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HDFC Bank’s PAT has once again matched its historical YoY run rate of
30%+ (5% above estimates). Key result highlights: 1) stupendous fee
income growth at 29%, a quarter of which came from forex and
derivatives, 2) in line NII growth at 12% given the stable NIMs of 4.1%, 3)
retail driven steady loan growth of 3%QoQ and 4) LLP at lows of 65bps.
Intrinsic profitability was higher than the reported 31% as once again
earnings were used to make floating provisions of ~INR 0.7bn. We revise
PAT upwards for FY12E/13E by 3%/2% and maintain ‘HOLD’ with a TP of
INR 504.
Steady NII: Retail driven growth, CD ratio hike comes to aid
Advances grew 22% YoY to INR1.96tn; 65% increment to which is by retail segment (up
30%YoY), leading it to corner 51% of the share. Within retail, drivers included business
banking (up 29%), CV (up 44%), credit cards (up 42%) and personal loans (up 33%).
Along with the higher yielding, retail driven growth, CD ratio expansion by 2.5% QoQ to
84% helped it clock stable NIMs of 4.1%. Also, as a strategy and due to reduced
incremental NIMs on corporate loans, the bank let some short term loans retire.
Fee based income uplifts profitability
PAT was aided by a 29% YoY fee income growth. Within this, Forex and Derivatives
grew at 69% YoY. As per the management, sharp volatility in INR led to an increased
forex volume in Q3FY12 while ~20% of the income is trading or proprietary related.
Incrementally, impact of limits introduced by RBI on forex activities to curb speculation
needs to be seen since this head alone accounted for 15% of PBT for 9mFY12.
Outlook and valuations: Fair; maintain ‘HOLD’
Quality of earnings continues to improve given stable NIMs, steady advance growth
and benign LLPs. With stressed assets (restructured + GNPA) at a mere 1.4%, it is best
placed to navigate through asset quality pressures. On the flip side, an increase in
savings bank rate can impact NIMs as this medium accounts for 30% of deposits. The
stock is trading at 3.4x FY13E ABV. We believe it has hit a sweet spot—strong growth
and lower LLP—which will enhance return ratios {RoAs to a new high of ~1.9% (FY06‐10
average: 1.5%) and RoEs at ~20% by FY13E} and hence support current multiples
Asset quality at healthy levels, LLP stays at low of 65bps
The bank’s GNPL and NNPL have been sustained at healthy levels of 1% and 0.2%
respectively though on an absolute basis, there is an increase of 6.6% and 12% respectively.
Specific NPL provisions came in at a low of less than 65bps, much lower than the 1.2%‐1.3%
historical run‐rate, bolstering core profitability. The management has stated that
incremental delinquencies in corporate/retail books continued to remain low and recoveries
stay healthy. However, on GNPA, it mentioned that on a steady state basis, the number can
clock 1.1%‐1.2%, as seen historically.
The bank has once again made floating provisions of about INR 0.7bn. LLP is likely to
continue to average at less than 1% (excluding floating provisions), a key trigger for the RoA
improvement. During the last six quarters, the bank has put to use higher core earnings to
make floating provisions of ~INR11bn and INR1.6bn contingency provisions (particularly for
the MFI exposure).
Maintains best in class liability franchise
Even though the interest rate environment continues to be challenging, the bank has been
able to inch up CASA ratio marginally from 47.3% to 47.7% over the quarter (adjusted for
INR40bn worth of one‐off deposits from tax free bonds float). This clearly is an outcome of
the flat deposit number QoQ to INR2.32tn (up mere 0.8%) as the bank did not resort to
wholesale based deposit accretion.
Going forward, as the bank embarks on fresh branch additions during the course of next 2‐3
quarters, CASA balances are likely to trend upwards. We believe CASA can be sustained at
the current level of ~48%‐50%. However, with savings bank account contributing 30% of
deposits, a rate increase on this by large banks can clearly impact NIMs.
Other highlights:
• The bank opened 51 new branches, taking the total tally to 2,201 and 7,110 ATMs in
1,174 cities.
• Tier 1 ratio (excluding Q3FY12 PAT) stood at 11.2%.
• The bank booked INR818mn of losses on revaluation/sale of investments, primarily
bonds.
• Other assets and liabilities increased significantly because as per AS‐13 which the bank
adopted in the current year, foreign currency contracts are now being grossed up
(rather than being netted as earlier). Besides this, there is some impact due to the
sharp rupee depreciation as well.
