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22 Oct 2020

CHINA FINANCIALS, INDIA FINANCIALS


The Ant model and implications for India

Kevin Kwek • Senior Analyst • +65-6230-4650 • kevin.kwek@bernstein.com


Gautam Chhugani • Senior Analyst • +65-6230-4654 • gautam.chhugani@bernstein.com
Pranav Gundlapalle • Associate • +65-6230-4633 • pranav.gundlapalle@bernstein.com
Manas Agrawal • Associate • +91-226-842-1446 • manas.agrawal@bernstein.com

Please note: A registration statement relating to sales of the shares of Ant Group Co. Ltd. has been filed with the Securities and Futures
commission and China Securities Regulatory commission but has not yet become effective. Those securities may not be sold, nor may offers
to buy be accepted, prior to the time the registration statement becomes effective. Bernstein is not involved in this offering and is not a
connected advisor to this IPO. All the financial information contained in this report is from publicly available sources, including Ant Co. Ltd.'s
preliminary prospectus. A preliminary prospectus relating to those shares is available HERE. Neither the information contained in this
publication, nor any opinion expressed herein, constitutes an offer, or an invitation to make an offer, or to buy or sell any securities, including
any shares of Ant Co. Ltd.

See Disclosure Appendix of this report for important Disclosures and Analyst Certifications
The Ant Model

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The overview – evolution of four business areas driving USD 18 bn
revenues in 2019

Source: Company, Bernstein analysis

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Leveraging the Alipay platform to feed into 3 other profitable areas

Alibaba
ecosystem
ONLINE merchants OFFLINE merchants

Preferred payment option for online Increasingly the preferred option (along
merchants especially within Alibaba ecosystem with WeChat Pay) for offline as well

AliPay Payment Platform


Loan products to consumers and Money market funds that mimic A combination of products
small and micro merchants higher rate deposits and regular tailored for e-commerce use cases
underwritten, leveraging the data wealth products, using data and AI (eg shipping insurance) as well as
from AliPay and Alibaba ecosystems to match products to customers others to customer needs

CreditTech InvestmentTech InsureTech


~98% of loans passed on to Products manufactured by Products manufactured by
banks partners partners

Chongqing Ant Cathay, Zhong An, Trust


TianHong Asset Mgt
Shangcheng Micro Loan Mutual

100 partner Banks 170 Asset Managers 90 Insurance Firms

Ant ecosystem Third party partners AliPay app

Source: Company, Bernstein analysis

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Payments itself won’t be a money spinner; profitability very thin

Gross margin
Payment revenues of 52 bn in of 20 bps per
2019 (1) transaction
AliPay’s Total
Payment Value
(2019) of 111 tn
ANT's Digital Payments value (2019, RMB tn)
120

100

80 63
60 Net transaction
111
2 margin of ~10
40
20 bps
20
25
0
Consumption Financial Other Personal Total TPV
payments payments payments payments

Transaction cost
Transaction fees of 47bn in
of 10 bps per
2019 (2) transaction

Source: Company, Bernstein analysis

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But the Alipay platform is one that is dominant and sticky

1. Wake up, check how 5. Hmmm… pay day. Transfer


markets did overnight (sub excess to Yu’eBao (money
app) market fund)

2. Book cab to get to work, 6. Late pm – almost forgot:


while having breakfast pay that utility bill!

3. In the cab…book movie 7. After work…need to buy


tickets for the date tonight that pair of running shoes

4. “OK mum, on it” – hang up, 8. Nice dinner. “Go Dutch???”


buy that health insurance Ok!

Source: Company, Bernstein analysis

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The aim of Ant is to remain dominant in payments in order to grow
the other areas such as CreditTech

Source: Company, Bernstein analysis

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CreditTech has grown rapidly, already significant against market

Loan balance enabled through ANT Interest rates of loans enabled


Creditech vs. CN banks' retail loans through ANT Creditech vs. CN
ex-mortgage (1H20 , bn RMB) banks' retail loans (1H20, %)
2,500 14%
2,154 8%-16%
12%
2,000
10%

1,500 1,409
8%
6.1%
6% 4.9%
1,000 4.6% 4.8% 4.7%

4%
500
2%

0 0%
ANT BoC CCB ICBC CMB ABC ANT CMB BoC ABC CCB ICBC

Source: Company, Bernstein analysis

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InvestmentTech – secular growth and a big money market fund base
to penetrate

