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HDFC Bank (HDFCB)
Banks/Financial Institutions
Another consistent quarter. HDFC Bank reported another quarter of strong earnings
with stable margins at 4.2%, steady loan growth at 27% and better fee income
growth. Asset quality remains in a sweet spot as delinquencies have been sharply lower
and the bank continues to make ad hoc floating provisions, taking a charge on current
earnings, as counter cyclical measure. Earnings growth outlook remains strong in the
current environment given its strong liability franchisee. However, valuations at 3.7X
FY2012E book remain expensive. Maintain ADD with a TP of `2,500.
Strong performance on all counts
HDFC Bank continues to show strong performance on all counts. Loans grew by 27% yoy, but
sequentially it remained flat, as it chose to sell down loans in order to manage its priority sector
targets in future. Retail growth at 27% yoy is strong despite reasonable size and high market
share with all segments driving growth, including unsecured loans. Reported margins remained
stable at 4.2% qoq while CASA ratio has increased to 53% qoq, even as average CASA has
remained stable. Fee income, which was growing at a slower pace over the last few quarters, also
witnessed a strong performance with a growth of 23% yoy in 4Q.
A strong asset quality is the key hallmark of FY2011
FY2011 has been one of the best years for retail NPLs and HDFC Bank has benefitted immensely
from it. Slippages for FY2011 declined by 44% in absolute terms over FY2010 (slippage ratio was
at 1.2% of loans as compared to 2.6% in FY2010). Thus, HDFC Bank is running very high risk
adjusted margins currently. However, all benefits have not flown to the bottom line, as HDFC Bank
has chosen to make counter cyclical provisions—total floating provisions stand at `7.3 bn (0.5% of
loans). In addition, it has also made contingent provisions for micro finance, forex exposure, etc.
Overall gross NPLs declined by 5% qoq and net NPLs by 10% qoq.
Enough cushions to sustain its strong earnings momentum
We believe that HDFC Bank has enough cushions on costs and provisions to maintain its
impeccable earnings momentum. Even as we find valuations at 3.7X FY2012E PBR expensive,
relative to other banking stocks, its superior liability profiles in current times and comfort on its
ability to maintain its consistent profit growth are big positives to own this stock. Retain ADD with
a TP of `2,500 (`2,400 earlier).
Loan growth healthy at 27% yoy; retail loans impressive at 27% yoy
HDFC Bank’s loan book grew 27% yoy (flat qoq) to `1.6 tn as of March 2011, mainly due to
higher growth in retail loans. Corporate loans grew by 27% yoy while retail loans too grew
by 27% yoy and now is about 50% of loan book (the bank has reclassified some of its retail
exposure into corporate loans for loans which are above `50 mn/borrower or `0.5 bn on
turnover basis). Retail loans were largely driven by housing loans (up 32% yoy at `115 bn),
commercial vehicles (up 33% yoy at `80 bn) and car loans (up 22% yoy at `220 bn). HDFC
Bank has bought `5.5 bn of housing loans from HDFC Ltd in the current quarter. The ratio
of unsecured loans to total retail loans has increased to 19% compared to 16% in
December 2010.
CASA ratio maintained at 50% levels; savings deposits grew at 27% yoy
HDFC Bank continued to leverage its strong franchise with CASA ratio maintained in the
current quarter at 50% levels (period ending CASA ratio at 53%). Savings deposits grew
impressively by 27% yoy (3% qoq) while current account grew by 25% yoy. Overall,
deposits growth remains well ahead of industry at 25% yoy (increase of 9% qoq). CASA
ratio continues to grow impressively giving HDFC Bank a structural advantage compared to
peers in a rising rate environment.
Margins maintained at 4.2%; CD ratio declines 600 bps qoq to 77%
NIMs for the quarter was at 4.2% (maintained sequentially) with rise in asset yields being
compensated by rise in deposits. CD ratio declined to 77% in March 2011 from 83% in
December 2010, driven partially by loan sell-down and healthy growth in deposits. On a
calculated basis, investment yields (calc) has seen a sequential increase (investment yields on
SLR has improved and investments in liquid instruments like MF was negligible) of about 10
bps. NII grew by 21% yoy to `28.4 bn, in line with our estimates.
