe
HFCs should always trade at premium to NBFCs with comparable RoEs on
account of a) the defensive nature of their loan book in terms of credit quality
and availability of collateral and b) negligible cost in servicing/unwinding
existing book. In addition to this, in case of structural decline in cost of capital
a long tenured book is much more valuable than a short tenured book.
Best diversified play on the Indian financial sector
In our opinion, HDFC Limited is the best diversified play on the Indian
Financial Sector and for a diversified firm gives exposure to a top 3 franchise
in each segment. HDFC Limited provides investors an opportunity to partner
India’s largest mortgage book, best managed private sector bank, largest
NBFC, third largest and one of the best managed Life Insurance and top-5
general Insurance (see figure 12).
Page 7 of 13
Low cost of funding and operating
costs coupled with strong underwriting
standards ensures pole position for
HDFC Limited in the mortgage
financing segment.
Figure 12 HDFC Limited is top ranked across segments (as of FY14)
Rank Bank
Ranked by Advances
NBFC
Ranked by AuM
Life Insurance
Ranked by AuM
General Insurance
Ranked by Gross
Premium
Asset Management
Ranked by AuM
1 ICICI Bank Rs3,319bn
HDFC Ltd
Rs2,258bn ICICI Pru Life
Rs748bn ICICI Lombard
Rs69bn HDFC Mutual Fund
Rs1,130bn
2 HDFC Bank Rs3,030bn
LIC Housing Rs913bn
SBI Life Rs539bn
Bajaj Allianz Rs45bn
ICICI Pru MF Rs1,068bn
3 Axis Bank Rs2,301bn
Shriram Transport Rs531bn
HDFC Standard Life
Rs489bn
IFFCO Tokio Rs29bn
Reliance MF Rs1,035bn
4 Yes Bank Rs556bn
Dewan Housing Rs448bn
Bajaj Life Rs333bn
HDFC ERGO
Rs29bn Birla Sun Life MF
Rs891bn
5 Indusind Bank
Rs551bn Indiabulls Rs412bn
Birla Life Rs234bn
Reliance Rs24bn
UTI Mutual Fund Rs742bn
Source: Espirito Santo Investment Bank Research
Best quality mortgage financier with pricing power
HDFC Limited is the best quality mortgage financier with a consistent growth
pattern and industry-leading return ratios. Our calculation suggests that HDFC
generates more than 25% RoEs on its mortgage book, which is one of the
highest in a commodity-like segment. Moreover, the company only targets
high quality borrowers at lower yields in the non-housing segment. This to us
suggests that the company has significant competitive advantage on cost of
funding, underwriting and operating costs.
Cost of funding: HDFC Limited has the most diversified sources of borrowings
with more than 30% of borrowings coming from fixed deposits (highest
among NBFCs). Moreover, the company is extremely flexible in accessing
funds from various sources depending on the situation; for example, the
company has reduced the proportion of bank loans to 13% in Dec’13 from 37%
in 2010. On the institutional side, HDFC Limited enjoys a favourable position
and is able to access funds at the lowest cost, given its brand, track record
and AAA rating.
Operating costs: HDFC Limited has the lowest operating costs (after adding
costs of HDFC Sales Private Limited) as a proportion of its loan book among
HFCs in spite of a) just 17% of sourcing from DSAs, b) fixed deposit origination
through branches. The reason in our view is its scale advantage and
origination through HDFC Bank (24% of total origination).
Strong underwriting: HDFC Limited accumulated credit losses of just 4bps
(on cumulative disbursements as of Dec’13) despite more than 30% of its loans
exposed to non-housing segment.
We believe that these competitive advantages are sustainable given a) its
experience in the industry, b) superior financial position and c) strong brand
name. In addition to this, HDFC enjoys rare pricing power among the housing
finance companies in the corporate portfolio.
Page 8 of 13
Figure 13 Funding Profile (HDFC Limited) Figure 14 Opex Ratio as proportion of AUM Figure 15 Sourcing
Source: Espirito Santo Investment Bank Research, Company Data Source: Espirito Santo Investment Bank Research, Company Data, * HDFC
operating expenses included operating expenses of HDFC Sales Private
Limited
Source: Espirito Santo Investment Bank Research, Company Data
Untapped pricing power in the corporate portfolio
The company lends to high quality corporates and real estate developers at
very competitive rates (average yields of less than 13%, lowest among HFCs).
