HDFC Bank (Q1 FY13)

India Infoline News Service | Mumbai |

Loan growth in-line; loan mix shifts towards corporate segment

CMP Rs587, Target Rs615, Upside 4.8% 
  • Loan growth in-line; loan mix shifts towards corporate segment
  • NIM improved marginally on the back of material improvement in loan yield
  • Strong traction in fee and forex income continues; C/I ratio improve on lower opex
  • Sanguine asset quality drives lower provisioning 
  • ‘Safest play’ in the sector; Rate MP due to limited upside
Result table
(Rs m) Q1 FY13 Q4 FY12 % qoq Q1 FY12 % yoy
Total Interest Income 80,074 73,880 8.4 59,780 33.9
Interest expended (45,234) (39,997) 13.1 (31,300) 44.5
Net Interest Income 34,841 33,883 2.8 28,480 22.3
Other income 15,295 14,920 2.5 11,200 36.6
Total Income 50,135 48,803 2.7 39,680 26.3
Operating expenses (24,326) (24,671) (1.4) (19,346) 25.7
Provisions (4,873) (2,983) 63.4 (4,437) 9.8
PBT 20,936 21,149 (1.0) 15,897 31.7
Tax (6,762) (6,618) 2.2 (5,048) 34.0
Reported PAT 14,174 14,531 (2.5) 10,849 30.6
EPS 24.1 24.8 (2.8) 18.6 29.4

Key Ratios Q1 FY13 Q4 FY12 chg qoq Q1 FY12 chg yoy
NIM (%) 4.3 4.2 0.1 4.2 0.1
Yield on advances (%)* 11.9 11.5 0.4 10.8 1.1
Yield on funds (%)* 10.0 9.7 0.3 9.0 1.0
Cost of funds (%)* 6.5 6.1 0.5 5.5 1.0
CASA (%) 46.0 48.4 (2.4) 49.1 (3.1)
C/D (%) 82.8 79.2 3.6 83.1 (0.3)
Non-interest income (%) 30.5 30.6 (0.1) 28.2 2.3
Cost to Income (%) 48.5 50.6 (2.0) 48.8 (0.2)
Prov/Avg. Advances (%) 1.0 0.6 0.3 1.1 (0.1)
RoE (%) 17.9 19.4 (1.5) 16.3 1.7
RoA (%) 1.6 2.0 (0.4) 1.6 -
CAR (%) 15.5 16.5 (1.0) 16.9 (1.4)
Gross NPA (%) 1.0 1.0 (0.1) 1.0 (0.1)
Net NPA (%) 0.2 0.2 - 0.2 -
Source: Company, India Infoline Research; * Computed by us

Loan growth in-line; loan mix shifts towards corporate segment

HDFC Bank delivered an in-line loan growth of 9% qoq and 21.5% yoy. As expected, loan mix moved towards the corporate segment after having sifted significantly in favour of retail segment in the past three quarters. Corporate book grew by 15% qoq and 11% yoy. The overall demand for corporate loans being healthy, HDFC Bank resumed lending as the wholesale rates cooled-off materially since March. Retail loans grew by 4% qoq and 33% yoy; manifesting sustained robust growth. CV/CE loans (11% qoq and 60% yoy) continue to expand at rapid pace driven by widened distribution and strong traction in the LCV market. Unsecured portfolio comprising personal loans (6% qoq and 35% yoy) and credit cards (10% qoq and 42% yoy) also continued to grow strongly. The gold loan book doubled on yoy basis. HDFC Bank targets to grow its advances 4-6ppts higher than system in FY13, retail segment likely to be the key growth driver.  

Deposits growth was modest; CASA sustained on daily average basis

Sequential deposits growth was relatively modest at 4% qoq improving the C/D ratio by 400bps to 83%. Savings deposits growth continue to remain healthy (4% qoq and 18% yoy) aided by robust branch addition and intense cross-selling. Current deposits growth (-8% qoq and 7% yoy) continued to be weak reflecting the systemic issue; current account balances impacted by lackluster economic activity and higher short term rates. Terminal CASA ratio was at 46% and on daily average basis it is likely to have remained stable. Term deposits growth was significant (9% qoq and 29% yoy) as robust traction in retail TDs (including NRI deposits) continued as customers continue to rush for locking-in at higher rates.

NIM improved marginally on the back of material improvement in loan yield  

HDFC Bank’s NIM improved by 10bps qoq to 4.3%. Blended loan yield (calculated) improved by material 35bps qoq reflecting the lagged impact of substantial loan mix shift (during FY12) towards high-margin retail segment, robust growth in higher yielding CV/CE and unsecured loans portfolio within retail segment and sharp improvement in the C/D ratio. There was a sharp uptick in cost of funds (calculated) also driven by higher wholesale rates witnessed during March-April and re-pricing of retail TDs at higher rates. The recently announced base rate cut of 20bps is likely to impact NIM marginally (4-5bps) as ~20% of the loan book is linked to it. HDFC Bank’s lower reliance on wholesale funding (14-15%) and diversified and dominant presence in retail segment lends structural stability to margin. We expect a small margin improvement in FY13 for the bank. 

Strong traction in fee and forex income continues; C/I ratio improve on lower opex

Driven by robust growth in the retail book during the year, core fee income (80%+ component from retail segment) grew by brisk 24% yoy. Higher volatility in currency drove significant increase in forex income of the quarter (37% yoy). The bank recorded a profit of Rs665mn on revaluation/sale of its investment portfolio against a loss in the preceding five quarters. Opex was marginally lower sequentially as Q4 FY12 contained non-recurring costs (~Rs1-1.2bn) associated with processing of applications of various bond issues. However, on yoy it has increased by 26% yoy driven by the substantial network expansion. The cost/income ratio improved by 200bps qoq to 48.5%. Bank expects the ratio to improve further over the next two years.

Sanguine asset quality drives lower provisioning  

Asset quality continues to be robust with below average slippages. Asset quality in the retail segment in particular has been extremely resilient with actual losses being materially lower than expected losses in many products. On the corporate side, the bank is better-placed than peers in the absence of any perturbing project funding exposures. Gross and Net NPL ratios were stable sequentially at 1% and 0.2% respectively. Restructured assets (including pipeline) remained at negligible 0.4% of advances. Specific provisioning was benign with credit cost at 34bps; still driving 200bps improvement in PCR to 82%. Adding to its counter-cyclical buffer, HDFC Bank made Rs2.4bn of floating provisions largely representing expected loss provisioning for retail products. The bank now has ~Rs16bn of floating provisions on its balance sheet which would curtail higher provisioning requirement in future if asset quality trends were to normalize and if dynamic provisioning regulations are implemented. Stressing that lowest slippages in the both the retail and corporate segment are behind, the bank expects its GNPL ratio to normaliz

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