• Cost/Income stable at 46.7% even after adding 420 branches over the past one year (51
branches in Q3FY12). It has added 321 location/cities during this phase.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HDFC Bank’s PAT has once again matched its historical YoY run rate of
30%+ (5% above estimates). Key result highlights: 1) stupendous fee
income growth at 29%, a quarter of which came from forex and
derivatives, 2) in line NII growth at 12% given the stable NIMs of 4.1%, 3)
retail driven steady loan growth of 3%QoQ and 4) LLP at lows of 65bps.
Intrinsic profitability was higher than the reported 31% as once again
earnings were used to make floating provisions of ~INR 0.7bn. We revise
PAT upwards for FY12E/13E by 3%/2% and maintain ‘HOLD’ with a TP of
INR 504.
Steady NII: Retail driven growth, CD ratio hike comes to aid
Advances grew 22% YoY to INR1.96tn; 65% increment to which is by retail segment (up
30%YoY), leading it to corner 51% of the share. Within retail, drivers included business
banking (up 29%), CV (up 44%), credit cards (up 42%) and personal loans (up 33%).
Along with the higher yielding, retail driven growth, CD ratio expansion by 2.5% QoQ to
84% helped it clock stable NIMs of 4.1%. Also, as a strategy and due to reduced
incremental NIMs on corporate loans, the bank let some short term loans retire.
Fee based income uplifts profitability
PAT was aided by a 29% YoY fee income growth. Within this, Forex and Derivatives
grew at 69% YoY. As per the management, sharp volatility in INR led to an increased
forex volume in Q3FY12 while ~20% of the income is trading or proprietary related.
Incrementally, impact of limits introduced by RBI on forex activities to curb speculation
needs to be seen since this head alone accounted for 15% of PBT for 9mFY12.
Outlook and valuations: Fair; maintain ‘HOLD’
Quality of earnings continues to improve given stable NIMs, steady advance growth
and benign LLPs. With stressed assets (restructured + GNPA) at a mere 1.4%, it is best
placed to navigate through asset quality pressures. On the flip side, an increase in
savings bank rate can impact NIMs as this medium accounts for 30% of deposits. The
stock is trading at 3.4x FY13E ABV. We believe it has hit a sweet spot—strong growth
and lower LLP—which will enhance return ratios {RoAs to a new high of ~1.9% (FY06‐10
average: 1.5%) and RoEs at ~20% by FY13E} and hence support current multiples
Asset quality at healthy levels, LLP stays at low of 65bps
The bank’s GNPL and NNPL have been sustained at healthy levels of 1% and 0.2%
respectively though on an absolute basis, there is an increase of 6.6% and 12% respectively.
Specific NPL provisions came in at a low of less than 65bps, much lower than the 1.2%‐1.3%
historical run‐rate, bolstering core profitability. The management has stated that
incremental delinquencies in corporate/retail books continued to remain low and recoveries
stay healthy. However, on GNPA, it mentioned that on a steady state basis, the number can
clock 1.1%‐1.2%, as seen historically.
The bank has once again made floating provisions of about INR 0.7bn. LLP is likely to
continue to average at less than 1% (excluding floating provisions), a key trigger for the RoA
improvement. During the last six quarters, the bank has put to use higher core earnings to
make floating provisions of ~INR11bn and INR1.6bn contingency provisions (particularly for
the MFI exposure).
Maintains best in class liability franchise
Even though the interest rate environment continues to be challenging, the bank has been
able to inch up CASA ratio marginally from 47.3% to 47.7% over the quarter (adjusted for
INR40bn worth of one‐off deposits from tax free bonds float). This clearly is an outcome of
the flat deposit number QoQ to INR2.32tn (up mere 0.8%) as the bank did not resort to
wholesale based deposit accretion.
Going forward, as the bank embarks on fresh branch additions during the course of next 2‐3
quarters, CASA balances are likely to trend upwards. We believe CASA can be sustained at
the current level of ~48%‐50%. However, with savings bank account contributing 30% of
deposits, a rate increase on this by large banks can clearly impact NIMs.
Other highlights:
• The bank opened 51 new branches, taking the total tally to 2,201 and 7,110 ATMs in
1,174 cities.
• Tier 1 ratio (excluding Q3FY12 PAT) stood at 11.2%.
• The bank booked INR818mn of losses on revaluation/sale of investments, primarily
bonds.
• Other assets and liabilities increased significantly because as per AS‐13 which the bank
adopted in the current year, foreign currency contracts are now being grossed up
(rather than being netted as earlier). Besides this, there is some impact due to the
sharp rupee depreciation as well.
• Cost/Income stable at 46.7% even after adding 420 branches over the past one year (51
branches in Q3FY12). It has added 321 location/cities during this phase.
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