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HDFC Bank
F1Q12: In-Line Numbers
Quick Comment – HDFC Bank reported a PAT of
Rs10.9bn (up 34% YoY and -3% QoQ) broadly in line
with our estimate of Rs10.7bn. The bank continued
to make counter-cyclical provisions (a self-imposed
step) – adjusted for the same PBT growth was much
stronger at 50% YoY.
The stock has done well (up 9% YTD vs BSE Sensex
which is down 9%) and following this performance
valuations seem full at 22.9x F12e and 17.5x F13e.
However, it remains one of our preferred picks in the
India banks space given its strong capital base (Tier I at
11.9%), NPL coverage (underlying coverage at 153%)
and virtually no exposure to potentially problem areas
like project finance and infrastructure.
The key highlights from the results include:
1) Margins at 4.2% were down slightly QoQ:
Management indicated that the impact of higher cost of
funds (owing to saving a/c rate increase and deposit
repricing) was offset by higher loan yields on the
corporate loan book.
2) Adj. loan growth at 24% YoY / 6% QoQ: Reported
loan growth was at 17% YoY / 10% QoQ – however,
loan growth in QE Jun-2011 and QE Jun-2010 included
short term one-off corporate loans. If we adjust for the
same, then adjusted loan growth was 24% YoY and 6%
QoQ.
Retail loans: Retail loan book expanded by 29% YoY
and 5% QoQ. The commercial vehicle and business
banking segments saw strong growth. The unsecured
loan portfolio (credit cards and personal loans) also saw
a pickup in growth to 28% YoY as of QE Jun-2011 from
20% YoY in QE Mar-2011. Combined they currently
account for about 9.3% of total loans. Management
indicated that the pickup was driven by increasing
confidence that the industry-wide clean up in this
segment has been completed.
Non-retail loans: Reported non-retail loan growth was at
13% YoY and 15% QoQ. Again, adjusted for above
mentioned one-offs growth in this segment was at 20% YoY
and 6% QoQ.
Deposit growth: Deposits grew by 1% QoQ and 15% YoY.
The sequential growth in deposits was low as the bank
substituted term deposits by increasing Tier II subordinated
debt – reflected in total borrowings which were up 53% QoQ
and 91% YoY. As a result, the LD ratio – using period-end
numbers – increased to 83% from 77% as of the previous
quarter.
CASA / deposits moved lower from 51% (adjusted for
one-offs) in QE Mar-2011 to 49.1% in current quarter.
Indeed, the above dynamic of raising borrowings would
have helped support CASA/deposits ratio – hence if we look
at CASA/funding it moved lower from 47.7% (adjusted) in
QE Mar-2011 to 44.4% in the current quarter.
SA balances grew by 2% QoQ and 20% YoY; CA balances
were down 10% QoQ (adjusted) and up 7% YoY; term
deposits grew by 9% QoQ and 16% YoY.
NII growth: On a daily average basis, average asset
growth was at ~1% QoQ – this was offset by a small
margin compression. As a result – NII growth was flat
QoQ (up 19% YoY).
3) Core fee income growth decelerated to 16% YoY:
This compares with 23% YoY in QE Mar-2011.
Management indicated that growth continues to be
impacted by lower revenues on the bancassurance side
where the change in regulations has led to commission
levels dropping by 60-70%. They expect core fee income
growth to be muted through the rest of the year.
Capital gains contribution to earnings was negative at
Rs413mn (-2.6% of PBT). There was a positive contribution
of Rs86mn (0.5% of PBT) in the previous quarter.
FX income was lower sequentially at Rs2.3 bn. It was
Rs2.45 bn in the previous quarter.
4) Cost trends were stable: Employee expenses grew by
17% YoY and non-employee expenses by 18% YoY.
Cost:core income ratios were broadly stable.
5) Asset quality trends remained benign: New NPL
formation rates continued to remain low at 0.8% of loans
(annualized) versus 1.1% average in F2011. Management
indicated that almost 50% of the slippages this quarter were
driven by: a) Part of the MFI portfolio buyouts that have
turned into NPLs. b) Change in RBI norms impacting status
of certain preference shares. Reported NPLs grew by 8%
QoQ / 2% YoY – however, management indicated that if we
adjust for these two segments; then reported NPLs would
have been flat QoQ.
On a reported basis, credit costs were at 1% of loans
(annualized) versus 0.83% in previous quarter. Reported
coverage ratio was stable at 83%. However, almost 60% of
provisions made during this quarter were counter-cyclical
“floating” provisions. These aren’t added to the provisions
while computing the coverage ratios. If we add to the
reported coverage the stock of counter-cyclical provisions
that they have made over the past few quarters – then the
ratio further improves to 153%
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HDFC Bank
F1Q12: In-Line Numbers
Quick Comment – HDFC Bank reported a PAT of
Rs10.9bn (up 34% YoY and -3% QoQ) broadly in line
with our estimate of Rs10.7bn. The bank continued
to make counter-cyclical provisions (a self-imposed
step) – adjusted for the same PBT growth was much
stronger at 50% YoY.
