21 July 2011

HDFC Bank : Core profit below estimates on lower NII, but PAT in-line:: Goldman Sachs

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HDFC Bank (HDBK.BO) Rs510.80
   Equity Research
First Take: Core profit below estimates on lower NII, but PAT in-line
News
HDFC Bank reported 1QFY12 PAT of Rs10.85 bn (+34% yoy, -3% qoq), 6%
above our estimate and in line with BB consensus as provisions came in 33%
below estimates. However, profit before treasury and provisions (core profit)
came in 5% below estimates as lower than expected NII and fee income was
only partially offset by lower costs. Key highlights: (1) NII came in at Rs28.5 bn
(+19% yoy), 7% below GSe as: (a) While reported NIM was stable at 4.2%,
calculated NIMs declined 7 bp yoy (-23 bp qoq) on higher cost of funds and
lower CASA ratio (seasonally down 363 bp qoq due to withdrawal of one-off
deposits held in 4Q, flat yoy), (b) Slower advances growth at 20% yoy (7 pp
lower than GSe). However, adjusted for one-off wholesale loans, loan growth
in 1QFY11 was at 29%. (2) Fee income grew 16% yoy (7% below GSe) and the
bank took an MTM hit of Rs413 mn. Total costs came in 6% below our
estimates, but PAT beat was mainly due to lower provisions at 1% of loans
(33% below GSe), declining 20% yoy, although the bank made floating
provisions of Rs2.5 bn out of the total provisions of Rs4.4bn this quarter. Gross
NPLs grew 8% qoq (+2% yoy). Provisioning coverage ratio for the bank
remained healthy at 83%, stable qoq.
Analysis
On the NII front, interest expenses grew 55% yoy, faster than interest income
on advances that were up only 36% yoy, this despite a high CASA balance of
49% probably indicating that its is getting incrementally difficult to reprice the
retail book (48% of total advances), a trend that we noticed in IndusInd Bank’s
results as well. It appears that, on an incremental basis, retail loan portfolio is
24% of total loans vs 50% in March 2011, likely as the bank did not buy any
housing loans from HDFC this quarter. Deposit growth stood at 15% yoy (9 pp
lower than GSe) as the bank funded the advances growth through borrowings
and the incremental credit deposit ratio was at a high of 600%.
Implications
We place our estimates and 12-m target price under review pending details
from the analyst call today.
INVESTMENT LIST MEMBERSHIP
Neutral

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