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Mixed bag
For 2QFY12, HDFC Bank reported net profit of Rs12bn, up 31% YoY, inline
with estimates, however core operating profit of 14% YoY was the lowest
in past many quarters. Normalised loan growth at 26% continues to be
healthy led by growth in retail loans. Key disappointment was moderation
in CASA growth to 10%, lowest in recent times, and this has put pressure
on margins (downs 10bps QoQ). Pick up in CASA growth will be a key to
quality and profitability of growth branch expansion will help here. Asset
quality remains robust and drop in provisions was a key to profit growth.
We see 26% Cagr in profit over FY11-14, led by loan growth. BUY.
Less impacted by the slowdown in investment cycle
During 2QFY12, bank’s core loan book grew by 26% YoY, however reported
growth of 20% is suppressed by high base that included short-term telecom
license related loans. Growth in loans was led by retail segment that reported
34% growth in 2Q. Though demand for auto loans has moderated, it is being
compensated by uptick in growth of CV, business banking and mortgage
loans. While interest rates have risen sharply, a healthy growth in income
levels has insulated consumption expenditure and demand for retail loans
(most are on fixed rate). Corporate loans are largely towards working capital
where demand has not softened as much as for capex. Fee growth may
remain lower due to lower fees on distribution of third party products.
Fall in CASA ratio leads to margin contraction
The key disappointment in the results was the moderation in CASA growth to
10% YoY largely driven by sharp rise in deposit rates that drives conversion of
CASA into term deposits. As a result, CASA ratio declined to 47% of deposits
leading to 10bps contraction in NIMs to 4.1%- lowest since 2QFY10. While
sequentially there are some signs of pick-up in CASA deposits, this will be a
key to asset growth without sacrifice of margins and quality of loans. Branch
expansion and penetration into new areas should help CASA mobilisation.
Asset quality strong, no signs of stress either
Asset quality remains strong with gross NPL growing by just 3% YoY to 1% of
loans. Bank continues to hold among the highest coverage ratio (81%) that
provides cushion to earnings against rise in slippage. Management highlighted
that asset quality is looking better than internal estimates and recent trends
do not indicate signs of much stress.
High visibility on earnings growth and asset quality. BUY
Over FY11-14, we expect earnings to grow at 26% Cagr led by loan growth,
operating efficiencies and slower rise in provisions. Strong asset quality, lower
exposure to risky sectors and quality franchise provide earnings visibility in an
otherwise uncertain environment and this will support its premium valuations.
We reiterate our BUY recommendation with target price of Rs580.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mixed bag
For 2QFY12, HDFC Bank reported net profit of Rs12bn, up 31% YoY, inline
with estimates, however core operating profit of 14% YoY was the lowest
in past many quarters. Normalised loan growth at 26% continues to be
healthy led by growth in retail loans. Key disappointment was moderation
in CASA growth to 10%, lowest in recent times, and this has put pressure
on margins (downs 10bps QoQ). Pick up in CASA growth will be a key to
quality and profitability of growth branch expansion will help here. Asset
quality remains robust and drop in provisions was a key to profit growth.
We see 26% Cagr in profit over FY11-14, led by loan growth. BUY.
Less impacted by the slowdown in investment cycle
During 2QFY12, bank’s core loan book grew by 26% YoY, however reported
growth of 20% is suppressed by high base that included short-term telecom
license related loans. Growth in loans was led by retail segment that reported
34% growth in 2Q. Though demand for auto loans has moderated, it is being
compensated by uptick in growth of CV, business banking and mortgage
loans. While interest rates have risen sharply, a healthy growth in income
levels has insulated consumption expenditure and demand for retail loans
(most are on fixed rate). Corporate loans are largely towards working capital
where demand has not softened as much as for capex. Fee growth may
remain lower due to lower fees on distribution of third party products.
Fall in CASA ratio leads to margin contraction
The key disappointment in the results was the moderation in CASA growth to
10% YoY largely driven by sharp rise in deposit rates that drives conversion of
CASA into term deposits. As a result, CASA ratio declined to 47% of deposits
leading to 10bps contraction in NIMs to 4.1%- lowest since 2QFY10. While
sequentially there are some signs of pick-up in CASA deposits, this will be a
key to asset growth without sacrifice of margins and quality of loans. Branch
expansion and penetration into new areas should help CASA mobilisation.
Asset quality strong, no signs of stress either
Asset quality remains strong with gross NPL growing by just 3% YoY to 1% of
loans. Bank continues to hold among the highest coverage ratio (81%) that
provides cushion to earnings against rise in slippage. Management highlighted
that asset quality is looking better than internal estimates and recent trends
do not indicate signs of much stress.
High visibility on earnings growth and asset quality. BUY
Over FY11-14, we expect earnings to grow at 26% Cagr led by loan growth,
operating efficiencies and slower rise in provisions. Strong asset quality, lower
exposure to risky sectors and quality franchise provide earnings visibility in an
otherwise uncertain environment and this will support its premium valuations.
We reiterate our BUY recommendation with target price of Rs580.
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