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For 3QFY2011, HDFC Bank reported 19.3% qoq and 32.9% yoy growth in net
profit to `1,088cr, in line with our estimate of `1,091cr. However, operating
income surpassed our estimate, which was offset by higher provisioning expenses,
which aided in further improving the provision coverage ratio. We maintain our
Buy recommendation on the stock.
Robust performance on all parameters: Gross advances registered healthy growth
of 32.7% yoy compared to industry growth of 24.4%. Deposits also registered an
impressive growth of 24.2% yoy compared to industry growth of 16.5%. Pace of
CASA deposits accretion moderated a bit with yoy growth of 21.4% as against
~34% yoy growth in 1HFY2011. CASA ratio continued to remain strong at 50.5%
of total deposits. Reported NIMs were stable sequentially at 4.2%. The bank
recorded healthy NII growth of 9.9% qoq and 24.9% yoy to `2,777cr. Fee income
grew by a healthy 22.5% yoy. The bank’s asset quality further improved during
the quarter, with the gross NPAs decreasing 3.2% qoq and net NPAs falling
19.1% qoq. NPA provision coverage ratio (excluding write-offs) improved further
to 81.4% from 77.8% in 2QFY2011.The bank’s capital adequacy remained
strong at 16.3%, with tier-1 constituting 74.2%.
Outlook and Valuation: At the CMP, the stock is trading at 3.3x FY2012E P/ABV
of `628, which is below our target multiple of 4.0x (benchmarked at 30%
premium to our Sensex target multiple). We believe HDFC Bank is well positioned
for high qualitative growth, with the CASA and cost-to-income ratio returning to
pre-CBoP levels. In our view, with strong capital adequacy and healthy branch
expansion, the bank is set to further gain credit and CASA market share
accompanied by reduction in NPA provision costs. We maintain a Buy
recommendation on the stock, with a Target Price of `2,499.
Strong business growth with profitability
Gross advances registered strong growth of 32.7% yoy to `1,60,619cr compared
to industry’s credit growth of 24.4%. While on a sequential basis, growth
momentum was muted with growth of 1.3% qoq (mainly on account of repayment
of one-off loans taken by telecom companies for 3G licenses of ~`6,000-7,000cr,
given in 1QFY2011) compared to industry growth of ~9% qoq. Adjusted for the
repayment, growth for the quarter would have been ~5%.
Deposits reached `1,92,202cr in 3QFY2011, up by a healthy 24.2% yoy. On a
qoq basis, deposits de-grew by 1.6% which was likely on account of lower IPO
floats. Bank’s CASA growth moderated during 3QFY2011, with the CASA deposits
growing by 21.4% yoy compared to 37.4% yoy growth in 1QFY2011 and 31.1%
yoy growth in 2QFY2011. Saving account deposits increased 30.7% yoy, while
current account deposits grew by 8.3% yoy. The bank continued to maintain a
strong CASA ratio in excess of 50% (50.5%).
Strong capital adequacy, branch expansion to drive credit and
CASA market share gains, respectively
The bank’s total capital adequacy (CAR) remained strong at 16.3%, with tier-1
constituting 74.2% of the total CAR. The bank’s capital adequacy will be further
bolstered in 4QFY2011 on account of FY2011 profit getting included in
computation of tier-I. On the back of this strong CAR, we expect the bank to
increase its credit market share over FY2011-12. Accordingly, we expect the bank
to record credit growth of 32% for FY2011 and 30% for FY2012 compared to
27.3% growth in FY2010.
Importantly, the bank’s CASA deposits also grew by 21.4% yoy, driven by 30.7%
yoy growth in savings deposits. The strong traction in CASA growth over the past
one year can be attributed to the bank’s aggressive branch expansion during
FY2009-10 and increasing productivity of CBoP’s branch network. The bank plans
to open 150 branches during FY2011 of which it opened 55 branches during
9MFY2011. In FY2012 too, the bank plans to open 150 branches, ~8-10%
increase in the branch network. Management indicated that branches opened in
the past couple of years as well as the acquired CBoP branches are operating
close to optimum levels in terms of productivity and other parameters set by the
bank. Against this backdrop, we expect the bank to sustain its CASA ratio in the
49–52% range going forward, factoring in the healthy market share gains on the
CASA front as well.
Cost-to-income ratio improves on the back of higher income
During 3QFY2011, the bank’s cost-to-income ratio improved to 46.9% from
48.2% in 2QFY2011 on the back of the 12% qoq increase in operating income
compared to 9% qoq increase in operating expenses. Operating expenses moved
up 26.1% yoy on account of the 25.3% yoy rise in employee expenses and 26.5%
increase in other operating expenses. During the quarter, other operating expenses
increased by 14.2% qoq to `1,107cr mainly on account of opex cost of ~80-90
branches, which are to be opened in 4QFY2011 and were included in the run
rate. Going forward, management expects the higher run rate to continue.
