BUY Target Price: Rs 1,400

Consistent; gaining ground faster HDFC Bank (HDFCB) reported an in-line Q4FY16, with PAT of Rs 33.7bn (up 20% YoY) driven by robust 24% YoY growth in NII. Hallmark of earnings was 27% YoYgrowth in advances significantly above industry s growth rate (~11% YoY); the beat implies market share gain for HDFCB in both retail and corporate segments. NIM was resilient at 4.3% and asset qualitypristine. Our view: HDFCB s business growth will continue, and the bank will gain market share further. Expect CAGR loan growth at 24% over FY16-18. Foresee headwinds to margins from MCLR regime and increased competition, though impact would be marginal. Management is confident of maintaining margins in the range of 4.0-4.4%. 25 APR 2016 Quarterly Update BUY Target Price: Rs 1,400 CMP : Rs 1,092 Potential Upside : 28% MARKET DATA No. of Shares : 2,528mn Free Float : 74% Market Cap : Rs2,762bn 52-week High / Low : Rs1,128 / Rs929 Avg. Daily vol. (6mth) : 1.5 mn shares Bloomberg Code : HDFCB IB Equity Promoters Holding : 26% FII / DII : 32% / 14% Q4 key highlights: (a) Loan growth (+27%YoY) was propped up by both retail (+30%YoY) and wholesale (+27%YoY) loans; (b) spike in home loan portfolio was from HDFCB buying out 70% of loans originated for HDFC Ltd (vs 50% earlier); (c) LDRimproved to 85% (up ~160 bps QoQ),as deposit growth (+21%) lagged advances growth; (d) GNPA ratio improved slightly to 0.94% while NNPA ratio was flat QoQ; (e) ~Rs3bn of floating provisions were drawn down to provide against agri-credit facility lent to Punjab and a large corporate account;(f) non-interest income growth (+11.8% YoY) was tepid, dragged down by volatile streams, with core fee income posting healthy growth (+18% YoY). Valuation and view:we expect RoA to increase to ~2% in medium term on the back of market share gains, fee income growth, and maturing investments in branch network. Focus on rural and digital initiatives would also bear meaningful dividends. HDFCB remains an enviable franchise and will continue to demand valuation premium. It is amongst our top picks in the sector.at CMP of Rs 1,092 the stock trades at 3.3x/2.8x FY17E/FY18E ABV of Rs330/Rs387. We roll forward our estimates to FY18, valuing HDFCB at 3.6x FY18 P/ABV to arrive at TP of Rs 1,400 (28% upside from CMP). Financial summary (Standalone) PAT (Rs bn) 102 123 146 177 EPS (Rs) 41 49 58 70 EPS chg 15.3 19.3 18.8 21.4 Book value (Rs) 247 287 334 391 Adj. BV (Rs) 245 284 330 387 PE (x) 26.8 22.5 18.9 15.6 P/ABV (x) 4.5 3.8 3.3 2.8 RoE 19.4 18.3 18.6 19.4 RoA 1.9 1.9 1.9 1.9 Net NPA 0.2 0.3 0.3 0.2 Key drivers Q2FY16 Q3FY16 Q4FY16 Loan growth (YoY) 28 26 27 NIM 4.2 4.3 4.3 CASA 40 40 43 GNPA ratio 0.9 1.0 0.9 Price performance 120 100 Sensex HDFC Bank 80 60 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 01