The stock has done well (up 9% YTD vs BSE Sensex
which is down 9%) and following this performance
valuations seem full at 22.9x F12e and 17.5x F13e.
However, it remains one of our preferred picks in the
India banks space given its strong capital base (Tier I at
11.9%), NPL coverage (underlying coverage at 153%)
and virtually no exposure to potentially problem areas
like project finance and infrastructure.
The key highlights from the results include:
1) Margins at 4.2% were down slightly QoQ:
Management indicated that the impact of higher cost of
funds (owing to saving a/c rate increase and deposit
repricing) was offset by higher loan yields on the
corporate loan book.
2) Adj. loan growth at 24% YoY / 6% QoQ: Reported
loan growth was at 17% YoY / 10% QoQ – however,
loan growth in QE Jun-2011 and QE Jun-2010 included
short term one-off corporate loans. If we adjust for the
same, then adjusted loan growth was 24% YoY and 6%
QoQ.
Retail loans: Retail loan book expanded by 29% YoY
and 5% QoQ. The commercial vehicle and business
banking segments saw strong growth. The unsecured
loan portfolio (credit cards and personal loans) also saw
a pickup in growth to 28% YoY as of QE Jun-2011 from
20% YoY in QE Mar-2011. Combined they currently
account for about 9.3% of total loans. Management
indicated that the pickup was driven by increasing
confidence that the industry-wide clean up in this
segment has been completed.
Non-retail loans: Reported non-retail loan growth was at
13% YoY and 15% QoQ. Again, adjusted for above
mentioned one-offs growth in this segment was at 20% YoY
and 6% QoQ.
Deposit growth: Deposits grew by 1% QoQ and 15% YoY.
The sequential growth in deposits was low as the bank
substituted term deposits by increasing Tier II subordinated
debt – reflected in total borrowings which were up 53% QoQ
and 91% YoY. As a result, the LD ratio – using period-end
numbers – increased to 83% from 77% as of the previous
quarter.
CASA / deposits moved lower from 51% (adjusted for
one-offs) in QE Mar-2011 to 49.1% in current quarter.
Indeed, the above dynamic of raising borrowings would
have helped support CASA/deposits ratio – hence if we look
at CASA/funding it moved lower from 47.7% (adjusted) in
QE Mar-2011 to 44.4% in the current quarter.
SA balances grew by 2% QoQ and 20% YoY; CA balances
were down 10% QoQ (adjusted) and up 7% YoY; term
deposits grew by 9% QoQ and 16% YoY.
NII growth: On a daily average basis, average asset
growth was at ~1% QoQ – this was offset by a small
margin compression. As a result – NII growth was flat
QoQ (up 19% YoY).
3) Core fee income growth decelerated to 16% YoY:
This compares with 23% YoY in QE Mar-2011.
Management indicated that growth continues to be
impacted by lower revenues on the bancassurance side
where the change in regulations has led to commission
levels dropping by 60-70%. They expect core fee income
growth to be muted through the rest of the year.
Capital gains contribution to earnings was negative at
Rs413mn (-2.6% of PBT). There was a positive contribution
of Rs86mn (0.5% of PBT) in the previous quarter.
FX income was lower sequentially at Rs2.3 bn. It was
Rs2.45 bn in the previous quarter.
4) Cost trends were stable: Employee expenses grew by
17% YoY and non-employee expenses by 18% YoY.
Cost:core income ratios were broadly stable.
5) Asset quality trends remained benign: New NPL
formation rates continued to remain low at 0.8% of loans
(annualized) versus 1.1% average in F2011. Management
indicated that almost 50% of the slippages this quarter were
driven by: a) Part of the MFI portfolio buyouts that have
turned into NPLs. b) Change in RBI norms impacting status
of certain preference shares. Reported NPLs grew by 8%
QoQ / 2% YoY – however, management indicated that if we
adjust for these two segments; then reported NPLs would
have been flat QoQ.
On a reported basis, credit costs were at 1% of loans
(annualized) versus 0.83% in previous quarter. Reported
coverage ratio was stable at 83%. However, almost 60% of
provisions made during this quarter were counter-cyclical
“floating” provisions. These aren’t added to the provisions
while computing the coverage ratios. If we add to the
reported coverage the stock of counter-cyclical provisions
that they have made over the past few quarters – then the
ratio further improves to 153%
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