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In FY11, HDFC Bank made a floating provision of Rs6.7bn. Adjusted for this, the ROA was
1.8% (vs the reported 1.6%), the best in our Indian banks coverage universe. HDFC Bank's
well-balanced asset-liability maturity profile, high CASA and low deposit concentration
relative to peers stand out for us. Buy.
Adjusted ROA of 1.8% vs the reported 1.6% in FY11
Slippages fell to 100bp of average loans in FY11 from 230bp in FY10. Consequently,
provisions for bad loans (excluding floating provisions) came down to about 90bp of loans in
FY11 compared to 180bp in FY10. The reported loan loss provision charge for FY11 includes
a floating provision of Rs6.7bn (ie, 47bp of average loans) vs just Rs500m in FY10. Adjusted
for the floating provision charge, the ROA increases to about 1.8% in FY11 (reported ROA
was 1.58%) from 1.53% in FY10.
Performance of subsidiaries
HDFC Securities Ltd (the bank’s 59% broking subsidiary) reported a total income of Rs2.6bn
in FY11 (+11% yoy) and a net profit of Rs772m in FY11 (vs Rs782m in FY10). HDB Financial
Services Ltd (or HDBFS; a 100% subsidiary) is a non-deposit taking NBFC and the corporate
agent of HDFC Standard Life; it offers collection/BPO services. This subsidiary posted a total
income of Rs1.8bn in FY11 (+84% yoy) and a net profit of Rs161m in FY11 (vs Rs99m in
FY10). During FY11, loan disbursements by HDBFS increased to Rs12.1bn from Rs5.25bn
in FY10.
Outstanding ESOP options are about 4.1% of the existing share capital
The bank granted about 6.6m shares (ie, 1.4% of the equity shares outstanding as at 31
March 2011) under its employee stock option plan (ESOP) in FY11. Adjusted for options at
the beginning of the year, exercised and forfeited during the year, the net outstanding ESOP
options as at 31 March 2011 were about 19.2m, which is about 4.1% of the outstanding equity
shares (see Table 1).
No material change in estimates; maintain Buy
We keep earnings estimate largely unchanged. The increase in target price is largely due to the
roll forward. HDFC Bank maintains what we see as a well-balanced asset liability maturity profile
(see Charts 1and 2), the highest CASA ratio (51%) and a low concentration of deposits relative to
other private sector peers in our coverage universe (see Chart 3). Furthermore, superior asset
quality and negligible restructured loans (0.3% of loans as of March 2011) offer comfort. Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
In FY11, HDFC Bank made a floating provision of Rs6.7bn. Adjusted for this, the ROA was
1.8% (vs the reported 1.6%), the best in our Indian banks coverage universe. HDFC Bank's
well-balanced asset-liability maturity profile, high CASA and low deposit concentration
relative to peers stand out for us. Buy.
Adjusted ROA of 1.8% vs the reported 1.6% in FY11
Slippages fell to 100bp of average loans in FY11 from 230bp in FY10. Consequently,
provisions for bad loans (excluding floating provisions) came down to about 90bp of loans in
FY11 compared to 180bp in FY10. The reported loan loss provision charge for FY11 includes
a floating provision of Rs6.7bn (ie, 47bp of average loans) vs just Rs500m in FY10. Adjusted
for the floating provision charge, the ROA increases to about 1.8% in FY11 (reported ROA
was 1.58%) from 1.53% in FY10.
Performance of subsidiaries
HDFC Securities Ltd (the bank’s 59% broking subsidiary) reported a total income of Rs2.6bn
in FY11 (+11% yoy) and a net profit of Rs772m in FY11 (vs Rs782m in FY10). HDB Financial
Services Ltd (or HDBFS; a 100% subsidiary) is a non-deposit taking NBFC and the corporate
agent of HDFC Standard Life; it offers collection/BPO services. This subsidiary posted a total
income of Rs1.8bn in FY11 (+84% yoy) and a net profit of Rs161m in FY11 (vs Rs99m in
FY10). During FY11, loan disbursements by HDBFS increased to Rs12.1bn from Rs5.25bn
in FY10.
Outstanding ESOP options are about 4.1% of the existing share capital
The bank granted about 6.6m shares (ie, 1.4% of the equity shares outstanding as at 31
March 2011) under its employee stock option plan (ESOP) in FY11. Adjusted for options at
the beginning of the year, exercised and forfeited during the year, the net outstanding ESOP
options as at 31 March 2011 were about 19.2m, which is about 4.1% of the outstanding equity
shares (see Table 1).
No material change in estimates; maintain Buy
We keep earnings estimate largely unchanged. The increase in target price is largely due to the
roll forward. HDFC Bank maintains what we see as a well-balanced asset liability maturity profile
(see Charts 1and 2), the highest CASA ratio (51%) and a low concentration of deposits relative to
other private sector peers in our coverage universe (see Chart 3). Furthermore, superior asset
quality and negligible restructured loans (0.3% of loans as of March 2011) offer comfort. Buy.
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