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HDFC Bank Overweight
HDBK.BO, HDFCB IN
In-line 4Q11, Maintain Overweight
• In-line 4Q11: HDFC Bank reported net profit at Rs11.1bn, up 33%,
which was 1-2% higher than JPMe/consensus. Operating results were
broadly in line, with stable margins and low credit costs (80bps in 4Q11
v/s 75bps in 3Q11). Asset quality continues to improve and the countercyclical
NPA coverage build-up is a big positive.
• Muted growth in 4Q: Loan growth was muted at 0.5% q/q due to
seasonal sell-down in loans in 4Q11. Loan growth has been broad based
with ~27% y/y growth for both the retail and corporate book.
Management expects above industry growth in FY12E and does not see
higher rates impacting retail or working capital loan growth.
• Margins stable: Margins was flat q/q at 4.2% aided by ~40bps increase
in lending yields and stable CASA. We expect 5-10bps moderation in
margins, with a high CASA ratio aiding margins in the current scenario.
Management expects margins to remain in the historical 3.9-4.3% range.
This range is wider than Street expectations and could lead to margin–
related concerns.
• Delinquencies improve, coverage build-up a big positive: Asset
quality has been improving on strong retail trends. Management is using
this opportunity to proactively build counter-cyclical buffers (floating
provisions), increase NPA coverage (up 150bps in 4Q11, >100%
including floating provision) and providing for possible slippages from
the MFI book (Rs0.5bn in 4Q11). This, we believe, would significantly
aid when the credit cycle turns.
• Maintain Overweight: We maintain our Gordon growth–based Mar-12
PT of Rs2600/share. High CASA would cushion against any margin
pressure and relatively higher NPA coverage provides a large buffer and
would help sustain premium valuations. Any correction on margin
concerns would be a buying opportunity, in our view. Key risks are
slowing retail credit demand due to higher rates, credit costs
normalization.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HDFC Bank Overweight
HDBK.BO, HDFCB IN
In-line 4Q11, Maintain Overweight
• In-line 4Q11: HDFC Bank reported net profit at Rs11.1bn, up 33%,
which was 1-2% higher than JPMe/consensus. Operating results were
broadly in line, with stable margins and low credit costs (80bps in 4Q11
v/s 75bps in 3Q11). Asset quality continues to improve and the countercyclical
NPA coverage build-up is a big positive.
• Muted growth in 4Q: Loan growth was muted at 0.5% q/q due to
seasonal sell-down in loans in 4Q11. Loan growth has been broad based
with ~27% y/y growth for both the retail and corporate book.
Management expects above industry growth in FY12E and does not see
higher rates impacting retail or working capital loan growth.
• Margins stable: Margins was flat q/q at 4.2% aided by ~40bps increase
in lending yields and stable CASA. We expect 5-10bps moderation in
margins, with a high CASA ratio aiding margins in the current scenario.
Management expects margins to remain in the historical 3.9-4.3% range.
This range is wider than Street expectations and could lead to margin–
related concerns.
• Delinquencies improve, coverage build-up a big positive: Asset
quality has been improving on strong retail trends. Management is using
this opportunity to proactively build counter-cyclical buffers (floating
provisions), increase NPA coverage (up 150bps in 4Q11, >100%
including floating provision) and providing for possible slippages from
the MFI book (Rs0.5bn in 4Q11). This, we believe, would significantly
aid when the credit cycle turns.
• Maintain Overweight: We maintain our Gordon growth–based Mar-12
PT of Rs2600/share. High CASA would cushion against any margin
pressure and relatively higher NPA coverage provides a large buffer and
would help sustain premium valuations. Any correction on margin
concerns would be a buying opportunity, in our view. Key risks are
slowing retail credit demand due to higher rates, credit costs
normalization.
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