In this segment, HDFC Limited remains the preferred choice of developers on
account of a) the formers’ understanding of the real estate market, b) balance
sheet size and capability to lend large ticket size loans, c) lower cost of
funding and d) banks’ averseness towards real estate developer.
We believe the company can easily pass on any increase in cost of funding to
this segment as we have seen during September-October of last year when
the company passed on 100bps increase in cost of funding in this segment.
Mortgage book Du-Pont
Table 1 HDFC Mortgage book Du-Pont
2011 2012 2013 2014 2015E 2016E 2017E
NII* 3.8% 3.6% 3.6% 3.6% 3.7% 3.7% 3.8%
Fee Income 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2%
Total Income 4.0% 3.8% 3.8% 3.7% 3.9% 3.9% 4.0%
Staff cost 0.2% 0.1% 0.2% 0.1% 0.1% 0.1% 0.1%
Other opex 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.1%
Operating profit 3.7% 3.5% 3.5% 3.4% 3.6% 3.6% 3.7%
Provisions 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%
Depreciation 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
PBT 3.6% 3.4% 3.4% 3.4% 3.5% 3.5% 3.6%
PAT 2.6% 2.5% 2.5% 2.5% 2.5% 2.6% 2.6%
RoE 35.3% 33.5% 29.3% 25.8% 26.8% 26.9% 27.4%
Leverage (x) 13.5 13.6 11.8 10.5 10.5 10.5 10.5
Source: Espirito Santo Investment Bank Research, Company Data, * NII is calculated after deducting premium amortized on zero coupon bonds
Subsidiaries have performed well
Table 2 Segmental RoEs of HDFC Limited
2010 2011 2012 2013 2014
Mortgage book 31% 35% 33% 29% 26%
Life Insurance -45% -16% 36% 41% 43%
General Insurance -75% -10% 8% 29% 28%
Asset Management 61% 51% 48% 49% 44%
GRUH Finance 28% 31% 34% 33% 32%
HDFC Bank 16% 17% 18% 20% 21%
Consolidated 19% 20% 22% 22% 22%
Source: Espirito Santo Investment Bank Research, Company Data
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2011 2012 2013 2014
Bonds Deposits Loans
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
HDFC* LICHF DEWH IHFL
Op
ex/A
UM
DSAs, 18%
HDFC
Bank, 24%HDFC
Sales
Private
Ltd., 46%
Direct ,
12%
Page 9 of 13
Figure 16 Difference in per share valuation of
key subsidiaries between ESS and consensus
(Rs)
Cons. ESS % diff
HDFC Life 68 78 16%
HDFC Ergo 6 19 237%
HDFC AMC 21 32 52%
Source: Espirito Santo Investment Bank Research, Bloomberg, Company data
Over the last five years, post the financial crisis, HDFC Limited’s subsidiaries
have gained market share, strengthened their market positioning, gained scale
and improved their profitability. All this has happened across the subsidiaries
in spite of adverse regulatory environment and weak macro-economic
fundamentals. In our previous note we had analysed the improvement in
fundamentals of subsidiaries (link). Below we provide the valuation
methodology for valuing each individual subsidiary.
HDFC Standard Life
We have valued the company on Appraisal Value method on FY16E
Embedded value and a 12x NBAP multiple (see table below).
Table 3 HDFC Life’s Valuation
Value Comments
a) Expected Embedded Value
FY16 90,992
Based on NBAP margin of 16% in FY15 & FY16
and 15% APE growth for FY15 and FY16
b) FY16 NBAP 6,473
We have assumed 18% VNB Margin and 20%
growth for FY15 and FY16
c) NBAP Multiple 12
d) Value of future business 77,671
Total Appraisal Value (a+d) 168,663
Source: Espirito Santo Investment Bank Research, Company Data
HDFC Ergo general Insurance: We have valued the company on discounted
cash flow methodology with valuation of Rs30,295mn.
