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HDFC Bank delivered yet another quarter of strong performance. Retail loans led loan book
growth, both yearly and quarterly. The proportion of low-cost deposits fell, but still remains the
highest among private banks. Stable asset quality, with negligible restructured loans, stands out.
Maintain Buy.
2QFY12: retail loans drive growth; asset quality trends superior to peers
About 70% of the incremental qoq growth in the loan book came from the retail segment. The
loan book grew 7.4% qoq. Of this, the retail loan book grew 10.7% qoq and the corporate book
grew 4.3% qoq (see chart 3). HDFC Bank’s asset quality has generally been superior vs the
industry. The addition to GNPLs was Rs7.5bn in 1HFY12 (100bp annualised on a one-year lag
basis), which includes slippages of Rs2.5bn from MFI exposures. Restructured loans at 0.1% of
loans remain negligible. Provision coverage ratio (specific provisions/GNPLs) remains high at
about 81% as of September 2011. Further, the cumulative floating provisions (treated as part of
Tier-II capital) were about Rs10bn as of September 2011 (0.5% of loans, 3.6% of net worth).
Going forward, management expects asset quality to remain largely stable.
PPOP growth is trailing PAT growth
The pre-provision operating profit (PPOP) growth yoy has been falling over the last 10 quarters
(see Chart 2). However, net profit growth remains consistent at about 30% yoy. This is because
asset quality has improved, resulting in lower provisions for bad loans (from 180bp of loans in
FY10 to 130bp in FY11 and 43bp in 1HFY12).
Cannibalisation by term deposits brings down CASA proportion
Low-cost deposits grew 10% yoy (up 5% qoq), partly due to cannibalisation by term deposits
offering higher interest rates, which were up 26% yoy (+13% qoq). Hence, the proportion of lowcost
deposits (CASA or current and savings accounts) fell to 47.3% as of September 2011 (down
330bp yoy and180 bp qoq). However, it stills remains the highest of peers. The fall in the CASA
proportion partly explains the 10bp margin decline yoy to 4.1% in 2QFY12.
Premium valuation supported by higher operating earnings than peers, maintain Buy
Adjusted for floating provisions, annualised ROA in 1HFY12 was 20bp higher than the reported
160bp. We keep our earning forecasts unchanged and maintain Buy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HDFC Bank delivered yet another quarter of strong performance. Retail loans led loan book
growth, both yearly and quarterly. The proportion of low-cost deposits fell, but still remains the
highest among private banks. Stable asset quality, with negligible restructured loans, stands out.
Maintain Buy.
2QFY12: retail loans drive growth; asset quality trends superior to peers
About 70% of the incremental qoq growth in the loan book came from the retail segment. The
loan book grew 7.4% qoq. Of this, the retail loan book grew 10.7% qoq and the corporate book
grew 4.3% qoq (see chart 3). HDFC Bank’s asset quality has generally been superior vs the
industry. The addition to GNPLs was Rs7.5bn in 1HFY12 (100bp annualised on a one-year lag
basis), which includes slippages of Rs2.5bn from MFI exposures. Restructured loans at 0.1% of
loans remain negligible. Provision coverage ratio (specific provisions/GNPLs) remains high at
about 81% as of September 2011. Further, the cumulative floating provisions (treated as part of
Tier-II capital) were about Rs10bn as of September 2011 (0.5% of loans, 3.6% of net worth).
Going forward, management expects asset quality to remain largely stable.
PPOP growth is trailing PAT growth
The pre-provision operating profit (PPOP) growth yoy has been falling over the last 10 quarters
(see Chart 2). However, net profit growth remains consistent at about 30% yoy. This is because
asset quality has improved, resulting in lower provisions for bad loans (from 180bp of loans in
FY10 to 130bp in FY11 and 43bp in 1HFY12).
Cannibalisation by term deposits brings down CASA proportion
Low-cost deposits grew 10% yoy (up 5% qoq), partly due to cannibalisation by term deposits
offering higher interest rates, which were up 26% yoy (+13% qoq). Hence, the proportion of lowcost
deposits (CASA or current and savings accounts) fell to 47.3% as of September 2011 (down
330bp yoy and180 bp qoq). However, it stills remains the highest of peers. The fall in the CASA
proportion partly explains the 10bp margin decline yoy to 4.1% in 2QFY12.
Premium valuation supported by higher operating earnings than peers, maintain Buy
Adjusted for floating provisions, annualised ROA in 1HFY12 was 20bp higher than the reported
160bp. We keep our earning forecasts unchanged and maintain Buy.
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