HDFC Bank ::Consistent delivery of quality… �� Clean and steady - yet aggressive •ICICI Securities,

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HDFC Bank


Consistent delivery of quality…
�� Clean and steady - yet aggressive
• HDFC Bank is a pure value proposition providing healthy growth
with low risk as there is a fine balance between balance sheet
growth and profitability proven over the years
• Market share of more than 4% (to gain more strength) in total
business of scheduled commercial banks
• The net profit of the bank grew at a sturdy 34% CAGR over FY01-
11 (quarterly PAT grew 30%+ YoY consistently for the past 25
quarters). We expect the trend to continue
• Constructed a pan-India unique distribution platform by
leveraging on both organic and inorganic growth opportunities
(like CBoP). It has a network of 1986 branches and 5471 ATMs,
which enables it to maintain CASA at 50% on a consistent basis
• The bank is a play on the inherent India growth and consumption
story. It has a strong presence in non-metro regions with 70% of
its branches located outside top nine cities. It has still been able to
maintain high credit standards (FY11 NNPA at 0.2%)
• Premium valuations are justified over the years on the back of
consistent growth, healthy return ratios (RoE of 16%+, RoA of
1.4%+) and a strong management team. HDFC Bank remains our
benchmark on all parameters among private players
�� Going ahead
• The business proposition will remain strong with a focus on the
balanced growth approach. Revenue composition of 50:50 (retail:
corporate) will provide stability
• We see healthy business growth supporting NII @ 22-24% CAGR
and PAT @ 30%+ CAGR in the coming period
• Non interest income growth will continue to contribute ~30% to
total net income in the coming period as well as contributing to
the bank’s RoA
• Adequate capital (CRAR at 16% in FY11) and strong internal
accruals will support the business momentum. The bank has
comfortable asset liability management (maturity of 1.5 years),
which helps protect margins
• We expect the bank to double its asset size by FY15E from current
levels and still maintain healthy asset quality. The credit cost will,
thus, remain at comparatively low level of sub 1%
Valuation
The bank is expected to trade at premium valuations due to its ability to
protect NIM, a fine mix of growth and profitability, best in class services
offered and proven capabilities of the management. We, therefore,
recommend HDFC Bank as one of our top picks in our model portfolio.