Here again, the company has grown on the back of high growth in HDFC Bank
with around 40% of business coming from HDFC Bank.
HDFC Asset Management: We have valued the company on discounted cash
flow methodology with valuation of Rs.82,800, 5.5% of FY15E AUM and 14.6x
FY16E PAT.
GRUH Finance: We have used the current market value of the GRUH in our
valuation of HDFC Limited.
HDFC Bank: We are valuing HDFC Limited’s stake in HDFC Bank at the fair
value of our banking team, which is Rs975 per share.
Change in estimates
Table 4 Change in estimates
Old New % change
Rs millions FY14E FY15E FY14E FY15E FY14E FY15E
Loan Book 2,378,679 2,804,979 2,322,235 2,760,043 -2% -2%
Net Interest Income 81,266 95,855 78,905 93,456 -3% -3%
Total Income 98,916 115,305 95,732 112,167 -3% -3%
Operating expenses 7,068 7,920 6,936 7,775 -2% -2%
Pre Provisioning Profit 91,848 107,385 88,796 104,392 -3% -3%
Provisions 1,759 2073 1,717 2,033 -2% -2%
PBT 89,769 104,992 86,760 102,041 -3% -3%
PAT 65,532 76,644 63,334 74,490 -3% -3%
EPS (Rs)-Diluted 43 50 41 48 -3% -3%
Source: Espirito Santo Investment Bank Research, Company Data
Page 10 of 13
We have tweaked our FY15 and FY16 estimates on the back of FY14 numbers.
There are minor downgrades in our loan book and profitability estimates by
2%-3%.
Valuation
Figure 17 HDFC Limited SOTP Valuation
Stake Valuation Rs / Share Valuation Methodology
HDFC Bank 23% 530,516 340 Based on our target price of Rs.975
HDFC Standard Life 72% 122,112 78 Appraisal Value Method (FY16E EV+12xFY16E NBAP)
HDFC General Insurance 74% 28,920 19 Discounted Cash Flow (12x FY16 Earnings)
HDFC Asset Management 60% 49,258 32 Discounted Cash Flow (5.5% of FY16E AUM)
GRUH Finance 59% 42,727 27 Based on market value
Mortgage business
1,079,184 693 Excess return method (4.0x FY16E adjusted BV)
Other investments
11
Total SOTP
1,200
Source: Espirito Santo Investment Bank Research, Company Data
We have valued the company on a SOTP basis (valuation methodology for
individual companies mentioned above). HDFC’s core mortgage book is
trading at 2.7x FY16E book value, which is one of the lowest valuations for the
stock in the recent past. We have valued the mortgage business at 4.0x FY16E
book value which we feel is justified given sustainable RoEs of more than 25%,
high visibility on growth and low cyclicality in business.
On a consolidated basis, the company is trading at 2.9x FY16E book value,
which is one standard deviation below its historical mean valuation. We value
it at 3.6x FY16E book value. We believe HDFC Limited is a strong
compounding story with 18%-20% annual returns from current levels over the
longer term.
