HDFC Bank::Takeaways Motilal Oswal Annual Global Investor Conferences

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Key Takeaways
To grow 5-7% faster than industry average
 The management maintains its guidance of higher than industry average growth;
hence HDFC Bank's market share should increase further. It estimates industry growth
at 18% and its own growth at ~25% for FY12.
 Growth is more likely to be driven from business banking and secured retail loans,
while CV and auto loans are likely to slowdown. The management sounded more
confident about growth in its retail loan portfolio, as the risk perception in this
segment has improved considerably.
 The corporate book should continue to be working capital-driven, with low project
finance exposure.
Margins to remain superior
 HDFC Bank has been able to maintain its margins (on total assets) in the range of
3.9-4.3% across cycles and the management expects this trend to continue.
 Despite increase in the savings deposit rate impacting cost of funds by 10-15bp the
bank has been able to protect its NIM at ~4.2% largely due to its well-matched
asset-liability duration and effective passing of rising cost of funds to customers.
Slippages and credit cost for FY11 lowest since FY05
 The management does not see any pressure on its retail loan book and expects
asset quality to remain robust in FY12. In FY11, slippage ratio had declined to 1.1%
as against the last five-year average of 2%+.
 Further, on a conservative basis, the bank also made floating provisions of INR6.7b
in FY11 to create adequate cushion and absorb any negative shocks. The
management mentioned that it will continue to provide for counter-cyclical buffer.
Overall credit cost is likely to remain at 1-1.2%.
Other highlights
 Fee income growth is likely to moderate to 10-15% in FY12 as against 15-20%
earlier due to lower contribution from income from third-party product distribution.
Income from forex and derivatives is likely to grow 18-20%.
 Opex is likely to grow in line with revenue and the management has guided cost-toincome
ratio of 47-48%. The bank expects to add 200-250 branches in FY12.
Valuation and view
While we remain positive on the bank's business, we believe valuations are rich. Over
FY06-11, the peak one-year forward P/BV was 5x and the average one-year forward
P/BV was 3.4x. The stock trades at 3.5x FY13E BV and 18.5x FY13E EPS. Neutral.