HDFC Bank 3QFY11 – Stable NIM, high CASA & NPA coverage: Anand Rathi

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HDFC Bank
3QFY11 – Stable NIM, high CASA & NPA coverage
HDFC Bank’s PAT was up 33% yoy, driven by robust NII
(24.9%), healthy fee income (30.3%) and better productivity. We
retain our Hold as we expect RoE to improve, led by strong
business growth, better margins and lower credit costs.

 Credit growth stellar; CASA share improves. At 33.1% yoy,
credit growth was much higher than the industry’s ~24%.
Corporate loans are driving overall loan growth (~33% yoy), with
retail loans seeing similar growth. While NIM declined ~10bps
yoy, at 4.2% it was flat qoq. CASA share declined 117bps yoy to
50.5%, yet is one of the best among peers.
 Better fee-income growth. Stronger credit growth has led to
30.3% growth in fees and commissions. Fees comprised 2% of
average assets in 3QFY11, up from 1.8% last quarter. With credit
growth revived, we expect fees from corporate clients to improve.
We expect fees to comprise 1.7% of average assets over FY10-13.
 NPA coverage improves. Gross NPAs declined 3.2% qoq, with
NPA coverage improving 363bps to 81.4%. Total restructured
assets are a mere 0.3% of gross advances. The continuing trend in
asset quality improvement and lower levels of restructured assets
are likely to lead to credit costs (NPA provisions as percent of
average advances) of 1.63% in FY11 and 1.44% in FY12.
 Valuation. At our target of `2,201, the stock would trade at
FY12e and FY13e ABV of 3.6x and 3x respectively. Risks: Higher
credit costs, slower accretion in low-cost deposits.