Figure 18 Relative Valuation Table *HDFC Limited valuations are of core mortgage book (priced as of 20th
June 2014)
Rating Mkt
Cap
CMP
(Rs)
3 Month
ADV
Fair
Value ROE (%) P/E P/B Adj
Div Yield
(%)
HFCs $mn $mn Rs FY15E FY16E FY15E FY16E FY15E FY16E FY15E
Dewan Housing Buy 690 313 6.3 300 19.0% 19.0% 6.6 5.6 1.2 1.0 2.6%
HDFC Limited* Buy 25,593 975 64.7 1,200 26.0% 27.0% 13.0 11.0 3.2 2.7 1.6%
LIC Housing Buy 2,712 320 20.2 310 19.7% 19.6% 10.2 8.8 1.9 1.6 1.7%
Rating
Mkt
Cap
CMP
(Rs)
3 Month
ADV
Fair
Value ROE (%) P/E P/B Adj
Div Yield
(%)
NBFCs $mn $mn Rs FY15E FY16E FY15E FY16E FY15E FY16E FY15E
Bajaj Finance Ltd Neutral 1,712 2,057 2.1 1,500 19.6% 19.8% 11.9 10.0 2.1 1.8 0.9%
Mahindra Finance Buy 2,615 272 10.7 295 20.0% 22.0% 13.4 10.8 2.6 2.2 1.4%
Manappuram Sell 340 24 1.5 23 15.4% 15.0% 4.8 4.6 0.6 0.6 15.1%
Shriram Transport Neutral 3,257 860 11.3 655 17.0% 18.0% 12.7 10.5 2.0 1.7 1.0%
SKS Microfinance Buy 556 264 7.9 241 36.0% 31.0% 14.3 11.8 4.4 3.2 0.0%
Shriram City Union Buy 1,526 1,390 1.7 1,100 18.0% 19.0% 15.1 12.0 2.5 2.1 0.8%
Sundaram Finance Buy 1,669 902 0.8 740 21.3% 20.8% 13.6 11.7 2.7 2.2 1.2%
Cholamandalam Neutral 905 378 0.6 300 19.0% 19.0% 11.9 10.0 2.0 1.8 1.1%
Source: Espirito Santo Investment Bank Research, Company Data
Page 11 of 13
Valuation Methodology
We have valued HDFC Limited’s mortgage book using an excess return on
equity methodology with a CoE of 13%. We have used a two-stage model with
a thirty eight year time horizon: 10 years of explicit forecast and the
subsequent years of declining RoE to CoE.
Figure 19 HDFC DCF disclosures
Source: Espirito Santo Investment Bank Research, Company Data
Risks to Fair Value
Economic risk factors: Any deterioration in the macro-economic scenario that
could impact housing prices negatively will be a key risk for the stock. Any
further intensification in the competitive scenario in the Indian mortgage
industry may affect the company’s margins. An increase in interest rates from
current levels could also impact margins.
Business risk factors: Moreover, HDFC Limited and its subsidiaries are
dependent on HDFC Bank for distribution which may get impacted on account
of regulations as explained in our previous note (LINK). Moreover, if HDFC
Bank starts to lose market share our growth assumptions for future years may
be under risk.
Please visit our website at www.EspiritoSantoIB.co.uk for up to date recommendation charts.
Cost of Equity 13.0%
Shares in Issue 1,558
Rs. Mn Rs./share
Free cash flow to equity NPV 1,079,184 693
Rs. Mn Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23 Mar-24 Mar-25 Mar-26 Mar-27 Mar-28 Mar-29 Mar-30 Mar-31 Mar-32 Mar-33
Beginning book Value 192,924 226,871 266,797 313,987 369,929 435,940 513,147 602,825 705,898 824,228 959,421 1,093,338 1,242,873 1,409,368 1,594,205 1,798,803 2,024,604 2,273,059 2,545,616
Net Profit 55,296 65,786 79,722 95,877 114,068 134,667 157,217 181,417 209,011 239,515 273,298 305,175 339,785 377,219 417,547 460,818 507,052 556,239 608,336
Cost of Equity 25,080 29,493 34,684 40,818 48,091 56,672 66,709 78,367 91,767 107,150 124,725 142,134 161,574 183,218 207,247 233,844 263,199 295,498 330,930
ROAE 29% 29% 30% 31% 31% 31% 31% 30% 30% 29% 28% 28% 27% 27% 26% 26% 25% 24% 24%
Excess Return 30,216 36,293 45,038 55,059 65,977 77,995 90,508 103,050 117,245 132,365 148,574 163,041 178,211 194,001 210,301 226,973 243,853 260,741 277,406
Discount Factor 0.9 0.8 0.7 0.6 0.6 0.5 0.4 0.4 0.3 0.3 0.3 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.1