Even as HDFC Bank is likely to be a natural beneficiary of the current high interest rate
regime, we conservatively build a 15 bps decline in margins in FY2012E, as deposit costs are
likely to reprice faster in FY2012E.
Asset quality trend healthy; coverage ratio healthy at 83%
Broad trends on asset quality continue to show improvement with gross and net NPL
declining in 4QFY11. Gross NPL declined by 5% qoq to `16.9 bn (1.1% of loans) while net
NPL declined by 10% qoq to `2.97 bn (0.2% of loans). Despite lower NPL formation, loanloss
provisioning for the quarter continued to remain high at 80 bps with nearly a two-third
of provisions used for floating provisions (part of tier-2 capital and not coverage ratio) and
the balance to improve coverage ratio and account for fresh slippages. Provision coverage
ratio improved by about 110 bps qoq to 83%, well ahead of 70% as mandated by RBI. We
are building in provisions of 90 bps for HDFC Bank in FY2012-13E. The total restructured
continued to be low at 0.3% of loans. Exposure to microfinance is fairly low at 0.5% of
loans.
Fee income increases 23% yoy; exchange income continues to be impressive
Non-interest income increased by 32% yoy to `12.6 bn, with strong contribution from fee
and forex income. Treasury income reported a marginal income of `86 mn compared to
`473 mn loss in 4QFY10. Core fees grew 23% yoy in 4QFY11 at `10.0 bn. The bank has
revised its fee income for the previous year adjusting ATM expenses in non-staff expenses as
against netting off from other income. Exchange income was showed a sharp improvement
yoy at 36% to `2.4 bn. We are factoring 20%CAGR for FY2011-13E.
Others key highlights
Operating costs have increased by 24% yoy mainly due to sharp increase in non-staff
expenses (25% yoy)—higher depreciation charges; resulting in cost-income ratio to
increase marginally to 49% from 47% in December 2011.
The bank has opened 206 branches and 350 ATMs in 4QFY11, taking the total branch
network to 1,986 branches and ATM count to 5,471. The management has indicated
that the growth trend on branch expansion is likely to remain at similar levels of FY2011.
The bank has proposed a stock split in the ratio of 5:1.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HDFC Bank (HDFCB)
Banks/Financial Institutions
Another consistent quarter. HDFC Bank reported another quarter of strong earnings
with stable margins at 4.2%, steady loan growth at 27% and better fee income
growth. Asset quality remains in a sweet spot as delinquencies have been sharply lower
and the bank continues to make ad hoc floating provisions, taking a charge on current
earnings, as counter cyclical measure. Earnings growth outlook remains strong in the
current environment given its strong liability franchisee. However, valuations at 3.7X
FY2012E book remain expensive. Maintain ADD with a TP of `2,500.
Strong performance on all counts
HDFC Bank continues to show strong performance on all counts. Loans grew by 27% yoy, but
sequentially it remained flat, as it chose to sell down loans in order to manage its priority sector
targets in future. Retail growth at 27% yoy is strong despite reasonable size and high market
share with all segments driving growth, including unsecured loans. Reported margins remained
stable at 4.2% qoq while CASA ratio has increased to 53% qoq, even as average CASA has
remained stable. Fee income, which was growing at a slower pace over the last few quarters, also
witnessed a strong performance with a growth of 23% yoy in 4Q.
A strong asset quality is the key hallmark of FY2011
FY2011 has been one of the best years for retail NPLs and HDFC Bank has benefitted immensely
from it. Slippages for FY2011 declined by 44% in absolute terms over FY2010 (slippage ratio was
at 1.2% of loans as compared to 2.6% in FY2010). Thus, HDFC Bank is running very high risk
adjusted margins currently. However, all benefits have not flown to the bottom line, as HDFC Bank
has chosen to make counter cyclical provisions—total floating provisions stand at `7.3 bn (0.5% of
loans). In addition, it has also made contingent provisions for micro finance, forex exposure, etc.
Overall gross NPLs declined by 5% qoq and net NPLs by 10% qoq.
Enough cushions to sustain its strong earnings momentum
We believe that HDFC Bank has enough cushions on costs and provisions to maintain its
impeccable earnings momentum. Even as we find valuations at 3.7X FY2012E PBR expensive,
relative to other banking stocks, its superior liability profiles in current times and comfort on its
ability to maintain its consistent profit growth are big positives to own this stock. Retain ADD with
a TP of `2,500 (`2,400 earlier).
