Visit http://indiaer.blogspot.com/ for complete details HDFC BANK 2QFY11: In-line; Asset and CASA growth impressive; Fee income improves; Maintain Neutral
HDFC Bank's (HDFCB IN, Mkt Cap US$24.6b, CMP Rs2,366, Neutral) 2QFY11 PAT grew ~33% YoY to Rs9.1b driven by strong loan growth and improvement across operating parameters. Despite rise in CoF, NIMs decline was arrested to 10bp QoQ to 4.2% as traction in CASA remained strong. CASA ratio stood at ~50.6% (up from 49.2% in 1QFY11); CASA deposits up 31% YoY and SA deposits up 38% YoY. As against no growth in loans for the industry in 2QFY11, HDFC Bank loans grew 7% QoQ. Continued traction in loan growth and pick up in fee income led to strong core operating profit growth of 30% YoY.
Key highlights:
- Impressive loan growth: Loans grew ~38% YoY and ~7% QoQ (on a higher base) for 2QFY11 to ~Rs1.6t. Even after adjusting for one off opportunity in wholesale loan, core loan growth was at 32% YoY vs 19% for the industry. Retails loans grew ~8% QoQ led by growth across retail loan segment (ex home loans). Home loans declined 4% QoQ as the bank has not exercised option of buy back from HDFC during the quarter.
- Margins declined by 10bp QoQ from an elevated level of 4.3% and were stable YoY. Strong traction in CASA deposits and retail loan growth lead to stable margins YoY.
- CASA growth remains strong: CASA deposits grew strongly at 31% YoY and 10% QoQ. CASA ratio on a YoY basis was stable but increased by 140bp to 50.6% QoQ. More importantly, savings deposits grew 38% YoY and 10% QoQ to Rs595b.
- Asset quality remains one of the best in industry with provision coverage ratio at 78% (v/s 77% quarter ago). While in absolute terms GNPA increased by 3% QoQ, in percentage terms GNPA declined by 5bp QoQ and NNPA remained stable. Restructured standard loan stood at 10bp of loan book.
View
- HDFC Bank is best placed in the current environment with (1) CASA ratio of ~50% (a boon in a rising interest rate scenario), (2) strong growth outlook of 25-30%, (3) improving operating efficiency, and (4) lower credit costs, led by best in class asset quality. In our view, EPS growth will be 30% CAGR over FY10-12 against 25% delivered over FY05-10.
- While we remain positive on the bank's business, we believe valuations are rich. Over FY05-10, peak PBV one year forward was 5x and average multiple was 3.3x. We value it at 3.8x P/BV (FY12) (15% premium to the five-year average P/B) for a strong growth outlook and comfort on operating parameters.
- While the key operating parameters would be the best among its peers, FY12E PBV of 3.8x and PE of 21.2x factor in all positives, in our view. We maintain Neutral.
Loan growth momentum remains impressive
- Loan growth remains strong at 7% QoQ (on a higher base) and 38% YoY. Even after adjusting for one off opportunity in wholesale loan, core loan growth was at 32% YoY v/s 19% growth for the industry.
- Retail loans grew 8% QoQ and 31% YoY and growth was across the segments. Auto loans (up 36% YoY and 8% QoQ), CV and CE (up 41% YoY and 12% QoQ) and Business banking loan growth (up 29% YoY and 9% QoQ) continue to remain strong.
- Home loans declined 4% QoQ and grew 42% YoY on a lower base. During the quarter, the bank has not exercised options to buy back loans from HDFC ltd.
- Management expects loan growth to remain strong on the back of (1) increased focus on medium / long tenure corporate (especially infrastructure) loans, (2) strong demand for auto loan (3) selective disbursement in unsecured loans like personal loans and credit cards, (4) strong growth from rural and semi urban areas for existing products., and (5) continued buy-back of home loans from HDFC Ltd to fulfill priority sector targets.
- While the management guides for 25%+ loan growth, we believe loan growth will accelerate to ~30% in FY11.
Valuation and view
- HDFC Bank is best placed in the current environment with (1) CASA ratio of ~50% (a boon in a rising interest rate scenario), (2) strong growth outlook of 25-30%, (3) improving operating efficiency, and (4) lower credit costs, led by best in class asset quality.
- In our view, EPS growth will be 30% CAGR over FY10-12 against 25% posted over FY05-10. We expect EPS to be Rs85 in FY11 and Rs111 in FY12. We expect RoE to be 17% by FY11 and 19% by FY12. We estimate BV of Rs543 in FY11 and Rs631 in FY12.
- Stock trades at 4.4x FY11E BV, 3.8x FY12E BV, 28x FY11E and 21.2x FY12E EPS.
- While the key operating parameters would be the best among its peers, valuations factor in all positives, in our view. We maintain Neutral.
No comments:
Post a Comment