China online personal investable asset AuM and


Ant/Tianhong AuM
(RMB trn, 2019)
25

21
20

15
representing
16% of total
10

5 3.4
1.3

0
Total Online personal Ant Group AuM Tianhong AuM
investable asset

Investments eg mutual funds are


growing >20% pa

Source: Company, Bloomberg, Bernstein analysis

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Likewise in InsureTech

China total GWP (RMB bn) Ant Insure tech premium and revenue (RMB bn)
breakdown 40 100%
26% 31% 24% 21%
5,000
CAGR 10'-19' 35 90%
4,500
Life: 11% CAGR 17-19' 80%
4,000 30
P&C: 13% Premium: 105% 70%
3,500
A&H: 27% 25 Revenue: 97%
3,000 60%
2,500 20 50%
2,000 40%
15
1,500
30%
1,000 10
20%
500
5
10%
0
2010201120122013201420152016201720182019 0 0%
2017 2018 2019 1H20
Life P&C A&H
Total Premium Revenue Revenue as % of total premium generated

Source: Company, Bernstein analysis

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Can the model be replicated
elsewhere … India?

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Indian fintech disruption comes from all directions

Big Tech
Conventional Telecom
Payments Players Players

India
Fintech
Disruption

Others

Source: Bernstein analysis

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-
1,000
1,500
2,000
2,500

500
Aug-16
Sep-16
Oct-16
Nov-16

Source: Bernstein analysis


Dec-16
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Multi-player

Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
Interoperable

Jan-19
Feb-19
UPI - Transaction Volume (Million)

Mar-19
Apr-19
May-19
Jun-19
Jul-19
Multi-network

Aug-19
Sep-19
Oct-19
Nov-19
Dec-19
Jan-20
Feb-20
Mar-20
Apr-20
May-20
Jun-20
Jul-20
UPI changed everything in India and now expect disruption to UPI

Aug-20
Sep-20
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Oct-20 Est. 2 Bn+

13
China vs India: some high level comps

China India

Digital Payments 153%* 18%*


as % of Consumption

Mobile v Cards Mix 70:30** 60:40

30:70 for P2M

MDR
Mobile Payments ~20 bps Zero MDR on UPI
Credit Cards ~60 bps ~1.75%

China figure considers only “consumption” digital payments of third party payment players, India figure is based on P2M payments as % of PFCE
** Estimated split between cards and third party payment apps (note however that mobile payments are also primarily through linked bank cards)

Source: Company, Apptopia, WeBank reports, Bernstein analysis and estimates

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China vs India: some high level comps

China India

Payments app usage


Downloads AliPay: PayTM: 320 Mn
WePay: Over 1 Bn each Google Pay: 260 Mn
PhonePe: 175 Mn

MAU AliPay: 711 Mn MAU 20-25 Mn MAU each


WePay: 1.1 Bn MAU

Credit-Tech ~40% of Ant Rev * < 10% share in system credit

Invest-tech ~16% of Ant Rev ** Negligible in AMCs


Dominant in broking
~15% of new SIPs/ <5%
of all MF investments
* The contribution of credit tech for Ant in 1Q20
** The contribution of Invest tech for Ant in 1Q20
Source: Company, Apptopia, WeBank reports, Bernstein analysis and estimates

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Contrasting PayTM and Ant

Ant PayTM

Payments
Market Structure Duopolistic Competes with BigTech due to
UPI open architecture

Merchant Acquiring Own QR-based UPI based


merchant acq. interoperable QR

Will evolve into


Credit-Tech Works with partner banks
standalone digital bank

No MF Manufacturing
(currently);
Invest-tech & Insure- Manufacturing +
tech Distribution Insurance manufacturing
- early

Only Distribution via


PayTM Money
Source: Bernstein analysis

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India fintech landscape

Digital Payments

Expected to grow 5x in 5 years

Source: Bernstein analysis and estimates

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India fintech landscape

Credit-tech
India has a myriad of models – the right fit will emerge with time

Payments platforms delivering lending as a service Tech-enabled NBFCs


playing in credit niches

Digital loan partner Credit Card Partner

Source: Bernstein analysis

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India fintech landscape

Invest-tech
Nascent stages – Tech players are present in MF distribution & Broking but not on manufacturing side

Leading tech-enabled broker, with presence in financial product distribution


In process of launching passive-AMC

Tech-enabled Financial Product Distribution platforms

Compete with Banks and Wealth-tech players in a thin margin business

PayTM is the largest originator (by volume) of new SIPs, PhonePe has launched an
algo-based financial advisory platform. NJ Invest and Fisdom are pure-play investment /
insurance distribution platforms.