Accordingly, we have increased our other opex cost estimates by 2.0% each for
FY2011 and FY2012.
Improving asset quality
The bank’s asset quality improved sequentially as well as on a yoy basis. Gross
NPAs were down 3.2% qoq and 9.7% yoy to `1,782cr, while Net NPAs declined by
19.1% qoq and 39.2% yoy to `331cr. The gross NPA ratio improved to 1.1% from
1.2% in 2QFY2011and the net NPA ratio improved to 0.2% from 0.3% in
2QFY2011. The NPA coverage ratio excluding technical write-offs improved to
81.4% from 77.8% in 2QFY2011 and 72.4% in 3QFY2010. Total restructured
assets were 0.3% of gross advances, which is among the lowest in the sector.
Provisions for the quarter were `466cr, of which `438cr was towards NPAs.
Provisions to average assets declined from 1.1% in FY2010 to 0.7% in
3QFY2011.
Healthy fee income growth
Non-interest income stood at `1,129cr, up 17.9% qoq and 25.8% yoy, on the
back of the healthy 22.5% increase in fee income and 40.5% growth in other
income from foreign exchange and derivative revenues. There was a loss of `31cr
on sale/revaluation of investments compared to a loss of `52cr in 2QFY2011 and
`27cr in 3QFY2010.
Investment Arguments
Strong capital adequacy, expanding network to sustain traction
in credit market share and CASA deposits
In 3QFY2011, the bank’s capital adequacy stood at a strong 16.3%, with tier-1
comprising a substantial 74.3%. On the back of this strong CAR, we expect the
bank to increase its credit market share over FY2011-12. Accordingly, we expect
the bank to grow its advances by 32% in FY2011 and 30% in FY2012.
The bank’s strong and profitable growth over the last five years (FY2005–10) was
supported by significant traction in CASA market share (from 3.3% in FY2005 to
5.2% in FY2010). The dominant transaction banking business lies at the core of
the bank’s strength in CASA deposits. Moreover, post the merger of CBoP, the
bank’s branch network moved up at 30% CAGR during FY2005–10. By increasing
CASA mobilisation at the branches, continuing to expand its network at a healthy
pace and leveraging its comprehensive product range and strong brand, we
believe HDFC Bank would be in a position to further increase its CASA market
share going ahead.
Comprehensive product portfolio, effective cross-selling to
sustain traction in fee income
Apart from the traditional CEB and forex income, the bank earns substantial fee
income from transaction banking, cards and third-party distribution, among
others. Overall, the bank’s core fee income increased at a CAGR of 30% over
FY2008-10, and stood at around 1.7% of ATA in FY2010 (1.7% of ATA in
3QFY2011 as well), one of the best in the sector and another significant
competitive advantage.
Improvement in asset quality
The bank has been able to improve its asset quality constantly as reflected in the
provisions to average assets, which has declined from 1.1% in FY2010 to 0.7% in
9MFY2011. Accordingly, we have factored in slippages of 1.7% and 1.5% in
FY2011 and FY2012 respectively, as against slippages of 2.6% in FY2010. We
expect the provisions-to-average assets to decline from 1.1% in FY2010 to 0.7% in
FY2011 and to 0.5% in FY2012. Hence, we expect the bank to post 33.8% CAGR
in PAT over FY2010-12. Consequently, RoE is expected to improve from 16.1% in
FY2010 to 19.9% in FY2012.
Outlook and Valuation
We believe HDFC bank is among the most competitive banks in the sector, with an
A-list management at the helm of affairs that has one of the best track records in
the sector. At the CMP, the stock is trading at 17.8x FY2012E EPS of `115.3 and
3.3x FY2012E P/ABV of `625. We believe the bank is well positioned for high
qualitative growth, with the CASA and cost-to-income ratio returning to pre-CBoP
levels. HDFC Bank has commanded 32.9% premium to the Sensex in terms of its
one-year forward P/E multiple over the last five years. We expect the premium to
be around its historical average on account of the robust growth and RoE
prospects over the next two years. Hence we have assigned a multiple of 4.0x
FY2012E P/ABV to arrive at a Target Price of `2,499. We maintain our Buy
recommendation on the stock.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
HDFC Bank – 3QFY2011 Result Update
Angel Broking maintains a Buy on HDFC Bank with a Target Price of Rs. 2,499.
