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HDFC Bank delivered strong core earnings in 3QFY11 and asset quality improved
marginally. In FY12, we believe superior liability mix (51% CASA) and stable credit costs will
lead to ROAs remaining elevated at current levels of about 1.6%. HDFC Bank remains our
top pick among private sector banks. Buy.
3QFY11: all-round quality performance
Net interest income (NII) increased 25% yoy (+10% qoq) on the back of 33% yoy loan growth
(flattish qoq growth), even as reported net interest margins (NIMs) remained largely stable at
about 4.2% level. Core fee income was up 23% yoy (+18% yoy in 9MFY11). Operating
expenses increased 22% yoy (+9% qoq; +19% yoy in 9MFY11). Asset quality improved
marginally on a qoq basis. Loan loss provision charge came down qoq from about 30bps in
2QFY11 to 18bps in 3QFY11 (72bps in 9MFY11 vs 150bps in 9MFY10). Asset quality
remains healthy with GNPLs at 1.1%, a provision coverage ratio of 81% and total
restructured assets at just 0.3% of loans as of December 2010.
High proportion of low-cost deposits is an advantage in such times
Low-cost deposits (CASA, current and savings account) posted 26% yoy growth and the
CASA proportion remained largely stable at about 51% as of December 2010. The high
CASA levels provide a clear structural advantage over peers, in our view. Retail loans, which
grew 36% yoy, constituted about 56% of the total loan book. We believe, a combination of
superior liability mix and a relatively high proportion of retail loans (see chart 1) will likely
keep NIMs elevated relative to peers (4.2% in 3QFY11).
RoAs set to remain at elevated levels of 1.6%
Given the overall favourable liability mix and largely stable pricing ability in most of the segments,
we believe NIMs will likely be maintained at current levels. Further, loan loss provision charge,
which went up to about 160bps in FY10 has started trending to the mean of 110-120bps. On
balance, we expect ROAs to remain stable at about 1.6% over FY11-12F (1.2% in 9MFY11, not
annualised).
No material change in estimates; HDFC Bank remains our top pick
We keep our earnings estimates largely unchanged, increase cost of equity to 14% (from 13%
earlier) and lower our target price to Rs2,551. At our target, the stock would trade at 24.6x FY12F
earnings and 4.2x FY12F adjusted book value. Maintain Buy.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
HDFC Bank delivered strong core earnings in 3QFY11 and asset quality improved
marginally. In FY12, we believe superior liability mix (51% CASA) and stable credit costs will
lead to ROAs remaining elevated at current levels of about 1.6%. HDFC Bank remains our
top pick among private sector banks. Buy.
3QFY11: all-round quality performance
Net interest income (NII) increased 25% yoy (+10% qoq) on the back of 33% yoy loan growth
(flattish qoq growth), even as reported net interest margins (NIMs) remained largely stable at
about 4.2% level. Core fee income was up 23% yoy (+18% yoy in 9MFY11). Operating
expenses increased 22% yoy (+9% qoq; +19% yoy in 9MFY11). Asset quality improved
marginally on a qoq basis. Loan loss provision charge came down qoq from about 30bps in
2QFY11 to 18bps in 3QFY11 (72bps in 9MFY11 vs 150bps in 9MFY10). Asset quality
remains healthy with GNPLs at 1.1%, a provision coverage ratio of 81% and total
restructured assets at just 0.3% of loans as of December 2010.
High proportion of low-cost deposits is an advantage in such times
Low-cost deposits (CASA, current and savings account) posted 26% yoy growth and the
CASA proportion remained largely stable at about 51% as of December 2010. The high
CASA levels provide a clear structural advantage over peers, in our view. Retail loans, which
grew 36% yoy, constituted about 56% of the total loan book. We believe, a combination of
superior liability mix and a relatively high proportion of retail loans (see chart 1) will likely
keep NIMs elevated relative to peers (4.2% in 3QFY11).
RoAs set to remain at elevated levels of 1.6%
Given the overall favourable liability mix and largely stable pricing ability in most of the segments,
we believe NIMs will likely be maintained at current levels. Further, loan loss provision charge,
which went up to about 160bps in FY10 has started trending to the mean of 110-120bps. On
balance, we expect ROAs to remain stable at about 1.6% over FY11-12F (1.2% in 9MFY11, not
annualised).
No material change in estimates; HDFC Bank remains our top pick
We keep our earnings estimates largely unchanged, increase cost of equity to 14% (from 13%
earlier) and lower our target price to Rs2,551. At our target, the stock would trade at 24.6x FY12F
earnings and 4.2x FY12F adjusted book value. Maintain Buy.
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