Present Value 27,503 29,233 32,104 34,732 36,831 38,531 39,569 39,869 40,142 40,106 39,838 38,687 37,422 36,051 34,584 33,032 31,406 29,718 27,980
Rs. Mn Mar-34 Mar-35 Mar-36 Mar-37 Mar-38 Mar-39 Mar-40 Mar-41 Mar-42 Mar-43 Mar-44 Mar-45 Mar-46 Mar-47 Mar-48 Mar-49 Mar-50 Mar-51 Mar-52
Beginning book Value 2,843,701 3,168,698 3,521,934 3,904,648 4,317,978 4,762,925 5,240,336 5,750,874 6,294,988 6,872,891 7,484,534 8,129,573 8,807,357 9,516,898 10,256,855 11,025,519 11,820,802 12,640,229 13,480,936
Net Profit 663,260 720,888 781,050 843,529 908,056 974,309 1,041,913 1,110,437 1,179,395 1,248,249 1,316,408 1,383,233 1,448,042 1,510,116 1,568,703 1,623,027 1,672,300 1,715,727 1,752,522
Cost of Equity 369,681 411,931 457,851 507,604 561,337 619,180 681,244 747,614 818,348 893,476 972,989 1,056,845 1,144,956 1,237,197 1,333,391 1,433,318 1,536,704 1,643,230 1,752,522
ROAE 23% 23% 22% 22% 21% 20% 20% 19% 19% 18% 18% 17% 16% 16% 15% 15% 14% 14% 13%
Excess Return 293,579 308,957 323,199 335,925 346,719 355,129 360,669 362,823 361,047 354,773 343,418 326,388 303,086 272,919 235,311 189,710 135,596 72,498 -
Discount Factor 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Present Value 26,204 24,404 22,592 20,780 18,981 17,204 15,463 13,766 12,122 10,541 9,030 7,595 6,241 4,973 3,795 2,707 1,713 810 -
HDFC excess return on equity calculation
Housing Dev Fin HDFC IN
Report date Recommendation Fair value Share price
2014 April 2 Buy Rs1000.00 Rs880.00
2013 August 30 Buy Rs865.00 Rs650.00
February 25 Neutral Rs838.00 Rs815.05
2012 November 27 Neutral Rs837.06 Rs779.35
2011 December 9 Neutral Rs722.00 Rs669.00
Source: Bloomberg, Espirito Santo Investment Bank Research
B
B
NN
N
600
650
700
750
800
850
900
950
1000
Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
Buy Trading Buy Neutral Trading Sell Sell Restricted Dropped Coverage
Page 12 of 13
IMPORTANT DISCLOSURES
120614
This report was prepared by Espírito Santo Investment Bank Research, a global brand name for the equity research teams of Banco Espírito Santo de Investimento, S.A., with headquarters in Lisbon, Portugal, of its Branches in Spain and Poland and of its affiliates BES Securities do Brasil, S.A – Corretora de Câmbio e Valores Mobiliários, in Brazil, Execution Noble Limited, in the United Kingdom, and Espirito Santo Securities India Private Limited, in India, all authorized to engage in securities activities according to each domestic legislation. All of these entities are included within the perimeter of the Financial Group controlled by Espírito Santo Financial Group S.A. (“Banco Espírito Santo Group”).
Analyst Certification
Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers; the issuers were not previously informed about the content of the recommendation included in this research report and the assumptions were not validated by the issuers; (2) no part of his or her compensation is directly or indirectly related to: (a) the specific recommendations or views expressed by that research analyst in the research report; and/or (b) any services provided or to be provided by Banco Espírito Santo de Investimento, S.A. and/or by any of its affiliates to the issuer of the securities under recommendation. Moreover, each of the analysts hereby certifies that he or she has no economic or financial interest whatsoever in the companies subject to his or her opinion and does not own or trade any securities issued by the latter.
Ratings Distribution
Espirito Santo Investment Bank Research hereby provides the distribution of the equity research ratings in relation to the total Issuers covered and to the investment banking clients as of end of March 2014.
