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Mixed-bag
For 1QFY12, HDFC Bank’s net profit of Rs10.9bn, up 34% YoY, was ahead
of estimates. Core loan growth has picked-up to 29%, but management is
seeing slowdown in demand for auto loans which might get compensated
by healthy mortgage demand. Bank’s high CASA ratio and balanced ALM
are helping to defend margins (stable QoQ at 4.2%), but the pick-up in
CASA growth from 15%YoY (lowest in 8 quarters) is critical. As expected,
slippages have picked-up, but high coverage ratio will cushion earnings.
We see 28% Cagr in profit over FY11-14, led by loan growth. BUY.
Healthy core loan growth, mixed retail demand trends
During 1QFY12, HDFC Bank’s loan book grew by 29% YoY, however reported
growth of 20% is suppressed by high base that included short-term telecom
license related loans. While even current loan-book includes some short-term
loans, bank has not bought-back mortgage loans from HDFC. Management
highlighted that while demand for auto loans seems to be slowing, mortgage
lending is buoyant. Growth in some unsecured segments has also picked-up,
from a low base, as bank is becoming comfortable with quality of these loans.
We expect loan growth to moderate from current level, but bank is better
placed than peers due to its high CASA ratio and low cost of funds.
Stable margin is positive, but slower CASA growth disappointed
In spite of sharp rise in term deposit rates and 50bps rise in rate on savings
deposit, bank was able to defend NIMs QoQ at 4.2% (on average total assets)
helped by its high CASA ratio and balanced maturity of assets and liabilities.
CASA growth slowed to 15% YoY, lowest level in past 8 quarters, due to
conversion of savings into term deposits post rise in rates. Pick-up in CASA
growth will be a key to asset growth without the sacrifice of margins and/ or
quality of loans. Branch expansion and penetration into new areas (+90% of
new branches in 1Q were in new areas) should help CASA mobilisation.
Asset quality past cyclical best, coverage remains high
In line with our expectations, 1Q results indicate that the bank is past the
phase of cyclically low levels of NPL formation. During 1QFY12, gross NPLs
grew by 8% QoQ (2% YoY) to 1% of loans, partly due to recognition of NPL
on exposure to Micro Finance Institutions (MFI). However, it continues to
make floating provisions (0.6% of loans now) which coupled with high NPL
coverage (83%) should cushion earnings against pick-up in slippages.
Strong earnings growth; Maintain BUY
We expect earnings to grow at 28% Cagr over FY11-14, led by loan growth
and lower provisioning. Strong asset quality, nominal exposure to risky
sectors and quality CASA franchise will support premium valuations. We
reiterate our BUY recommendation with target price of Rs590.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mixed-bag
For 1QFY12, HDFC Bank’s net profit of Rs10.9bn, up 34% YoY, was ahead
of estimates. Core loan growth has picked-up to 29%, but management is
seeing slowdown in demand for auto loans which might get compensated
by healthy mortgage demand. Bank’s high CASA ratio and balanced ALM
are helping to defend margins (stable QoQ at 4.2%), but the pick-up in
CASA growth from 15%YoY (lowest in 8 quarters) is critical. As expected,
slippages have picked-up, but high coverage ratio will cushion earnings.
We see 28% Cagr in profit over FY11-14, led by loan growth. BUY.
Healthy core loan growth, mixed retail demand trends
During 1QFY12, HDFC Bank’s loan book grew by 29% YoY, however reported
growth of 20% is suppressed by high base that included short-term telecom
license related loans. While even current loan-book includes some short-term
loans, bank has not bought-back mortgage loans from HDFC. Management
highlighted that while demand for auto loans seems to be slowing, mortgage
lending is buoyant. Growth in some unsecured segments has also picked-up,
from a low base, as bank is becoming comfortable with quality of these loans.
We expect loan growth to moderate from current level, but bank is better
placed than peers due to its high CASA ratio and low cost of funds.
Stable margin is positive, but slower CASA growth disappointed
In spite of sharp rise in term deposit rates and 50bps rise in rate on savings
deposit, bank was able to defend NIMs QoQ at 4.2% (on average total assets)
helped by its high CASA ratio and balanced maturity of assets and liabilities.
CASA growth slowed to 15% YoY, lowest level in past 8 quarters, due to
conversion of savings into term deposits post rise in rates. Pick-up in CASA
growth will be a key to asset growth without the sacrifice of margins and/ or
quality of loans. Branch expansion and penetration into new areas (+90% of
new branches in 1Q were in new areas) should help CASA mobilisation.
Asset quality past cyclical best, coverage remains high
In line with our expectations, 1Q results indicate that the bank is past the
phase of cyclically low levels of NPL formation. During 1QFY12, gross NPLs
grew by 8% QoQ (2% YoY) to 1% of loans, partly due to recognition of NPL
on exposure to Micro Finance Institutions (MFI). However, it continues to
make floating provisions (0.6% of loans now) which coupled with high NPL
coverage (83%) should cushion earnings against pick-up in slippages.
Strong earnings growth; Maintain BUY
We expect earnings to grow at 28% Cagr over FY11-14, led by loan growth
and lower provisioning. Strong asset quality, nominal exposure to risky
sectors and quality CASA franchise will support premium valuations. We
reiterate our BUY recommendation with target price of Rs590.
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