Hold HDFC Bank -Results inline; No surprises: Emkay

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HDFC Bank

Results inline; No surprises

HOLD

CMP: Rs 2,052                                        Target Price: Rs 2,100

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n     HDFC bank results inline with expectation with NII at Rs27.8bn and Net profit at Rs10.9bn

n     The NII has grown by strong 9.9% qoq driven by stable NIM’s at 4.2% and moderate growth in advances (1.3%qoq), albeit core advance growth strong at 5-6%qoq

n     Other positive highlights were (1) CASA maintained at 50.5% and (2) improvement in asset quality

n     Stability in parameters like NIMs, NII and asset quality as expected. But, the valuations at 3.8x/3.2x FY11E/FY12E ABV still not reasonable. Upgrade to HOLD; upside very limited

NII growth in line with expectations

HDFC Bank’s NII grew by 24.9% yoy to Rs27.8bn driven by 33.1% yoy growth in

advances (1.3% qoq) and stable NIMs at 4.2%. The NIM’s for the quarter remain stable

at 4.2% benefiting from 239bps expansion in CD ratio to 83%

…..Balance sheet flat qoq as short term 3G advances got repaid
Balance sheet remained flat qoq at Rs2.5tn as advances grew by a moderate 1.3% qoq,
while deposits declined by 1.6%qoq. The balance sheet growth was flat as short term
loans worth Rs70-80bn taken by telecom companies for 3G licenses in Q1FY11, got
repaid during the quarter. Adjusted for which the balance sheet growth would have been
at 5-6%qoq.

Core advances growth strong at 5-6%qoq
The advance growth during the quarter was lower at 1.3%qoq as some big ticket short term
loan got repaid during the quarter. These short term loans pertain to the 3G licenses, which
were given in Q1FY11. Adjusted for which the growth would have been higher at ~5-
6%qoq

However Retail advances growth was strong at 9.7%qoq at Rs899bn driven by Home loans
(retained on book), CV/CE and business banking loans.

CASA profile stable as bank sheds some term deposits
The CASA was maintained at 50.5% for the quarter as HDFC Bank shed some term
deposits during the quarter. The term deposits declined by ~1.3% qoq in Q3FY11.

Other income strong helped by higher forex and fee income
The other income grew by a strong 17.4% qoq led by 40%qoq growth in forex gains and
10%qoq growth in fee income. As expected, the bank reported treasury loss of Rs307mn
during the quarter.

Asset quality shows further improvement
The asset quality improved as the gross NPAs declined by 3.2%qoq, while Net NPA
declined by a higher 19.1%qoq. We believe that the sharper fall in net NPAs could be
because of lower write back of provisions on upgrades and recoveries. As a result the
provision coverage also improved by to 81.4% from 77.8% in Q2FY11.

Provisions continue to trend down
The pressure on credit costs have also moderated (which rose sharply post CBOP merger)
as the provisions for Q3Y11 were Rs2.9bn. The credit cost at 0.7% of advances is back to
pre-CBOP merger level. The bank also provided Rs~1.1bn towards probable doubtful debt
in MFI segment.
Capital adequacy ratio comfortable
The bank’s CAR stood at comfortable 16.3% as at 31December 2010, with tier I at 12.1%
which is very comfortable for at least next 18-24 month’s growth.
Valuations and view
Stability in HDFC Bank’s operating parameters like NIMs, NII and asset quality is in line with
our expectations. However, the valuations at 3.8x FY11E and 3.2x FY12E ABV are still not
very reasonable. Upgrade to HOLD with TP of Rs2100. We do not see any great upside in
the stock.