Source: Bernstein analysis

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India fintech landscape

Insure-tech
Tech-enabled Insurers are few, online distribution platforms have strong foothold

Tech-enabled insurers scaling up in general insurance

Leading online insurance distribution platform in India

Tech-enabled Financial Product Distribution platforms – investments & insurance

Source: Bernstein analysis

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India fintech landscape

Merchant-tech
Many angles to digitize the merchant value chain

Mobile Payments - Merchant Acquiring players

PayTM PhonePe focused on driving payments on app, Bharat Pe


focused on QR deployment and enabling lending

PoS based Merchant digitization

mSwipe deploys PoS terminals with small merchants.

Jio aims to offer smart-PoS based business digitization services with


comprehensive retail play

Udaan plans to digitize small FMCG retail to drive its core supply
chain business and lending

Accounting support services to scale into ERP support services/


enabling merchant credit

Source: Bernstein analysis

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What can India players learn
from Ant’s scaling up?

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A bit of history…how Ant evolved

Alibaba: Total Revenue (RMB Bn) Ant Revenues and Net Income
550.0 140,000
509.7
500.0
120,000
450.0
GMV of BABA vs
400.0 376.8 total: ~60%
100,000
350.0 CAGR:
300.0 56% 80,000
250.3
250.0

200.0 60,000
158.3
150.0
101.1 40,000
100.0 76.2
52.5
50.0 34.5
20.0
11.9
0.4 0.7 1.4 2.2 3.0 3.9 6.3 20,000
-
2004
2005

2007
2008
2009
2010

2012
2013
2014
2015

2017

2019
2020
2006

2011

2016

2018

0
2017 2018 2019

2004: Alipay comes into being as escrow


service addressing trust between Taobao users

By 2010, Alipay had connections with 200 2014, Alipay spun off as ‘Ant Financial’ –
banks; virtual accounts became popular, ‘everything should start small’ …
eventually leading also to the birth of Yu’ebao* including in Microfinancing.
(2013) – investing of ‘excess’ balances Ant created the Online Merchant Bank of
Zhejiang focused on SMEs
Source: PBOC, Bernstein analysis
Note: Yu’ebao attracted millions of users within days, initial returns reached 7%

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To take CreditTech as example in the partnership model – why a win-
win for all?
Regulator

Helps financial inclusion; sees Ant’s


unique ability to target this segment
economically in partnership with banks

Customers Ant Partner Bank

Access to credit; gets lower Able to use insights from large Avoids acquisition cost; for a
rates (given Ant’s ability to base to originate better-quality reasonable fee, able to lend
assess credit worthiness) credit for bank partners, for a to this segment that’s
reasonable fee otherwise uneconomical

CreditTech Economics (esimated) vis-a-vis Bank Partners

12.0% 11% 2%

10.0%
1.5%

8.0% 7.5% 2.5%

6.0%
5%

4.0% • Higher if rates go up;


• Lower (over time) if default
2.0%
rates rise
0.0%
Avg Yield Cost of funds Default % Yield b4 Ant fee Ant fee Net

Source: Bernstein analysis and estimates

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Likewise on the insurance side – Ant provides the massive
distribution base

What’s valuable to insurers?


Provision of ~600m users (of
1.4bn population)

Ant uses platform insights to


target buyers, match needs
to products
Insurers are great at product
design, claims, delivery – but
weak on distribution

Source: Company, Bernstein analysis

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What about the regulatory angle?

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Regulatory risks can’t be ignored

Note: * "Level of Risk" considering Probability and Impact

Source: PBOC, Bernstein analysis

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Key Questions/ Implications for Banks/ Bank Investors

a) Can the Ant model ‘disintermediate’ existing players – banks, brokers, insurers?

b) Where might we see replication outside China? What are key requirements?

c) What would traditional banks do? What will their roles become?

