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HDFC Bank announced its 2QFY2011 results. The bank registered net profit growth of
32.7% yoy to `912cr, in line with our estimates of `908cr. Advances grew by a healthy
6.4% sequentially compared to marginal industry growth of ~0.6%. Deposits increased by
6.7% sequentially compared to ~1.6% industry growth. Adjusting for one-off movements
in wholesale loans, core growth in advances stood at ~32% yoy. Retail loans grew by a
healthy 30.8% yoy, constituting 51.7% of gross advances. The bank registered strong
expansion in its balance sheet, while improving the CASA ratio to 50.6% and maintaining
the NIMs at 4.2%. This is in line with our expectations that strong capital adequacy and
branch expansion will increasingly drive market share gains in credit as well as CASA for
the bank in the coming quarters. Moreover, asset quality remained stable sequentially and
was materially better than the year-ago numbers (reflected in the decline in provisions to
avg. assets from 1.1% in FY2010 to 0.7% in 2QFY2011).
During the quarter, NII increased by 29.2% yoy and 5.2% qoq to `2,526cr. Fee income
grew by a moderate 16% yoy to `857cr. The cost-to-income ratio stood at 48.2%, in line
with its eight-quarter average of 48.6%. Gross NPAs increased by 2.8% sequentially to
`1,841cr. Net NPAs stood at `409cr compared to `413cr in 1QFY2011. Gross and net
NPA ratios of the bank stood at 1.16% (1.21% in 1QFY2011) and 0.3% (0.30% in
1QFY2011), respectively, implying a healthy provision coverage ratio of 77.8%, excluding
technical write-offs. The bank’s CAR continued to be healthy at 17.0%, with tier-I at 12.7%.
At the CMP, the stock is trading at 3.8x FY2012E ABV, which is close to our target multiple
of 4.0x (benchmarked at a 30% premium to our Sensex target multiple). We maintain an
Accumulate recommendation on the stock with Target Price of `2,514.
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