For 3QFY2011, HDFC Bank reported 19.3% qoq and 32.9% yoy growth in net
profit to `1,088cr, in line with our estimate of `1,091cr. However, operating
income surpassed our estimate, which was offset by higher provisioning expenses,
which aided in further improving the provision coverage ratio. We maintain our
Buy recommendation on the stock.
Robust performance on all parameters: Gross advances registered healthy growth
of 32.7% yoy compared to industry growth of 24.4%. Deposits also registered an
impressive growth of 24.2% yoy compared to industry growth of 16.5%. Pace of
CASA deposits accretion moderated a bit with yoy growth of 21.4% as against
~34% yoy growth in 1HFY2011. CASA ratio continued to remain strong at 50.5%
of total deposits. Reported NIMs were stable sequentially at 4.2%. The bank
recorded healthy NII growth of 9.9% qoq and 24.9% yoy to `2,777cr. Fee income
grew by a healthy 22.5% yoy. The bank’s asset quality further improved during
the quarter, with the gross NPAs decreasing 3.2% qoq and net NPAs falling
19.1% qoq. NPA provision coverage ratio (excluding write-offs) improved further
to 81.4% from 77.8% in 2QFY2011.The bank’s capital adequacy remained
strong at 16.3%, with tier-1 constituting 74.2%.
Outlook and Valuation: At the CMP, the stock is trading at 3.3x FY2012E P/ABV
of `628, which is below our target multiple of 4.0x (benchmarked at 30%
premium to our Sensex target multiple). We believe HDFC Bank is well positioned
for high qualitative growth, with the CASA and cost-to-income ratio returning to
pre-CBoP levels. In our view, with strong capital adequacy and healthy branch
expansion, the bank is set to further gain credit and CASA market share
accompanied by reduction in NPA provision costs. We maintain a Buy
recommendation on the stock, with a Target Price of `2,499.
Strong business growth with profitability
Gross advances registered strong growth of 32.7% yoy to `1,60,619cr compared
to industry’s credit growth of 24.4%. While on a sequential basis, growth
momentum was muted with growth of 1.3% qoq (mainly on account of repayment
of one-off loans taken by telecom companies for 3G licenses of ~`6,000-7,000cr,
given in 1QFY2011) compared to industry growth of ~9% qoq. Adjusted for the
repayment, growth for the quarter would have been ~5%.
Deposits reached `1,92,202cr in 3QFY2011, up by a healthy 24.2% yoy. On a
qoq basis, deposits de-grew by 1.6% which was likely on account of lower IPO
floats. Bank’s CASA growth moderated during 3QFY2011, with the CASA deposits
growing by 21.4% yoy compared to 37.4% yoy growth in 1QFY2011 and 31.1%
yoy growth in 2QFY2011. Saving account deposits increased 30.7% yoy, while
current account deposits grew by 8.3% yoy. The bank continued to maintain a
strong CASA ratio in excess of 50% (50.5%).
On account of higher growth in advances and marginal shrinkage in deposits
sequentially, the bank’s credit-deposit ratio improved to 82.8% from 80.4% in
2QFY2011. Reported NIM for 3QFY2011 was sequentially stable at 4.2%.
Consequently, net interest income registered a healthy growth of 9.9% qoq and
24.9% yoy to `2,777cr.
Strong capital adequacy, branch expansion to drive credit and
CASA market share gains, respectively
The bank’s total capital adequacy (CAR) remained strong at 16.3%, with tier-1
constituting 74.2% of the total CAR. The bank’s capital adequacy will be further
bolstered in 4QFY2011 on account of FY2011 profit getting included in
computation of tier-I. On the back of this strong CAR, we expect the bank to
increase its credit market share over FY2011-12. Accordingly, we expect the bank
to record credit growth of 32% for FY2011 and 30% for FY2012 compared to
27.3% growth in FY2010.
Importantly, the bank’s CASA deposits also grew by 21.4% yoy, driven by 30.7%
yoy growth in savings deposits. The strong traction in CASA growth over the past
one year can be attributed to the bank’s aggressive branch expansion during
FY2009-10 and increasing productivity of CBoP’s branch network. The bank plans
to open 150 branches during FY2011 of which it opened 55 branches during
9MFY2011. In FY2012 too, the bank plans to open 150 branches, ~8-10%
increase in the branch network. Management indicated that branches opened in
the past couple of years as well as the acquired CBoP branches are operating
close to optimum levels in terms of productivity and other parameters set by the
bank. Against this backdrop, we expect the bank to sustain its CASA ratio in the
49–52% range going forward, factoring in the healthy market share gains on the
CASA front as well.