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Ticker Table – China Financials
21 Oct 2020 TTM EPS Reported P/B
Closing Target Rel.
Ticker Rating Price Price Perf. 2019A 2020E 2021E 2019A 2020E 2021E
601939.CH (CCB-A) M CNY 6.43 5.85 (26.1)% CNY 1.05 0.99 1.08 0.77 0.71 0.65
939.HK (CCB) M HKD 5.66 6.40 (23.2)% CNY 1.05 0.99 1.08 0.58 0.54 0.49
600036.CH (Ch Merc
M CNY 40.80 31.70 (0.8)% CNY 3.62 3.47 4.23 1.78 1.62 1.44
Bk-A)
3968.HK (Ch Merc Bk) M HKD 42.85 38.00 0.5% CNY 3.62 3.47 4.23 1.61 1.47 1.31
601398.CH (ICBC-A) O CNY 5.05 5.30 (26.2)% CNY 0.86 0.79 0.93 0.73 0.68 0.62
1398.HK (ICBC) O HKD 4.59 5.80 (28.9)% CNY 0.86 0.79 0.93 0.57 0.53 0.49
MXAPJ 584.11 32.48 30.45 37.82 17.98 19.18 15.44
O - Outperform, M - Market-Perform, U - Underperform, N – Not Rated

Source: Company, Bloomberg, Bernstein estimates

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Ticker Table – India Financials
21 Oct 2020 TTM EPS Reported P/E Reported
Closing Target Rel.
Ticker Rating Price Price Perf. 2020A 2021E 2022E 2020A 2021E 2022E
HDFCB.IN O INR 1,246.70 1,350.00 (12.0)% INR 49.46 45.97 61.27 25.20 27.12 20.35
AXSB.IN M INR 501.45 430.00 (42.8)% INR 6.62 32.31 48.66 75.78 15.52 10.31
ICICIBC.IN O INR 420.30 430.00 (17.5)% INR 14.57 20.10 24.71 28.84 20.91 17.01
KMB.IN O INR 1,393.30 1,190.00 (27.2)% INR 37.74 49.33 54.18 36.92 28.25 25.71
IIB.IN M INR 628.10 360.00 (66.7)% INR 61.26 63.50 45.83 10.25 9.89 13.71
YES.IN U INR 12.95 10.00 (88.3)% INR 7.33 (3.25) (0.70) 1.77 (3.99) (18.47)
BANDHAN.IN O INR 316.05 470.00 (56.5)% INR 18.76 20.35 28.13 16.85 15.53 11.23
AUBANK.IN M INR 773.55 420.00 4.8% INR 12.90 22.32 16.83 59.97 34.66 45.96
BAF.IN M INR 3,232.85 3,300.00 (35.3)% INR 89.07 68.72 109.67 36.30 47.04 29.48
SBIN.IN O INR 203.75 360.00 (37.9)% INR 15.95 9.03 21.70 12.78 22.55 9.39
MXAPJ 584.11 30.45 37.82 43.51 19.18 15.44 13.42
O - Outperform, M - Market-Perform, U - Underperform, N – Not Rated
SBIN.IN base year is 2016;KMB.IN,IIB.IN,YES.IN,AUBANK.IN base year is 2019;.

Source: Company, Bloomberg, Bernstein estimates

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Disclosure Appendix

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Disclosure Appendix - Valuation Methodology
China Financials
Our valuation approach for all our stocks is based on the PB-ROE model, itself a function of Return on Equity (RoE), Growth (g) and Cost of Equity (Ke). We
calculate each bank's respective Ke as a function of the long-term (5 year) beta, the Bernstein Quant Team derived equity risk premium (ERP) with
adjustments and the risk free rate.
Our target prices are based on valuations for YE 2020 using this method.

India Financials
India is a growth market and investors generally seek growth-based returns in India. We believe all lenders in India trade on what market believes as the
sustainable earnings growth momentum. Lenders that have sustained cross-cycle earnings growth despite sector asset quality concerns trade at a premium.
On the other hand, lenders that have been inconsistent in earnings growth get penalized by the market until they build investor confidence again. We value our
coverage on a target P/E multiple based on one-year forward earnings calibrated by trading history and our expectation of three-year sustainable earnings
growth. We use a one-year forward multiple based on FY'22 earnings to arrive at FY'21 end target price. We corroborate our target price earnings multiples
with a P/BV based multiple as a secondary check. We also believe the market can be brutal with growth stocks if the growth story shows any structural
weakness and thus, we constantly stress-test for structural growth weakness across our industry and company investment thesis.

