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HDFCB reported in-line profits (Rs 12.0bn, up 32%y/y) for 2Q. The key
driver was lower credit costs, with delinquencies and provisions
continuing at well below trend levels. This offset a slight squeeze on
NIMs, largely due to a slight fall in the CASA ratio. Overall, the bank
delivered solid numbers.
Improving asset quality. Credit cost improvement continued to be
strong, with a 25bp q/q improvement to 80bp for 2Q. Retail asset quality
has been very strong for all banks, given rising incomes, greater industry
discipline and improving effectiveness of credit bureaus. Our forecasts
imply an uptick from here, as we factor in a slowing economy.
Slow PPOP growth. There was a small margin squeeze (10bp q/q,
based on our calculations), driven mainly by an ~180bp drop in the
CASA ratio. The CASA squeeze was largely led by migration to term
deposits because of high interest rates. We think CASA migration could
remain a little pressured for 1-2 more quarters – strong customer
addition (branch additions have been robust) is an offset.
Loan growth in line. The headline 20% y/y loan growth number is
tainted by lumpy year-end balances in Sep 10 and core loan growth was
26% y/y. The LDR dipped ~150bps to 81.7% from 83.1% (term deposit
addition was very strong). Retail loans slightly outpaced the wholesale
segment - while demand in some segments like autos is slowing, CV and
business banking has picked up the slack.
Top pick. HDFCB remains our top pick, given its earnings resilience
and improving ROAs. Improving return ratios has been the hallmark of
the bank’s performance in the last 2-3 years, and we expect ROEs to
touch 20-21% by FY14 – levels not attained since the early noughties.
The premium valuations are supported by fundamentals, in our view.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HDFCB reported in-line profits (Rs 12.0bn, up 32%y/y) for 2Q. The key
driver was lower credit costs, with delinquencies and provisions
continuing at well below trend levels. This offset a slight squeeze on
NIMs, largely due to a slight fall in the CASA ratio. Overall, the bank
delivered solid numbers.
Improving asset quality. Credit cost improvement continued to be
strong, with a 25bp q/q improvement to 80bp for 2Q. Retail asset quality
has been very strong for all banks, given rising incomes, greater industry
discipline and improving effectiveness of credit bureaus. Our forecasts
imply an uptick from here, as we factor in a slowing economy.
Slow PPOP growth. There was a small margin squeeze (10bp q/q,
based on our calculations), driven mainly by an ~180bp drop in the
CASA ratio. The CASA squeeze was largely led by migration to term
deposits because of high interest rates. We think CASA migration could
remain a little pressured for 1-2 more quarters – strong customer
addition (branch additions have been robust) is an offset.
Loan growth in line. The headline 20% y/y loan growth number is
tainted by lumpy year-end balances in Sep 10 and core loan growth was
26% y/y. The LDR dipped ~150bps to 81.7% from 83.1% (term deposit
addition was very strong). Retail loans slightly outpaced the wholesale
segment - while demand in some segments like autos is slowing, CV and
business banking has picked up the slack.
Top pick. HDFCB remains our top pick, given its earnings resilience
and improving ROAs. Improving return ratios has been the hallmark of
the bank’s performance in the last 2-3 years, and we expect ROEs to
touch 20-21% by FY14 – levels not attained since the early noughties.
The premium valuations are supported by fundamentals, in our view.
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