Explanation of Rating System Ratings Distribution
12-MONTH RATING DEFINITION
BUY Analyst expects at least 10% upside potential to fair value, which should be realized in the next 12 months
NEUTRAL Analyst expects upside/downside potential of between +10% and -10% to fair value, which should be realized in the next 12 months
SELL Analyst expects at least 10% downside potential to fair value, which should be realized in the next 12 months
As at end March 2014 Total ESIB Research
Total Investment Banking Clients (IBC)
Recommendation Count % of Total Count % of IBC % of Total
12 Month Rating:
Buy 199 46.1% 26 81.3% 6.0%
Neutral 135 31.3% 4 12.5% 0.9%
Sell 97 22.5% 2 6.3% 0.5%
Restricted 0 0.0% 0 0.0% 0.0%
Under Review 1 0.2% 0 0.0% 0.0%
TRADING RATING DEFINITION
TRADING BUY Analyst expects a positive short-term movement in the share price (max duration 3 months from the time Trading Buy is announced) and may move out of line with the fair value estimate during that period
TRADING SELL Analyst expects a negative short-term movement in the share price (max duration 3 months from time Trading Sell is announced) and may move out of line with the fair value estimate during that period
Trading Rating:
Trading Buy 0 0.0% 0 0.0% 0.0%
Trading Sell 0 0.0% 0 0.0% 0.0%
Total recommendations 432 100% 32 100% 7.4%
For further information on Rating System please see “Definitions and distribution of ratings” on: http://www.espiritosantoib-research.com.
Share Prices
Share prices are as at the close of business on the day preceding publication, unless otherwise specified.
Coverage Policy
Espírito Santo Investment Bank Research reserves the right to choose the securities it expresses opinions on. The main criteria to choose such securities are: 1) markets in which they trade 2) market capitalisation 3) liquidity, 4) sector suitability. Espírito Santo Investment Bank Research has no specific policy regarding the frequency in which opinions and investment recommendations are released.
Representation to Investors
Espírito Santo Investment Bank Research has issued this report for information purposes only. This material constitutes "investment research" for the purposes of the Markets in Financial Instruments Directive and as such contains an objective or independent explanation of the matters contained in the material.
Any recommendations contained in this document must not be relied upon as investment advice based on the recipient's personal circumstances. This report is not, and should not be construed as an offer or a solicitation to buy or sell any securities or related financial instruments. The investment discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. The material in this research report is general information intended for recipients who understand the risks associated with investment. It does not take account of whether an investment, course of action, or associated risks are suitable for the recipient. This research report does not purport to be comprehensive or to contain all the information on which a prospective investor may need in order to make an investment decision and the recipient of this report must make its own independent assessment and decisions regarding any securities or financial instruments mentioned herein. In the event that further clarification is required on the words or phrases used in this material, the recipient is strongly recommended to seek independent legal or financial advice. Where an investment is denominated in a currency other than the investor’s currency, changes in rates of exchange may have an adverse effect on the value, price of, or income derived from the investment. Past performance is not necessarily a guide to future performance. Income from investments may fluctuate. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. Any recommendation and opinion contained in this report may become outdated as a consequence of changes in the environment in which the issuer of the securities under analysis operates, in addition to changes in the estimates and forecasts, assumptions and valuation methodology used herein. The securities mentioned in this publication may not be eligible for sale in some states or countries.
All the information contained herein is based upon information available to the public and has been obtained from sources believed to be reliable. However, Espírito Santo Investment Bank Research does not guarantee the accuracy or completeness of the information contained in this report. The opinions expressed herein are Espírito Santo Investment Bank Research present opinions only, and are subject to change without prior notice. Espírito Santo Investment Bank Research is not under any obligation to update or keep current the information and the opinions expressed herein nor to provide the recipient with access to any additional information.
Espírito Santo Investment Bank Research has not entered into any agreement with the issuer relating to production of this report. Espírito Santo Investment Bank Research does not accept any form of liability for losses or damages which may arise from the use of this report or its contents.
Ownership and Material Conflicts of Interest
Banco Espírito Santo de Investimento, S.A. and/or its Affiliates (including all entities within Espírito Santo Investment Bank Research) and/or their directors, officers and employees, may have, or have had, interests or qualified holdings on issuers mentioned in this report. Banco Espírito Santo de Investimento, S.A. and/or its Affiliates may have, or have had, business relationships with the companies mentioned in this report. However, the research analysts may not purchase or sell securities or have any interest whatsoever in companies subject to their opinion.
Banco Espírito Santo Group has a qualified shareholding (1% or more) in Oi and Providência. Bradesco has an indirect qualified shareholding (4.8%) in Banco Espírito Santo, S.A. and a direct qualified shareholding (20%) in BES Investimento do Brasil, S.A., the parent company of BES Securities do Brasil S.A. CCVM.