SBI Cards and Payment Services Limited


India is a growth market and investors generally seek growth-based returns in India. We believe all lenders in India trade on what market believes as the
sustainable earnings growth momentum. Lenders that have sustained cross-cycle earnings growth despite sector asset quality concerns trade at a premium.
On the other hand, lenders that have been inconsistent in earnings growth get penalized by the market until they build investor confidence again. We value our
coverage on a target P/E multiple based on one-year forward earnings calibrated by trading history and our expectation of three-year sustainable earnings
growth. We use a one-year forward multiple based on FY'22 earnings to arrive at FY'21 end target price. We corroborate our target price earnings multiples
with a P/BV based multiple and a P/E vs. ROA comparison as a secondary check. We also believe the market can be brutal with growth stocks if the growth
story shows any structural weakness and thus, we constantly stress-test for structural growth weakness across our industry and company investment thesis.

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Disclosure Appendix - Risks
China Financials
Our ratings and stock recommendations are subject to the following sector risks:
1. Economic growth: we assume real GDP growth at ~6% p.a., which has a direct impact on banks’ and financial services companies’ earnings through credit
formation and credit costs. Higher growth would directly drive higher lending while typically being correlated with lower credit costs. A sharp slowdown can on
the other hand dent corporate earnings and push up credit costs. Household income could also suffer, triggering higher retail default and sustained slump in
consumption.
2. Rates direction. Increase or cut to benchmark interest rates could provide either downside or upside risks to the Chinese banks: a rate rise could lead to
slower growth and higher interest burdens, in turn driving a hike in NPLs and provisions, directly affecting the earnings and RoE of the banks could exceed
any incremental margin expansion.
3. Regulatory changes. Any adjustments to banks’ capital, funding and liquidity requirements could affect banks’ earnings and returns, both on the up and
downside. The key levers that the government often use to manage the economy are Risk Weighted Asset (RWA) ratios and overall capital requirements,
although the regulators are likely to carefully pace any changes to minimize market impact. Increased government mandated lending could lead to de-rating of
the whole sector, particularly large SOE banks. Upside risk from relaxation in retail asset management business: the regulator has moved to allow banks to
set up asset management subsidiaries. Although the rules are yet to be clarified, this could lead to better growth in capital light fee income, given banks’
dominance in distribution of financial products.
4. Market disruptions. Downside risk from disruptive competition from new entrants including foreign players, non-deposit taking financial institutions and
Fintech players / distributors: Historically, Chinese banks as a group has largely been immune to competition from both domestic and foreign market entrants
thanks to the onerous licensing requirements and strict ownership control. As regulators move towards relaxing controls and opens up the market to foreign
competition, new entrants could emerge. Most won’t have the capacity to challenge the large national banks in the near term, but aggressive expansion may
disrupt market pricing particularly in the retail banking space, leading to weakened top-line growth and profitability of the banks we cover.
5. Risks to Fintechs. As Fintechs make progress in disrupting existing markets, large banks can be affected. Regulators are also likely to step in to protect
customer interests. New requirements could therefore impact the businesses of Fintechs.
China Construction Bank Corp
The key downside risk is a sharp slow-down in infrastructure related investments and tightened mortgage policies. Further, CCB has more exposure to
property and construction sector than its peers, so is more affected by movements in the real estate and connected sectors. Upside risks include stronger
growth in retail and better than expected credit costs.
China Merchants Bank Co Ltd
The key downside risk is worse-than-expected deterioration in its retail and corporate loan book, particularly with its large exposure to non-mortgage
household loan. CMB is also more vulnerable to competition in the retail banking space, if big incumbents catch up quickly. The key upside risk is the faster
than expected fee income growth.
Industrial & Commercial Bank of China Ltd
Downside risks include increased government mandated lending; sharp deterioration in corporate credit quality; faster than expected market share erosion
from smaller banks or new entrants.