Loan growth healthy at 27% yoy; retail loans impressive at 27% yoy
HDFC Bank’s loan book grew 27% yoy (flat qoq) to `1.6 tn as of March 2011, mainly due to
higher growth in retail loans. Corporate loans grew by 27% yoy while retail loans too grew
by 27% yoy and now is about 50% of loan book (the bank has reclassified some of its retail
exposure into corporate loans for loans which are above `50 mn/borrower or `0.5 bn on
turnover basis). Retail loans were largely driven by housing loans (up 32% yoy at `115 bn),
commercial vehicles (up 33% yoy at `80 bn) and car loans (up 22% yoy at `220 bn). HDFC
Bank has bought `5.5 bn of housing loans from HDFC Ltd in the current quarter. The ratio
of unsecured loans to total retail loans has increased to 19% compared to 16% in
December 2010.
CASA ratio maintained at 50% levels; savings deposits grew at 27% yoy
HDFC Bank continued to leverage its strong franchise with CASA ratio maintained in the
current quarter at 50% levels (period ending CASA ratio at 53%). Savings deposits grew
impressively by 27% yoy (3% qoq) while current account grew by 25% yoy. Overall,
deposits growth remains well ahead of industry at 25% yoy (increase of 9% qoq). CASA
ratio continues to grow impressively giving HDFC Bank a structural advantage compared to
peers in a rising rate environment.
Margins maintained at 4.2%; CD ratio declines 600 bps qoq to 77%
NIMs for the quarter was at 4.2% (maintained sequentially) with rise in asset yields being
compensated by rise in deposits. CD ratio declined to 77% in March 2011 from 83% in
December 2010, driven partially by loan sell-down and healthy growth in deposits. On a
calculated basis, investment yields (calc) has seen a sequential increase (investment yields on
SLR has improved and investments in liquid instruments like MF was negligible) of about 10
bps. NII grew by 21% yoy to `28.4 bn, in line with our estimates.
Even as HDFC Bank is likely to be a natural beneficiary of the current high interest rate
regime, we conservatively build a 15 bps decline in margins in FY2012E, as deposit costs are
likely to reprice faster in FY2012E.
Asset quality trend healthy; coverage ratio healthy at 83%
Broad trends on asset quality continue to show improvement with gross and net NPL
declining in 4QFY11. Gross NPL declined by 5% qoq to `16.9 bn (1.1% of loans) while net
NPL declined by 10% qoq to `2.97 bn (0.2% of loans). Despite lower NPL formation, loanloss
provisioning for the quarter continued to remain high at 80 bps with nearly a two-third
of provisions used for floating provisions (part of tier-2 capital and not coverage ratio) and
the balance to improve coverage ratio and account for fresh slippages. Provision coverage
ratio improved by about 110 bps qoq to 83%, well ahead of 70% as mandated by RBI. We
are building in provisions of 90 bps for HDFC Bank in FY2012-13E. The total restructured
continued to be low at 0.3% of loans. Exposure to microfinance is fairly low at 0.5% of
loans.
Fee income increases 23% yoy; exchange income continues to be impressive
Non-interest income increased by 32% yoy to `12.6 bn, with strong contribution from fee
and forex income. Treasury income reported a marginal income of `86 mn compared to
`473 mn loss in 4QFY10. Core fees grew 23% yoy in 4QFY11 at `10.0 bn. The bank has
revised its fee income for the previous year adjusting ATM expenses in non-staff expenses as
against netting off from other income. Exchange income was showed a sharp improvement
yoy at 36% to `2.4 bn. We are factoring 20%CAGR for FY2011-13E.
Others key highlights
Operating costs have increased by 24% yoy mainly due to sharp increase in non-staff
expenses (25% yoy)—higher depreciation charges; resulting in cost-income ratio to
increase marginally to 49% from 47% in December 2011.
The bank has opened 206 branches and 350 ATMs in 4QFY11, taking the total branch
network to 1,986 branches and ATM count to 5,471. The management has indicated
that the growth trend on branch expansion is likely to remain at similar levels of FY2011.
The bank has proposed a stock split in the ratio of 5:1.
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