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HDFC Bank
Overweight
HDBK.BO, HDFCB IN
Continues on a firm footing: Annual report analysis
• Our annual report analysis reaffirms our positive view on HDFC
Bank. Margins remain resilient as deposit franchise remains strong,
and the relatively less risky corporate loan book and high provisions
buffer should continue to keep credit costs under control.
• Liability franchise remains strong: Strong deposit franchise was not
only reflected in improvement in CASA but also low concentration of
deposits. Top-20 depositors contribute ~8.8% of total deposits (8.4% in
FY10) for HDFCB vs 10-18% for large private peers indicating low
reliance on wholesale funding.
• Conservative provisioning continues: Asset quality improvement was
broad based with gross NPA levels coming off for Agri and services
sector, and significant improvement in retail asset quality. Credit costs
at 100bps included Rs6.8bn of floating provisions which is ~12% of
FY12 PBT. Exposure to power increased 2x in FY11 but at ~2% of total
exposure, power exposure remains lower than other private banks
implying low risks from any IPP related asset quality issues.
• Some red flags in the investment book: Priority sector related
investment in NABARD/SIDBI bonds has increased by ~69% in FY11.
PSL investment book at ~3.5% of interest earning assets is inline with
other large private banks. Though PSL book has grown by 36% CAGR
over FY09-11, increase in PSL investments is due to higher NABARD
calls. With increased regulatory constraints, we believe meeting PSL
requirements will be a challenge for private banks.
• Maintain Overweight: We maintain our positive view as we think the
strong liability franchise will cushion any margin pressure, and relatively
higher NPA coverage provides a large buffer and should help sustain
premium valuations.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HDFC Bank
Overweight
HDBK.BO, HDFCB IN
Continues on a firm footing: Annual report analysis
• Our annual report analysis reaffirms our positive view on HDFC
Bank. Margins remain resilient as deposit franchise remains strong,
and the relatively less risky corporate loan book and high provisions
buffer should continue to keep credit costs under control.
• Liability franchise remains strong: Strong deposit franchise was not
only reflected in improvement in CASA but also low concentration of
deposits. Top-20 depositors contribute ~8.8% of total deposits (8.4% in
FY10) for HDFCB vs 10-18% for large private peers indicating low
reliance on wholesale funding.
• Conservative provisioning continues: Asset quality improvement was
broad based with gross NPA levels coming off for Agri and services
sector, and significant improvement in retail asset quality. Credit costs
at 100bps included Rs6.8bn of floating provisions which is ~12% of
FY12 PBT. Exposure to power increased 2x in FY11 but at ~2% of total
exposure, power exposure remains lower than other private banks
implying low risks from any IPP related asset quality issues.
• Some red flags in the investment book: Priority sector related
investment in NABARD/SIDBI bonds has increased by ~69% in FY11.
PSL investment book at ~3.5% of interest earning assets is inline with
other large private banks. Though PSL book has grown by 36% CAGR
over FY09-11, increase in PSL investments is due to higher NABARD
calls. With increased regulatory constraints, we believe meeting PSL
requirements will be a challenge for private banks.
• Maintain Overweight: We maintain our positive view as we think the
strong liability franchise will cushion any margin pressure, and relatively
higher NPA coverage provides a large buffer and should help sustain
premium valuations.
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