Cost-to-income ratio improves on the back of higher income
During 3QFY2011, the bank’s cost-to-income ratio improved to 46.9% from
48.2% in 2QFY2011 on the back of the 12% qoq increase in operating income
compared to 9% qoq increase in operating expenses. Operating expenses moved
up 26.1% yoy on account of the 25.3% yoy rise in employee expenses and 26.5%
increase in other operating expenses. During the quarter, other operating expenses
increased by 14.2% qoq to `1,107cr mainly on account of opex cost of ~80-90
branches, which are to be opened in 4QFY2011 and were included in the run
rate. Going forward, management expects the higher run rate to continue.
Accordingly, we have increased our other opex cost estimates by 2.0% each for
FY2011 and FY2012.
Improving asset quality
The bank’s asset quality improved sequentially as well as on a yoy basis. Gross
NPAs were down 3.2% qoq and 9.7% yoy to `1,782cr, while Net NPAs declined by
19.1% qoq and 39.2% yoy to `331cr. The gross NPA ratio improved to 1.1% from
1.2% in 2QFY2011and the net NPA ratio improved to 0.2% from 0.3% in
2QFY2011. The NPA coverage ratio excluding technical write-offs improved to
81.4% from 77.8% in 2QFY2011 and 72.4% in 3QFY2010. Total restructured
assets were 0.3% of gross advances, which is among the lowest in the sector.
Provisions for the quarter were `466cr, of which `438cr was towards NPAs.
Provisions to average assets declined from 1.1% in FY2010 to 0.7% in
3QFY2011.
Healthy fee income growth
Non-interest income stood at `1,129cr, up 17.9% qoq and 25.8% yoy, on the
back of the healthy 22.5% increase in fee income and 40.5% growth in other
income from foreign exchange and derivative revenues. There was a loss of `31cr
on sale/revaluation of investments compared to a loss of `52cr in 2QFY2011 and
`27cr in 3QFY2010.
Investment Arguments
Strong capital adequacy, expanding network to sustain traction
in credit market share and CASA deposits
In 3QFY2011, the bank’s capital adequacy stood at a strong 16.3%, with tier-1
comprising a substantial 74.3%. On the back of this strong CAR, we expect the
bank to increase its credit market share over FY2011-12. Accordingly, we expect
the bank to grow its advances by 32% in FY2011 and 30% in FY2012.
The bank’s strong and profitable growth over the last five years (FY2005–10) was
supported by significant traction in CASA market share (from 3.3% in FY2005 to
5.2% in FY2010). The dominant transaction banking business lies at the core of
the bank’s strength in CASA deposits. Moreover, post the merger of CBoP, the
bank’s branch network moved up at 30% CAGR during FY2005–10. By increasing
CASA mobilisation at the branches, continuing to expand its network at a healthy
pace and leveraging its comprehensive product range and strong brand, we
believe HDFC Bank would be in a position to further increase its CASA market
share going ahead.
Comprehensive product portfolio, effective cross-selling to
sustain traction in fee income
Apart from the traditional CEB and forex income, the bank earns substantial fee
income from transaction banking, cards and third-party distribution, among
others. Overall, the bank’s core fee income increased at a CAGR of 30% over
FY2008-10, and stood at around 1.7% of ATA in FY2010 (1.7% of ATA in
3QFY2011 as well), one of the best in the sector and another significant
competitive advantage.
Improvement in asset quality
The bank has been able to improve its asset quality constantly as reflected in the
provisions to average assets, which has declined from 1.1% in FY2010 to 0.7% in
9MFY2011. Accordingly, we have factored in slippages of 1.7% and 1.5% in
FY2011 and FY2012 respectively, as against slippages of 2.6% in FY2010. We
expect the provisions-to-average assets to decline from 1.1% in FY2010 to 0.7% in
FY2011 and to 0.5% in FY2012. Hence, we expect the bank to post 33.8% CAGR
in PAT over FY2010-12. Consequently, RoE is expected to improve from 16.1% in
FY2010 to 19.9% in FY2012.
Outlook and Valuation
We believe HDFC bank is among the most competitive banks in the sector, with an
A-list management at the helm of affairs that has one of the best track records in
the sector. At the CMP, the stock is trading at 17.8x FY2012E EPS of `115.3 and
3.3x FY2012E P/ABV of `625. We believe the bank is well positioned for high
qualitative growth, with the CASA and cost-to-income ratio returning to pre-CBoP
levels. HDFC Bank has commanded 32.9% premium to the Sensex in terms of its
one-year forward P/E multiple over the last five years. We expect the premium to
be around its historical average on account of the robust growth and RoE
prospects over the next two years. Hence we have assigned a multiple of 4.0x
FY2012E P/ABV to arrive at a Target Price of `2,499. We maintain our Buy
recommendation on the stock.
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