Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HDFC Bank Overweight
HDBK.BO, HDFCB IN
Relatively safe haven; maintain Overweight
• Our meeting with HDFCB management indicated no significantly
heightened stress for the bank, despite a slightly difficult operating
environment. We see the bank as a clear safe haven, given the prevailing
uncertainty, and maintain OW.
• Loan demand selectively strong: There has been some softness in
retail offtake, but it’s too early to divine a trend. Working capital
demand remains strong, while the capex environment is uncertain.
Infrastructure opportunities have not totally dried up. Management
targets a wide band of 25-30% loan growth, depending on the demand
and pricing environment. Systemic loan growth is 18-20% for FY12E.
• Margins resilient: The cost of funds pressures do exist, although the
CASA ratio does not appear to be threatened. Despite the largely fixedrate
book, HDFCB has held on to margins and management sees enough
levers to be able to limit damage to NIMs without factoring in any
significant liquidity easing in the near term.
• Asset quality robust: No incremental stresses have been discernible in
the last few months. Microfinance remains an area of concern –
HDFCB’s exposure to telecom is very limited. Credit costs should
stabilize around 3Q11 levels (1.1%), quarterly fluctuations
notwithstanding.
• Relatively safe haven; maintain Overweight: HDFCB trades at 3.5x
P/BV (FY12E), in line with its long-term average. Very few other banks
display HDFCB’s stability in this uncertain environment. We thus see it
as a safe haven, despite the premium valuations – it’s one of our top
picks among Indian banks. A slowdown in retail loan growth due to high
rates is a key risk to our Overweight recommendation.
Loan growth
• There are no alarming signs of a slowing economy, from the cues that
management has had on loan demand. There is a likelihood that GDP growth will
slow to ~8% in FY12, partly to rein in inflation. In that context, system loan
growth should stabilize at 18-20%.
• Retail demand was a little soft in January, as indicated by auto sales figures.
Management believes it’s too early to discern a trend – December was a bumper
month, so it could be the hangover impact. Mortgage demand remains strong,
especially on a yoy basis. HDFCB will continue to take around 50% of the HDFC
loans it originates back on its book
• Wholesale loans. a) Working capital demand is still robust. This is one of
HDFCB’s areas of strength. b) Capex demand is slowing – management does feel
the need for expanding capacity, but is not rushing into new projects given the
general uncertainty. c) Infrastructure demand remains soft, but there continues to
be selective opportunities in the sector.
• The short-term loans of 1H FY11 have run off and the 33% loan growth (Dec-10)
is core. HDFCB continues to expect growth of 5-7% above system, and targets
25-30% loan growth over the next few years. Growth should oscillate within this
wide range, given the continued reluctance to grow aggressively in an adverse
pricing-power scenario.
Margins
• The outlook for CASA ratio remains stable. There is some CASA migration
because of high fixed deposit rates, but that is being offset by continuous
improvement in branch productivity (57% of branches have been added in the last
three years - see chart). There is no significant pressure on the CASA ratio.
• Fixed deposit rates have probably peaked, with around ~25bp upside from current
levels. There is a likelihood that premiums for wholesale deposits will shrink
from April onwards. HDFCB is likely to see the average cost of deposits,
however, continue to rise for a few more quarters as its (largely retail) book gets
repriced upwards.
• The loan pricing environment has been mixed. Wholesale loan yields have
tracked deposit rates upwards, partly due to the spike in long-term liquidity.
Retail loan yields, however, have lagged, due partly to the difficulty in passing on
such sharp increases and partly to competitive intensity.
• Margin outlook remains stable, with a slight negative bias. The upward move in
deposit rates will likely be offset by rising loan yields, especially in retail (both
marginal and average).
Asset quality
• The MFI outlook remains weak. HDFCB is the only bank to have made a
prudential provision (10% of exposure) and has no visibility on the end-game in
this sector. Comparatively, its 3Q11 provision leaves it in a better position.
• There are no other major problem areas. Retail asset quality continues to be in a
sweet spot, with delinquencies at all-time lows. Wholesale NPLs also remain
under control.