Q4FY16 results highlights Loan growth well above industry: Growth in Advances (+27% YoY) to Rs4.65tn was driven equally by retail loans (up ~30% YoY) and wholesale loans (up 27.2% YoY). Growth in retail advances was across the board, with each subsegment growing at a pace significantly above the system. The bank is constantly gaining market share, and we expect this trend to continue.we expect HDFCB to report CAGR loan growth of 24% over FY16-18. Exhibit 1: Market share of system advances & deposits 7 6 5 4 4.3 4.2 Advances 5.1 4.6 4.4 Deposits 4.8 5.4 5.1 6.3 5.6 We believe HDFCB will continue growing above the industry, and gain market share We expect HDFCB to report CAGR loan growth of 24% over FY16-18 3 FY12 FY13 FY14 FY15 FY16 LDR improves, CASAamongst best in class: LDR ratio increased to 85% (up ~160 bps QoQ) as Deposits (+21% YoY) grew a tad slower than advances. CASA ratio remained best in class at 43%, and was driven more by CA (up 20.2% YoY to Rs 0.9tn) than SA (up 18% YoY to Rs1.5tn). However, the sharp jump in CA deposits could be on account of seasonal trend. Exhibit 2: Trend in advances and deposits growth 35 Advances Growth Deposits Growth 30 25 23 25 23 30 30 28 27 26 27 20 15 19 21 22 22 21 21 17 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 NIM resilient at 4.3%:Despite declining yields (base rate cut at the beginning of the quarter), NIM stood its ground at 4.3% and was set off by decline in cost of deposits. We foresee headwinds to margins from MCLR regime and increased competition, though the impact would be marginal. The management is confident of maintaining the margins in the range of 4-4.4% 02

Healthy pick-up in core fee income:non-interest income growth (+13% YoY) howeverwas tepid, dragged down by volatile streams. Nonetheless, core fee income posted healthy growth (+18% YoY) well-supported by volume increase in insurance and mutual fund units Healthy asset quality:asset quality remained pristine and improved moderately, as GNPAs declined to 0.94% while NNPAs came in flat at 0.28% (0.29% in Q3FY16).Slippages were at Rs 17 bn (1.5%) and ~Rs 3.0 bn of floating provisions were drawn down to provide against agri-credit facility lent to Punjab and a large corporate account. O/s restructured loans remained stable at 0.1% of advances. 24 APR 2016 Quarterly Update Pick-up in loangrowth will push fee income up in medium term Exhibit 3: Trend in headline asset quality numbers GNPA NNPA PCR (RHS) 1.2 1.0 0.8 0.9 1.0 0.9 1.0 0.9 75 73 0.6 71 0.4 0.2 0.2 0.3 0.3 0.3 0.3 69 0.0 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 67 Aggressively expanding footprint: The bank continued adding branches (239 in 4Q; 506 for FY16) while maintaining cost-to-income ratio. Exhibit 4: Rapid branch expansion but with controlled costs 5,000 Existing Branches Additions Cost to Income (RHS) 4,500 506 4,000 3,500 50 50 611 3,000 341 518 2,500 46 558 2,000 45 44 1,500 1,000 FY12 FY13 FY14 FY15 FY16 52 50 48 46 44 42 40 We believe expanding branch network and focus on rural and digital presence will provide rich dividends, as and when these investments mature 03