Pursuant to Polish Ministry of Finance regulations, we inform that Banco Espírito Santo Group companies and/or Banco Espírito Santo de Investimento, S.A. Branch in Poland do not have a qualified shareholding in the Polish Securities Issuers mentioned in this report higher than 5% of its total share capital.
Mr. Rafael Valverde, a member of the board of Banco Espírito Santo de Investimento, S.A., is a non-executive board member of EDP Renováveis. Mr. Ricardo Abecassis Espírito Santo Silva, a member of the board of Banco Espírito Santo de Investimento, S.A., is a board member of Brazil Hospitality Group.
Banco Espírito Santo de Investimento, S.A and/or its subsidiaries are liquidity providers or market makers for Altri, Usiminas and Vale.
Banco Espírito Santo de Investimento, S.A. and/or its subsidiaries participate or have participated in the last 12 months as a syndicate member in share offerings of 4imprint, Brazil Hospitality Group, Capital Park, CTT, EDP, Iguatemi, Just Retirement, Klabin, Liberbank, Mota-Engil, Oi, Prime Car Management (Masterlease), Sports Direct and Zon Optimus.
Banco Espírito Santo de Investimento, S.A. and/or its subsidiaries participate or have participated in the last 12 months as a syndicate member in the bond issues of the following companies: Abengoa, Altri, EDP, Globe Trade Centre, Kredyt Inkaso and Sonae.
Banco Espírito Santo de Investimento, S.A. and/or its subsidiaries provided in the last 12 months investment banking services to the following companies: 4imprint, Abengoa, Altri, Brazil Hospitality Group, Burford Capital, Capital Park, Casino Guichard, Dinamia, EDP, EDP Renovaveis, Ence, Galp Energia, Globe Trade Centre, Godrej Consumer Products, Iguatemi, Inditex, IQE, Just Retirement, Kcom Group, Klabin, Kredyt Inkaso, Kruk, Laird, Liberbank, Mota-Engil, Novae Group Plc, Oi, Prime Car Management (Masterlease), REN, Semapa, Sonae, Sonaecom, Sports Direct, SVG Capital, Ted Baker, Xchanging and Zon Optimus.
Page 13 of 13
Banco Espírito Santo Group has been a partner to Mota-Engil in the infrastructure business in Portugal and other countries. Mota-Engil and Banco Espírito Santo Group, through ES Concessões, S.G.P.S., S.A., have created a joint holding company – Ascendi – for all stakes in transportation infrastructure concessions, in Portugal and abroad. Banco Espírito Santo de Investimento, S.A. provided, or continues to provide, investment banking services to Ascendi.
Banco Espírito Santo de Investimento, S.A. and/or its subsidiaries do and seek to provide investment banking or other services to the companies referred to in this research report. As a result, investors should be aware that a conflict of interest may exist.
Market Making UK
Execution Noble Limited is a Market Maker in companies covered and may sell to or buy from customers as principal in certain financial instruments listed or admitted to listing on the London Stock Exchange. For information on Companies to which Execution Noble Limited is a Market Maker please see “Execution Noble Limited UK Market Making” on http://www.espiritosantoib-research.com.
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This report cannot be reproduced, in whole or in part, in any form or by any means, without Espírito Santo Investment Bank Research’s specific written authorization. This report is confidential and is intended solely for the designated addressee. Therefore any disclosure, replication, distribution or any action taken in reliance on it, is prohibited and unlawful. Receipt and/or review of this research report constitutes your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this report (including any investment recommendations, estimates or price targets without first obtaining express permission from an authorized officer of Banco Espírito Santo de Investimento, S.A.
Regulatory Authorities
For information on the identity of the Regulatory Authorities that supervise the entities included within Espírito Santo Investment Bank Research please see http://www.espiritosantoib-research.com.
