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HDFC Bank (Q4 FY13)

India Infoline News Service | Mumbai |

Asset quality has shown an improvement with GNPA and NNPA declining by 4% and 5.4% respectively.

CMP Rs689, Target Rs780, Upside 13.2%

  • Robust retail traction continued; growth in corporate to pickup

  • Healthy growth in Deposits; CASA ratio improved by 200bps sequentially

  • NIM delivery better-than-expected; stable margin expected in FY14

  • Fee income impacted by regulatory changes; C/I ratio rose on account of branch expansion

  • Overall credit quality remained robust; CV/CE portfolio still under pressure

  • Maintain BUY with 9-month target price of Rs780

Result table
(Rs mn)Q4 FY13Q3 FY13% qoqQ4 FY12% yoy
Total Interest Income93,23988,9044.975,61123.3
Interest expended(50,287)(49,088)2.4(39,997)25.7
Net Interest Income42,95339,8167.935,61320.6
Other income18,03619,277(6.4)16,28910.7
Total Income60,98959,0943.251,90217.5
Operating expenses(31,362)(27,880)12.5(26,637)17.7
Provisions(3,005)(4,050)(25.8)(4,116)(27.0)
PBT26,62227,164(2.0)21,14925.9
Tax(7,723)(8,573)(9.9)(6,618)16.7
Reported PAT18,89818,5911.714,53130.1
EPS31.831.41.224.828.3

Key  RatiosQ4 FY13Q3 FY13chg qoqQ4 FY12chg yoy
NIM (%)4.54.30.24.40.1
Yield on advances (%)*11.811.70.111.9(0.1)
Yield on funds (%)*10.110.00.19.90.2
Cost of funds (%)*6.26.3(0.1)6.10.2
CASA (%)47.445.42.048.4(1.0)
C/D (x)80.985.0(4.1)79.21.7
Non-interest income (%)29.632.6(3.0)31.4(1.8)
Cost to Income (%)51.447.24.251.30.1
RoE (%)20.921.0(0.1)19.41.5
RoA (%)2.02.0-2.0-
CAR (%)16.817.0(0.2)16.50.3
Gross NPA (%)1.01.0(0.0)1.0(0.1)
Net NPA (%)0.20.2-0.2-
Source: Company, India Infoline Research; *Calculated

Robust retail traction continued; growth in corporate to pickup

Even in the challenging environment, banks annual loan growth continued to beat that of the system by a margin of 4-5%. The yoy credit growth stood at 22.7% slightly lower than our expectation of 23.6%. Sequentially there was a marginal decline driven by a contraction of 7.4% in the corporate portfolio. In contrast to this, Retail segment grew at a healthy pace reporting a growth of 4.9% qoq/27.3% yoy. Resultantly, portfolio mix has further shifted towards Retail from 54.8% of total advances in FY12 to 56.9% in FY13. Within Retail, products that witnessed strong traction were Gold loans (64.5% yoy), Credit Cards (45.3% yoy), Business Banking (31.5% yoy) and Personal loans (26% yoy). Growth in Auto, CV/CE and Two wheeler space has been deliberately slowed down given the higher delinquencies witnessed in these segments.


In FY14, bank expects relatively better growth in its corporate book (compared to FY13) as it sees good opportunity in refinancing some of the completed projects. Overall, we expect balanced growth in both Retail and Corporate segments going forward, maintaining their share in the pie.


Healthy growth in Deposits; CASA ratio improved by 200bps sequentially

Deposits grew by 4.3% qoq, as against 0.7% decline in advances. As a result, Credit/Deposit ratio dropped by 4ppt qoq to 81% in Q4 FY13. Healthy growth in deposits was primarily driven by Current Deposits (11.3% qoq) and Savings Deposits (7.7% qoq), resulting in an improvement in CASA ratio by 2ppt qoq to 47.4%. Sustaining a SA ratio of ~30% is commendable in high TD rate environment and also higher interest rate on Savings Account offered by some of the peers (post deregulation). Anticipating a material decline in TD rates in the medium term and significant expansion of branch network, we expect HDFC Banks savings balance growth to revive significantly in ensuing quarters.  Also, structural improvement in liquidity conditions is likely to drive growth in Current Account balances. Altogether, CASA ratio is expected to cross 50% mark by FY15.


NIM delivery better-than-expected; stable margin expected in FY14

NIM (post re-classification) rose by 20bps qoq to 4.5% in Q4 FY13, against our expectation of 10bps contraction. Notwithstanding a significant decline in C/D ratio (by 4ppt qoq), NIM expansion was driven by improvement in blended yield (11bps qoq; backed by focus on relatively higher yielding Retail lending) and decline in CoF (9bps qoq; supported by improved CASA ratio). After the re-classification, NIM would continue to remain in the narrow range of 4.1-4.5% compared to 3.9-4.2% earlier. With decline in yield (in anticipation of rate cut) being offset by improvement in CoD (owing to structural improvement in deposit profile), we expect stable NIM in FY14.  


Fee income impacted by regulatory changes; C/I ratio rose on account branch expansion

Sequentially non-interest income reported de-growth of 6.4% owing to one-offs in Q3 FY13. Fee income growth was relatively weak in FY13 (10.8% yoy) on account of the impact of several regulatory changes. Opex growth stood at 12.5% sequentially led by robust branch expansion (286 in Q4 FY13). Slow non-interest income growth and higher opex drove 424bps qoq increase in C/I ratio.


Overall credit quality remained robust; CV/CE portfolio still under pressure

Asset quality has shown an improvement with GNPA and NNPA declining by 4% and 5.4% respectively. Therefore, GNPA decreased to 0.97% from 1% in the previous quarter. CV+CE portfolio is still under pressure advocating a similar level of delinquencies as observed in the previous quarters. Nonetheless, management is extremely cautious and has deliberately slowed down lending in these segments. Gold loan portfolio (2.1% of total advances) is in good shape with no severe impact of the recent price correction. Bank would continue to grow its Gold loan book in rural and semi-urban areas, fortifying its product from such externalities. PCR stands strong at 80%. Restructured advances (including applications received and under process for restructuring) has come down to 0.2% of total advances from 0.3% in the previous quarter. We expect asset quality to hold up well going forward, given the fact that it continued to remain robust even in unnerving macroeconomic environment.  


Superior RoA delivery to continue; Maintain BUY with 9-month target price of Rs780

With the best-in-class asset quality, strong deposit franchise, premium margin, robust PCR, substantial countercyclical buffer on balance sheet and healthy capitalization (Tier I of 11.1%), we expect HDFC Bank to continue to deliver superior RoA of 1.8-1.9% in FY14-15. Consistent stellar performance of the bank even in susceptible operating environment justifies a premium valuation both on absolute and relative basis. Retain BUY and increase 9-month price target to Rs780.


Financial Summary


 

 
 
 
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