India Financials
Key risks to our sector thesis
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Disclosure Appendix - Risks
+ Asset quality risks in consumer lending
+ Excessive competition in retail lending due to margin pressures
+ Banks counter net interest margin pressures by going up the risk curve sharply that boosts earnings in the near term

HDFC Bank Ltd


Downside risks to our target price

+ Asset quality on unsecured portfolio deteriorates more than expectation


+ Leadership change across verticals plays out adversely hurting growth and profitability outlook

ICICI Bank Ltd


Downside risks to our target price
+ Credit costs remain elevated for a longer period due to negative surprise on slippages say in the power segment
+ Sub-par quality retail growth driven by compromising on risk adjusted yields
+ Any adverse action by federal investigative agency or any adverse action by any foreign depository shareholders based on recent corporate governance
issues related to previous CEO

Axis Bank Ltd


Upside risks
+ Significant & quick turnaround in NPLs and / or fast resolutions with better recovery rates leading to credit loss write backs create a positive earnings
surprise
+ Axis climbs up the loan risk curve sharply and drives loan yields significantly upwards

Downside risks
+ New management incoming in H2FY'19 fails to meet expectations
+ Credit costs remain elevated due to unexpected asset quality shocks arising from macro / sector specific issues and / or resolution process becomes time-
consuming
+ Margins fail to improve due to competitive pressures / foray in low risk low yielding products / poor asset-liability management
+ Operating costs don't remain under control as investment in digital initiatives and new branches outpace the benefits therefrom

Kotak Mahindra Bank Ltd


Downside risks to our target price

+ KMB continues its conservative loan growth behavior lower than market expectation to sustain its premium valuation

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Disclosure Appendix - Risks
+ KMB is unable to reduce operating costs post integration of ING franchise and better drive branch productivity
+ Any significant key man risk from change in top leadership

IndusInd Bank Ltd


Upside risk to our target price

+ IIB is able to retain the talent at the top level as the new CEO takes over from Mar'20
+ Any significant synergies from Bhafin merger, like lower overall cost of funds, building retail liability franchise

Downside risks to our target price

+ IIB fee income streams get disrupted by sectoral slowdown in international trade
+ IIB's commercial vehicles, microfinance portfolio and LAP portfolio could be impacted by worsening credit quality
+ IIB's reliance on off-balance sheet items to generate fee income becomes unsustainable

AU Small Finance Bank Ltd


Downside risks to our target price

+ Increased competition in the SME finance space due to entry of several new players including fintech players
+ Credit risks in construction finance and vehicle finance space
+ Faltering of growth momentum during the transition phase and difficult to recover therefrom
+ Transition costs spiral out of control
+ Key man risk

Upside risks to our target price

+ Manages to maintain loan book growth and fee income growth to deliver healthy operating profit growth
+ Manages to contain credit costs below our expectations as target borrower segment is at risk from Covid disruption
Bandhan Bank Ltd
Downside risks to our target price

+ Political risk due to concentrated microfinance exposure in select Eastern and North Eastern states
+ Operating cost overrun due to geographic and product expansion
+ Sub-par small business lending portfolio leading to higher credit costs
+ Key man risk

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Disclosure Appendix - Risks

Bajaj Finance Ltd


Upside risks to our target price

+ Manages to maintain growth in loans and fee income to protect its track record of consistent, high growth
+ Manages high-bounce rates and collections better than expectations to keep credit costs in check as credit risks in the consumer lending space play out.

Downside risks for BAF are

+ Credit costs remain elevated for a prolonged period of time


+ BAF’s network of partner stores loses market share in consumer durables to online commerce and thus affecting BAF’s growth outlook
+ BAF is unable to make meaningful progress on re-shaping its business towards the digital economy

SBI Cards and Payment Services Limited


Downside risks to our target price
+ SBI Cards is unable to manage credit quality post pandemic and sees credit costs remain elevated beyond FY22
+ SBI Cards faces sooner than expected competitive pressure on interest rates and fee incomes from startups and neobanks
+ Increased competition from other NBFCs getting RBI permission to launch credit cards

Yes Bank Ltd


Upside risks to our target price

+ New management is able to recover business growth and profitability trajectory ahead of market expectations
+ Asset quality issues are demonstrably resolved and bank can focus on growth again

State Bank of India


Downside risks to our target price

+ SBI witnesses significantly protracted NPL cycle and elevated credit costs
+ SBI starts to lose significant market share across customer segments
+ SBI is unable to manage integration of its subsidiaries resulting in significant negative synergies from merger
+ SBI is unable to control any spiraling employee retirement costs and restructuring costs