IMPORTANT DISCLOSURES FOR U.S. PERSONS
This report was prepared by Espírito Santo Investment Bank Research, a global brand name for the equity research teams of Banco Espírito Santo de Investimento, S.A., with headquarters in Lisbon, Portugal, of its Branches in Spain and Poland and of its affiliates BES Securities do Brasil, S.A – Corretora de Câmbio e Valores Mobiliários, in Brazil, Execution Noble Limited, in the United Kingdom, and Espirito Santo Securities India Private Limited, in India, all authorized to engage in securities activities according to each domestic legislation. Neither Banco Espírito Santo de Investimento, S.A. nor these affiliates are registered as a broker-dealer in the United States and therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This report is provided for distribution to U.S. institutional investors in reliance upon the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended.
This report is confidential and not intended for distribution to, or use by, persons other than the addressee and its employees, agents and advisors.
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Contact Information
Garreth Hodgson Senior Managing Director / Head of Sales (212) 351-6054 [email protected]
Eva Gendell Vice President (212) 351-6058 [email protected]
Hande Cuhruk Vice President (212) 351-6070 [email protected]
Jack Fernandez Executive Director (212) 351-6064 [email protected]
James Kaloudis Executive Director (212) 351-6065 [email protected]
Mike Williams Vice President (212) 351-6052 [email protected]
Pedro Marques Vice President (212) 351-6051 [email protected]
Tatiana Sarandinaki Vice President (212) 351-6055 [email protected]
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Each analyst whose name appears in this report certifies the following, with respect to each security or issuer that the analyst covers in this report: (1) that all of the views expressed in this report accurately reflect the personal views of the analyst about those securities and issuers; and (2) that no part of the compensation of the analyst was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the analyst in this report.
The analysts whose names appear in this report are not registered or qualified as research analysts with the Financial Industry Regulatory Authority ("FINRA") and may not be associated persons of E.S. Financial Services, Inc. and therefore may not be subject to the applicable restrictions under FINRA Rules on communications with a subject company, public appearances and trading securities held by a research analyst account.
Ownership and Material Conflicts of Interest
Banco Espírito Santo de Investimento, S.A. and/or its Affiliates and/or their directors, officers and employees, may have, or have had, interests or qualified holdings on issuers mentioned in this report. Banco Espírito Santo de Investimento, S.A. and/or its Affiliates may have, or have had, business relationships with the companies mentioned in this report.
For a complete list of the covered Issuers in which Banco Espírito Santo de Investimento, S.A. or its Affiliates hold stakes in excess of 1% and for information on possible material conflicts of interest arising from investment banking activities please see “Important disclosures for US persons” on http://www.espiritosantoib-research.com.
Receipt of Compensation
For information on Receipt of Compensation from subject Issuers please see “Important disclosures for US persons” on http://www.espiritosantoib-research.com.
Representation to Investors
Espírito Santo Investment Bank Research has issued this report for information purposes only. All the information contained therein is based upon information available to the public and has been obtained from sources believed to be reliable. However, Espírito Santo Investment Bank Research does not guarantee the accuracy or completeness of the information contained in this report. The opinions expressed herein are our present opinions only, and are subject to change without prior notice. Espírito Santo Investment Bank Research is not under any obligation to update or keep current the information and the opinions expressed herein. This report is not, and should not be construed as an offer or a solicitation to buy or sell any securities or related financial instruments. The investment discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Where an investment is denominated in a currency other than the investor’s currency, changes in rates of exchange may have an adverse effect on the value, price of, or income derived from the investment. Past performance is not necessarily a guide to future performance. Income from investments may fluctuate. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. Any recommendation and opinion contained in this report may become outdated as a consequence of changes in the environment in which the issuer of the securities under analysis operates, in addition to changes in the estimates and forecasts, assumptions and valuation methodology used herein. The securities mentioned in this publication may not be eligible for sale in some states or countries. Espírito Santo Investment Bank Research does not accept any form of liability for losses or damages which may arise from the use of this report. Please note that investing in any non-U.S. securities or related financial instruments discussed in this research report may present certain risks. The securities of non-U.S. issuers may not be registered with the U.S. Securities and Exchange Commission or subject to regulation in the United States. Information on such non-U.S. securities or related financial instruments may be limited. Foreign companies may not be subject to audit and reporting standards and regulatory requirements comparable to those in the United States.
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