Exhibit 5: Results update 24 APR 2016 Quarterly Update Quarter ended 12 months ended (Rs mn) Mar-16 Mar-15 % Chg Dec-15 % Chg Mar-17E Mar-16 % Chg Interest income 159,968 130,064 23 154,111 4 728,153 602,215 21 Interest expended 85,434 69,932 22 83,426 2 394,065 326,299 21 Net interest income 74,533 60,132 24 70,685 5 334,088 275,915 21 Non-interest income 28,659 25,638 12 28,722 (0) 127,288 107,517 18 Net income 103,192 85,769 20 99,407 4 461,376 383,432 20 Operating expenses 45,843 38,550 19 42,048 9 204,640 169,797 21 Operating profit 57,349 47,220 21 57,359 (0) 256,736 213,636 20 Provision & Contingencies 6,625 5,767 15 6,539 1 36,154 27,256 33 PBT 50,725 41,453 22 50,820 (0) 220,582 186,379 18 Tax 16,982 13,384 27 17,251 (2) 74,557 63,417 18 Net profit 33,742 28,069 20 33,568 1 146,025 122,962 19 Yields & Margins Yield on advances 10.6 11.0 (0.4) 10.7 (0.1) 10.6 10.8 (0.2) Cost of funds 5.8 5.9 (0.1) 5.8 (0.1) 5.9 6.0 (0.1) Net interest margin 4.3 4.4 (10) bps 4.3 0 bps 4.5 4.6 (4)bps Cost to income ratio 44.4 44.9 (52) bps 42.3 213 bps 44.4 44.3 7 bps Asset quality Gross NPAs (Rs bn) 43.9 34.4 27.8 42.6 3.2 54.5 43.9 24.0 Gross NPAs 0.9 0.9 1 bps 1.0 (3) bps 0.9 0.9 (1) bps Net NPAs (Rs bn) 13.2 9.0 47.3 12.6 4.7 15.2 13.2 15.5 Net NPAs 0.3 0.2 8 bps 0.3 (1) bps 0.3 0.3 (2) bps Provisioning coverage 69.9 73.9 (399) bps 70.4 (43) bps 72.0 69.9 206 bps Capital Tier-I 13.2 13.7 (50) bps 13.2 0 bps 12.2 13.2 (103) bps CAR 15.5 16.8 (130) bps 15.9 (40) bps 15.0 15.5 (55) bps Balance sheet (Rs bn) Advances 4,646 3,655 27 4,370 6.3 5,807 4,646 25.0 Deposits 5,464 4,508 21 5,240 4.3 6,725 5,464 23.1 CASA 43.2 44.0 (78) bps 40.0 327 bps 41.9 43.2 (135) bps Note: Full year ratios are on calculated basis 04

Financial summary (Standalone) Profit & loss (Rsbn) Interest earned 485 602 728 875 Interest expended (261) (326) (394) (476) Net interest income 224 276 334 399 Non interest income 90 108 127 150 Net income 314 383 461 548 Operating expenses (140) (170) (205) (238) Staff expenses (48) (57) (69) (76) Other operating expenses (92) (113) (136) (161) Operating profit 174 214 257 311 Provisions & contingencies (21) (27) (36) (44) Pre-tax profit 153 186 221 267 Tax expense (51) (63) (75) (90) Profit after tax 102 123 146 177 Extraordinary item - - - - Minority interest/associates - - - - Adj. PAT 102 123 146 177 Balance sheet (Rsbn) Total assets 5,905 7,088 8,685 10,468 Cash & Balances with RBI 363 389 479 555 Investments 1,516 1,639 1,939 2,262 Advances 3,655 4,646 5,807 7,141 Fixed assets 31 33 35 37 Other assets 339 381 425 474 Total liabilities 5,905 7,088 8,685 10,468 Equity capital 5 5 5 5 Preference capital - - - - Reserves & surplus 615 722 838 984 Networth 620 727 843 990 Borrowings 452 530 636 735 Deposits 4,508 5,464 6,725 8,147 Other liabilities & prov. 325 367 480 597 Key ratios Per share data FDEPS (Rs.) 41 49 58 70 BV (Rs.) 247 287 334 391 Adj. BV (Rs.) 245 284 330 387 DPS (Rs.) 8 10 10 11 Dividend payout 20 20 17 15 Yields & Margins Yield on advances 11.1 10.8 10.6 10.4 Cost of deposit 5.7 5.8 5.8 5.7 Net interest margin 4.4 4.6 4.5 4.4 Asset quality Gross NPAs 0.9 0.9 0.9 0.9 Net NPAs 0.2 0.3 0.3 0.2 Credit cost 0.6 0.6 0.7 0.6 Provisioning coverage 73.9 69.9 72.0 74.0 Capital Tier-I 13.7 13.2 12.2 11.3 CAR 16.8 15.5 15.0 13.7 Efficiency ROA 1.9 1.9 1.9 1.9 ROE 19.4 18.3 18.6 19.4 Cost to income 45 44 44 43 CASA 44 43 42 40 Effective tax rate 33 34 34 34 Growth Net interest income 21 23 21 19 Fee income 7 18 18 18 Operating expenses 16 21 21 16 Profit after tax 20 20 19 21 Advances 21 27 25 23 Deposits 23 21 23 21 Total assets 20 20 23 21 05

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