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REQUIRED REGULATORY DISCLOSURES
• References to "Bernstein" relate to Sanford C. Bernstein & Co., LLC, Sanford C. Bernstein Limited, Sanford C. Bernstein (Hong Kong) Limited 盛博香港有限公司, Sanford C. Bernstein
(Canada) Limited, Sanford C. Bernstein (India) Private Limited (SEBI registration no. INH000006378) and Sanford C. Bernstein (business registration number 53193989L), a unit of
AllianceBernstein (Singapore) Ltd. which is a licensed entity under the Securities and Futures Act and registered with Company Registration No. 199703364C, collectively. On and as of
April 1, 2019, AllianceBernstein L.P. acquired Autonomous Research. As a result of the acquisition, the research activities formerly conducted by Autonomous Research US LP have been
assumed by Sanford C. Bernstein & Co., LLC, which will continue to publish research under the Autonomous Research US brand and the research activities formerly conducted by
Autonomous Research Asia Limited have been assumed by Sanford C. Bernstein (Hong Kong) Limited 盛博香港有限公司, which will continue to publish research under the Autonomous
Research Asia brand.
• References to “Autonomous” in these disclosures relate to Autonomous Research LLP and, with reference to dates prior to April 1, 2019, to Autonomous Research US LP and Autonomous
Research Asia Limited, and, with reference to April 1, 2019 onwards, the Autonomous Research US unit and separate brand of Sanford C. Bernstein & Co., LLC and the Autonomous
Research Asia unit and separate brand of Sanford C. Bernstein (Hong Kong) Limited 盛博香港有限公司, collectively.
• References to "Bernstein" or the “Firm” in these disclosures relate to Sanford C. Bernstein & Co., LLC, Sanford C. Bernstein Limited, Sanford C. Bernstein (Hong Kong) Limited 盛博香港有
限公司, Sanford C. Bernstein (Canada) Limited, Sanford C. Bernstein (India) Private Limited (SEBI registration no. INH000006378), Sanford C. Bernstein (business registration number
53193989L), a unit of AllianceBernstein (Singapore) Ltd. which is a licensed entity under the Securities and Futures Act and registered with Company Registration No. 199703364C and,
with reference to April 1, 2019 onwards, Autonomous Research LLP, collectively.
• Bernstein and Autonomous analysts are compensated based on aggregate contributions to the research franchise as measured by account penetration, productivity and proactivity of
investment ideas. No analysts are compensated based on performance in, or contributions to, generating investment banking revenues.
• Bernstein rates stocks based on forecasts of relative performance for the next 6-12 months versus the S&P 500 for stocks listed on the U.S. and Canadian exchanges, versus the MSCI
Pan Europe Index for stocks listed on the European exchanges (except for Russian companies), versus the MSCI Emerging Markets Index for Russian companies and stocks listed on
emerging markets exchanges outside of the Asia Pacific region, and versus the MSCI Asia Pacific ex-Japan Index for stocks listed on the Asian (ex-Japan) exchanges - unless otherwise
specified. We have three categories of ratings:
Outperform: Stock will outpace the market index by more than 15 pp in the year ahead.
Market-Perform: Stock will perform in line with the market index to within +/-15 pp in the year ahead.
Underperform: Stock will trail the performance of the market index by more than 15 pp in the year ahead.
Not Rated: The stock Rating, Target Price and/or estimates (if any) have been suspended temporarily.
• For purposes of the Market Abuse Regulation (MAR) and the FINRA Rule 2241, ‘Outperform’ is classified as a Buy, ‘Market-Perform’ is classified as a Hold, and ‘Underperform’ is classified
as a Sell
• As of 10/21/2020, Bernstein's ratings were distributed as follows: 297 Outperform - 48.5% (0.0% banking clients) ; 252 Market-Perform - 41.2% (0.0% banking clients); 63 Underperform -
10.3% (0.0% banking clients); 0 Not Rated - 0.0% (0.0% banking clients). The numbers in parentheses represent the percentage of companies in each category to whom Bernstein
provided investment banking services. All figures are updated quarterly and represent the cumulative ratings over the previous 12 months. These ratings relate solely to the investment
research ratings for companies covered under the Bernstein brand and do not include the investment research ratings for companies covered under the Autonomous brand. This
information is provided in order to comply with Article 6 of the Commission Delegated Regulation (EU) 2016/958.
• Manas Agrawal maintains long positions in ICICI Bank, Kotak Mahindra Bank, AU Small Finance Bank, and SBI Life.
• Manas Agrawal maintains a long position in ICICI Bank Ltd (ICICIBC.IN).
• Manas Agrawal maintains a long position in Kotak Mahindra Bank Ltd (KMB.IN).
• Manas Agrawal maintains a long position in AU Small Finance Bank Ltd (AUBANK.IN).
• The following companies are or during the past twelve (12) months were clients of Bernstein, which provided non-investment banking-securities related services and received compensation
for such services HDFCB.IN / HDFC Bank Ltd, ICICIBC.IN / ICICI Bank Ltd.
• This research publication covers six or more companies. For price chart disclosures, please visit www.bernsteinresearch.com/go/disclosures, you can also write to either: Sanford C.

