HDFC Bank - Accumulate -2QFY2011 Result Update :: Angel Broking

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HDFC Bank - Accumulate -2QFY2011 Result Update
For 2QFY2011, HDFC Bank reported 32.7% yoy and 12.4%
qoq growth in net profit to `912cr, in line with our estimate of
`908cr. A stronger-than-industry growth in advances and
deposits coupled with stable asset quality were the key highlights
of the results.
Robust performance on all parameters: Gross advances
registered a healthy growth of 6.4% qoq and 37.7% yoy, much
above industry growth. The retail loan book grew by a healthy
30.8% yoy during 2QFY2011 and constituted 51.7% of gross
advances. Deposits also registered an impressive growth of 6.7%
qoq and 30.4% yoy, compared to industry qoq growth of ~1.6%.
The CASA ratio improved to 50.6% of total deposits in
2QFY2011 as against 49.2% in 1QFY2011. With reported NIMs
at 4.2% in 2QFY2011 (4.3% in 1QFY2011), the bank recorded
NII growth of 29.2% yoy and 5.2% qoq to `2,526cr. The bank's
asset quality remained stable during the quarter, with gross
NPAs at 1.2% and net NPAs at 0.3%. The NPA provision
coverage ratio (excluding write-offs) stood at a healthy 77.8%
in 2QFY2011 compared to 77.0% in 1QFY2011. Fee income
grew by a moderate 16.0% yoy.
Strong capital adequacy, branch expansion lead to CASA and
credit market share gains, respectively: The bank's total capital
adequacy remained strong at 17.0%, with tier-1 constituting
74.7% of the total CAR. On the back of this strong CAR, we
expect the bank to increase its credit market share over FY2011-
12. Accordingly, we have increased our credit growth estimates
for FY2011 from 26% to 32% and for FY2012 from
27% to 30%.
Importantly, the bank's CASA deposits also grew by a robust
31.1% yoy and 9.8% sequentially, driven by 37.6% yoy growth
in savings deposits and 22.4% yoy growth in current deposits.
The strong traction in CASA growth can be attributed to the
bank's aggressive branch expansion during FY2010 and

increasing productivity of the branch network of CBoP. The bank
plans to open 150 branches during FY2011. Against this
backdrop, we expect the bank to sustain its CASA ratio in the
49-52% range, going forward, factoring in the strong market
share gains on the CASA front as well. The bank's cost-to-income
ratio increased by 52bp qoq to 48.2% in 2QFY2011 compared
to 47.7% in 1QFY2011.
Outlook and Valuation
We believe HDFC is among the most competitive banks in the
sector, with an A-list management at the helm of affairs that
has one of the best track records in the sector. At the CMP, the
stock is trading at 3.8x FY2012E ABV of `628. We believe HDFC
Bank is well positioned for high qualitative growth, with the
CASA and cost-to-income ratio returning to pre-CBoP levels.
HDFC Bank has commanded a 32.9% premium to the Sensex
in terms of its one-year forward P/E multiple over the last five
years. We expect the premium to be around its historical average
on account of the robust growth and RoE prospects over the
next two years.
The stock is currently trading close to our target multiple of
4.0x (benchmarked at 30% premium to our Sensex target
multiple). Hence, we recommend Accumulate on the stock,
with a Target Price of `2,510.