• Management does not see a slight slowing of growth (from ~8.5% in FY11 to
~8% in FY12) impacting asset quality. Systemic issues are likely to crop up only
if growth slows to 6-6.5%, and that too very quickly, as happened in 2H FY09
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HDFC Bank Overweight
HDBK.BO, HDFCB IN
Relatively safe haven; maintain Overweight
• Our meeting with HDFCB management indicated no significantly
heightened stress for the bank, despite a slightly difficult operating
environment. We see the bank as a clear safe haven, given the prevailing
uncertainty, and maintain OW.
• Loan demand selectively strong: There has been some softness in
retail offtake, but it’s too early to divine a trend. Working capital
demand remains strong, while the capex environment is uncertain.
Infrastructure opportunities have not totally dried up. Management
targets a wide band of 25-30% loan growth, depending on the demand
and pricing environment. Systemic loan growth is 18-20% for FY12E.
• Margins resilient: The cost of funds pressures do exist, although the
CASA ratio does not appear to be threatened. Despite the largely fixedrate
book, HDFCB has held on to margins and management sees enough
levers to be able to limit damage to NIMs without factoring in any
significant liquidity easing in the near term.
• Asset quality robust: No incremental stresses have been discernible in
the last few months. Microfinance remains an area of concern –
HDFCB’s exposure to telecom is very limited. Credit costs should
stabilize around 3Q11 levels (1.1%), quarterly fluctuations
notwithstanding.
• Relatively safe haven; maintain Overweight: HDFCB trades at 3.5x
P/BV (FY12E), in line with its long-term average. Very few other banks
display HDFCB’s stability in this uncertain environment. We thus see it
as a safe haven, despite the premium valuations – it’s one of our top
picks among Indian banks. A slowdown in retail loan growth due to high
rates is a key risk to our Overweight recommendation.
Loan growth
• There are no alarming signs of a slowing economy, from the cues that
management has had on loan demand. There is a likelihood that GDP growth will
slow to ~8% in FY12, partly to rein in inflation. In that context, system loan
growth should stabilize at 18-20%.
• Retail demand was a little soft in January, as indicated by auto sales figures.
Management believes it’s too early to discern a trend – December was a bumper
month, so it could be the hangover impact. Mortgage demand remains strong,
especially on a yoy basis. HDFCB will continue to take around 50% of the HDFC
loans it originates back on its book
• Wholesale loans. a) Working capital demand is still robust. This is one of
HDFCB’s areas of strength. b) Capex demand is slowing – management does feel
the need for expanding capacity, but is not rushing into new projects given the
general uncertainty. c) Infrastructure demand remains soft, but there continues to
be selective opportunities in the sector.
• The short-term loans of 1H FY11 have run off and the 33% loan growth (Dec-10)
is core. HDFCB continues to expect growth of 5-7% above system, and targets
25-30% loan growth over the next few years. Growth should oscillate within this
wide range, given the continued reluctance to grow aggressively in an adverse
pricing-power scenario.
Margins
• The outlook for CASA ratio remains stable. There is some CASA migration
because of high fixed deposit rates, but that is being offset by continuous
improvement in branch productivity (57% of branches have been added in the last
three years - see chart). There is no significant pressure on the CASA ratio.
• Fixed deposit rates have probably peaked, with around ~25bp upside from current
levels. There is a likelihood that premiums for wholesale deposits will shrink
from April onwards. HDFCB is likely to see the average cost of deposits,
however, continue to rise for a few more quarters as its (largely retail) book gets
repriced upwards.
• The loan pricing environment has been mixed. Wholesale loan yields have
tracked deposit rates upwards, partly due to the spike in long-term liquidity.
Retail loan yields, however, have lagged, due partly to the difficulty in passing on
such sharp increases and partly to competitive intensity.
• Margin outlook remains stable, with a slight negative bias. The upward move in
deposit rates will likely be offset by rising loan yields, especially in retail (both
marginal and average).
Asset quality
• The MFI outlook remains weak. HDFCB is the only bank to have made a
prudential provision (10% of exposure) and has no visibility on the end-game in
this sector. Comparatively, its 3Q11 provision leaves it in a better position.
• There are no other major problem areas. Retail asset quality continues to be in a
sweet spot, with delinquencies at all-time lows. Wholesale NPLs also remain
under control.
• Management does not see a slight slowing of growth (from ~8.5% in FY11 to
~8% in FY12) impacting asset quality. Systemic issues are likely to crop up only
if growth slows to 6-6.5%, and that too very quickly, as happened in 2H FY09
No comments:
Post a Comment