CHINA FINANCIALS, INDIA FINANCIALS | 37


Bernstein & Co. LLC, Director of Compliance, 1345 Avenue of the Americas, New York, N.Y. 10105 or Sanford C. Bernstein Limited, Director of Compliance, 50 Berkeley Street, London W1J 8SB,
United Kingdom; or Sanford C. Bernstein (Hong Kong) Limited 盛博香港有限公司, Director of Compliance, 39th Floor, One Island East, Taikoo Place, 18 Westlands Road, Quarry Bay, Hong Kong,
or Sanford C. Bernstein (business registration number 53193989L) , a unit of AllianceBernstein (Singapore) Ltd. which is a licensed entity under the Securities and Futures Act and registered with
Company Registration No. 199703364C, Director of Compliance, One Raffles Quay, #27-11 South Tower, Singapore 048583.
12-Month Bernstein Rating History as of 10/21/2020
Ticker Rating Changes
1398.HK O (IC) 11/12/19 M (DC) 08/03/19
3968.HK M (IC) 11/12/19 O (DC) 08/03/19
600036.CH M (IC) 11/12/19 O (DC) 08/03/19
601398.CH O (IC) 11/12/19 M (DC) 08/03/19
601939.CH M (IC) 11/12/19 O (DC) 08/03/19
939.HK M (IC) 11/12/19 O (DC) 08/03/19
AUBANK.IN M (RC) 05/05/20 O (IC) 07/11/17
AXSB.IN M (RC) 05/23/18
BAF.IN M (RC) 10/08/20 U (RC) 03/27/20 O (IC) 10/11/18
BANDHAN.IN O (IC) 09/19/18
HDFCB.IN O (RC) 10/08/20 M (RC) 07/14/20 U (RC) 03/19/20 M (RC) 09/08/19
ICICIBC.IN O (RC) 07/14/20 M (RC) 02/04/19
IIB.IN M (RC) 09/08/19
KMB.IN O (IC) 11/16/16
SBICARD.IN O (IC) 09/14/20
SBIN.IN O (IC) 11/16/16
YES.IN U (RC) 03/09/20 M (RC) 07/18/19

Rating Guide: O - Outperform, M - Market-Perform, U - Underperform, N - Not Rated


Rating Actions: IC - Initiated Coverage, DC - Dropped Coverage, RC - Rating Change

OTHER IMPORTANT DISCLOSURES


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CHINA FINANCIALS, INDIA FINANCIALS | 39


Board of India ("SEBI") as a research analyst entity under the SEBI (Research Analyst) Regulations, 2014, having registration no. INH000006378 and as a stock broker having registration no.
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This report has been produced by an independent analyst as defined in Article 3 (1)(34)(i) of EU 296/2014 Market Abuse Regulation (“MAR”).
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CERTIFICATIONS
• I/(we), Gautam Chhugani, Kevin Kwek, Senior Analyst(s)/Analyst(s), certify that all of the views expressed in this publication accurately reflect my/(our) personal views about any and all of
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Copyright 2020, Sanford C. Bernstein & Co., LLC, Sanford C. Bernstein Limited, Autonomous Research LLP, Sanford C. Bernstein (Hong Kong) Limited 盛博香港有限公司, Sanford C. Bernstein
(India) Private Limited and AllianceBernstein (Singapore) Ltd., subsidiaries of AllianceBernstein L.P. ~1345 Avenue of the Americas ~ NY, NY 10105 ~212/756-4400. All rights reserved.

CHINA FINANCIALS, INDIA FINANCIALS | 41

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