HDFC Bank (Q2 FY13)

HDFC Bank delivered slightly higher than expected loan growth of 23% yoy/9% qoq driven by continued robust growth momentum in retail credit (32% yoy/10% qoq).

October 15, 2012 12:16 IST | India Infoline News Service
CMP Rs629, Target Rs700, Upside 11.3%
  • Robust loan growth of 23% yoy driven by retail segment 
  • NIM fell marginally; CASA ratio likely has bottomed-out
  • Strong traction in fee income; C/I ratio increases on investment loss
  • Sanguine asset quality drives lower provisioning
  • RoA resilience to continue; BUY with 9-month target of Rs700

Result table

(Rs mn) Q2 FY13 Q1 FY13 % qoq Q2 FY12 % yoy
Total Interest Income 85,247 80,074 6.5 67,177 26.9
Interest expended (47,930) (45,234) 6.0 (37,732) 27.0
Net Interest Income 37,317 34,841 7.1 29,445 26.7
Other income 13,451 15,295 (12.1) 12,117 11.0
Total Income 50,768 50,135 1.3 41,562 22.2
Operating expenses (25,055) (24,326) 3.0 (20,304) 23.4
Provisions (2,929) (4,873) (39.9) (3,661) (20.0)
PBT 22,784 20,936 8.8 17,597 29.5
Tax (7,184) (6,762) 6.2 (5,604) 28.2
Reported PAT 15,600 14,174 10.1 11,993 30.1
EPS 26.4 24.1 9.8 20.5 28.8

(Rs mn) Q2 FY13 Q1 FY13 chg qoq Q2 FY12 chg yoy
NIM (%) 4.2 4.3 (0.1) 4.1 0.1
Yield on advances (%)* 11.6 11.9 (0.3) 11.0 0.6
Cost of funds (%)* 6.5 6.5 (0.0) 6.2 0.3
CASA (%) 45.9 46.0 (0.1) 47.3 (1.4)
C/D (x) 84.5 82.8 1.7 81.7 2.8
Non-interest income (%) 26.5 30.5 (4.0) 29.2 (2.7)
Cost to Income (%) 49.4 48.5 0.8 48.9 0.5
Prov./Avg. Advances (%) 0.5 1.0 (0.4) 0.8 (0.3)
RoE (%) 18.7 17.9 0.8 17.2 1.6
RoA (%) 1.6 1.6 - 1.6 -
CAR (%) 17.0 15.5 1.5 16.5 0.5
Gross NPA (%) 0.9 1.0 (0.1) 1.0 (0.1)
Net NPA (%) 0.2 0.2 - 0.2 -
Source: Company, India Infoline Research; * Computed by us

Robust loan growth of 23% yoy driven by retail segment 

HDFC Bank delivered slightly higher than expected loan growth of 23% yoy/9% qoq driven by continued robust growth momentum in retail credit (32% yoy/10% qoq). The loan mix moves stood at 53:47 between retail:corporate segments. Within the retail segment, products that witnessed strong traction were CV/CE loans (14% qoq; aided by market share gain and widened distribution), business banking (10% qoq; mainly represents SME loans and LAP), credit cards (12% qoq; aided by cross-selling and increasing market share), home loans (14% qoq; retention of loans originated in H1) and gold loans (15% qoq; small base and widened distribution). Over the past two quarters, corporate loan growth has seen good revival (23% growth during H1 FY13) with the wholesale rates easing. HDFC Bank targets to grow its advances 3-5ppts higher than system in FY13; retail segment likely to be the key growth driver.

Deposits growth healthy; CASA likely has bottomed-out

Sequential deposits growth was relatively modest at 6% qoq improving the C/D ratio by 200bps to 85%. Savings deposits growth moderated to 15% yoy, probably the weakest in many years, impacted by higher rates on FD and other investments. With TD rates set to fall in the medium term, we expect HDFC Bank’s savings balance growth to revive significantly in ensuing quarters also supported by intense cross-selling, widened network and higher service levels. Overall CASA is likely to move up from current 46% to 50% by FY14-end. Wholesale funding continues to be in the range of 10-15% of deposits. 

NIM fell marginally with material decline in loan yield

HDFC Bank’s NIM declined by 10bps qoq to 4.2% impacted by the 20bps decline in blended loan yield. The bank had announced a 20bps base rate cut in June which re-priced ~20-25% of the book linked to it. This apart some pricing pressure in retail products such as auto loans and home loans would have impacted blended loan yield. As HDFC Bank’s reliance on wholesale funding is low, a substantial decline in its rates would have only had a marginal impact of cost of deposits. Going ahead, we see stable NIMs for the bank with loan mix further shifting towards retail and a structural recovery in CASA ratio.

Strong traction in fee income continues; C/I ratio increases on investment loss

Driven by strong retail book growth, core fee income (80%+ component from retail segment) grew by brisk 22% yoy. Forex income was modest in the current quarter (8% yoy/-25% qoq). The bank had to take MTM loss of ~Rs1bn on its debt MF investments post the dividend payout received (recorded in the NII line). Opex increase was muted at 3% qoq in the light of substantial network expansion. Including the investment loss, C/I ratio increased to 49.4%.

Sanguine asset quality drives lower provisioning

Asset quality continues to be robust with benign slippages. It has been extremely resilient in the retail segment with actual losses materially lower than expected losses (priced-in) for many products. On the corporate side, the bank is better-placed than peers due to high working capital exposure. Gross NPL ratio improved sequentially from 0.97% to 0.91% and in response specific provisioning was lower, however maintaining Net NPL ratio (0.2%) and PCR (82%). Restructured assets (including pipeline) remained at negligible 0.3% of advances. During the quarter, counter-cyclical (floating) provision was lower at Rs750mn (Rs2.4bn in Q1 FY13). As per the bank, these floating provisions largely represent the expected loss provisioning for the retail portfolio.  products. The bank now has ~Rs16-17bn of counter-cyclical buffer on its balance sheet which would curtail higher provisioning requirement in future if asset quality trends were to normalize and also if dynamic provisioning regulations are implemented. Stressing that lowest slippages in both the retail and corporate segments could be behind, the bank is expecting its GNPL ratio to normalize (gradually increase to 1.3-1.5%).

RoA resilience to continue; BUY with 9-month target of Rs700

We expect HDFC Bank to continue delivering RoA of 1.5-1.7% through FY13 and FY14 even if retail credit cycle were to unfold. The resilient RoA performance would be supported by stable margins, improvement in C/I ratio and continuance of likely lower provisioning with substantial counter-cyclical buffer on the balance sheet. This gives us confidence that HDFC Bank stock would continue to move up notwithstanding its premium valuation. Revise estimates marginally and upgrade recommendation to BUY and 9-month target price to Rs700.   

Financial Summary
Y/e 31 Mar (Rs m) FY11 FY12<

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