ICICI Securities,on HDFC Bank:: Business growth surprises - A big positive…

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Business growth surprises - A big positive…
HDFC Bank’s Q2FY11 business growth of over 7% QoQ is way ahead of
the industry, which stalled at 2.8%. This increased the market share in
advances to 4.6% (up 80 bps in H1FY11) and deposits to 4.1% (up 50
bps in H1FY11). The bank witnessed a 38% YoY jump in the loan book
to Rs 1,58,512 crore, up 32% after adjusting for one-off wholesale loans
that is still way ahead of industry growth of 19%. Deposit mobilisation
is up to a healthy 30% YoY to Rs 195321 crore. CASA ratio improved
143 bps QoQ to 50.6%. We expect it to stay ~50% levels till FY12E.
P&L in line, projections upgraded
The bank reported growth in business parameters ahead of our
expectations but net interest income (NII) at Rs 2526 crore and PAT at Rs
912 crore is in line with estimates. We are revising our projections for
FY12E PAT by 3% due to higher business growth. This would result in
33% CAGR in PAT over FY10-12E to Rs 5195 crore. We forecast 28% and
27% CAGR over FY10-12E in advances and deposits to Rs 207100 crore
and Rs 268803 crore, respectively. NIM is likely to stay stable at 4.2%.
No surprises on asset quality, non-interest income growth a concern
GNPA @1.2%, NNPA @ 0.3% as against 1.8% GNPA and 0.5% NNPA in
Q2FY10 looks very healthy. The NPA provision coverage ratio (excluding
write-offs) stands at 78%. Total cumulative restructured assets were at
0.3% of the bank’s gross advances, which is the lowest in the industry.
The bank reported a fourth consecutive dip in non interest income to Rs
961 crore. MTM hit of Rs 52 crore in Q12FY11 against profit of Rs 151
crore in Q2FY10 was a drag. Overall, we expect 15% CAGR in non
interest income over FY10-12E to Rs 5022 crore.
Valuation
We have recently seen the premium multiple at which the bank was
trading to its peers shrink lately. Looking at the performance, we see no
reason for such an occurrence. The bank’s consistency in maintaining
above industry growth, NIM over 4%, CASA at ~50%, 30%+ PAT growth
demands higher premium. We estimate RoA of 1.7% and RoE of 20% for
FY12E with stable asset quality. Therefore, we now value the bank at 4.3x
FY12E ABV and arrive at a fair value of Rs 2559.