For 1QFY2013, HDFC Bank reported healthy 30.6% yoy growth in its net profit to `1,417cr, in-line with ours as well as street’s estimates. Strong balance sheet growth, sequentially higher margins and stable asset quality were the key highlights of the result. We recommend Neutral rating on the stock
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Another quarter of steady performance: HDFC Bank’s net advances growth was strong at 21.5% yoy, while deposit buildup was also healthy, growing by 22.0% yoy (driven by strong growth in NRE term deposits). The share of retail to overall loan book decreased from 54.8% in 4QFY2012 to 52.4% for 1QFY2013, on back of higher wholesale lending (14.9% qoq compared to 4.4% qoq in retail loans). Inspite of higher corporate lending in 1QFY2013 the margins for the bank expanded on a qoq basis by 10bp owing to shift in retail mix (strong performance on the CVCE front and decline in home loans), effect of CRR cut and decline in deposit rates particularly on the shorter end of the interest rate curve (sharp correction in CD and CP rates). Fee income growth for the bank in 1QFY2013 was strong at 26.0% yoy, primarily due to strong performance on commission-based fee income and continued strong performance on the forex income front. The bank maintained its strong asset quality track record during 1QFY2013 as well. Gross and net NPA ratios remained stable at 1.0% and 0.2%, respectively. NPA provision coverage ratio remained at elevated levels at 81.0%, even without considering the floating provisions (`240cr worth of floating provisions made during 1QFY2013, taking the total floating provisions to `1,675cr). Restructured advances for the bank remained stable at 0.3% of gross advances.
Outlook and valuation: HDFC Bank is currently trading at one-year forward 3.7x P/ABV (3.3x FY2014 ABV), higher than its median of 3.4x (over FY2005-12), and also at a substantially higher premium to peers than the historical average. Hence, we believe current valuations largely factor in the positives leaving limited upside in the stock, and hence we recommend a Neutral on the stock.
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