HDFC Bank (Q4 FY14)

India Infoline News Service | Mumbai |

HDFC Bank delivered a better-than-expected loan growth of 21% yoy, excluding the FCNR (B) deposits related lending.

CMP Rs726, Target Rs827, Upside 13.9%
  • Sharp deceleration in retail segment continues; core loan growth better-than-expected at 21% yoy 

  • CASA ratio improves to 45%; to rise further in longer term 

  • NIM performance was strong; outlook encouraging

  • Fee growth continues to be sluggish; C/I ratio improves significantly 

  • Slippages continue to be benign; asset quality to remain robust 

  • Retain BUY and raise 9-12 month target price to Rs827

Result table
(Rs mn) Q4 FY14 Q3 FY14 % qoq Q4 FY13 % yoy
Total Interest Income 107,886 105,907 1.9 93,239 15.7
Interest expended (58,359) (59,559) (2.0) (50,287) 16.1
Net Interest Income 49,526 46,348 6.9 42,953 15.3
Other income 20,014 21,487 (6.9) 18,036 11.0
Total Income 69,541 67,835 2.5 60,989 14.0
Operating expenses (31,747) (28,951) 9.7 (31,362) 1.2
Provisions (2,861) (3,888) (26.4) (3,005) (4.8)
PBT 34,932 34,996 (0.2) 26,622 31.2
Tax (11,669) (11,734) (0.6) (7,723) 51.1
Reported PAT 23,263 23,262 0.0 18,898 23.1
EPS 38.9 38.9 0.0 31.8 22.3

Key  Ratios Q4 FY14 Q3 FY14 chg qoq Q4 FY13 chg yoy
NIM (%) 4.4 4.2 0.2 4.5 (0.1)
Yield on advances (%)* 11.3 11.6 (0.3) 11.8 (0.5)
Yield on funds (%)* 9.5 10.1 (0.5) 9.9 (0.3)
Cost of funds (%)* 5.8 6.4 (0.6) 6.1 (0.3)
CASA (%) 44.8 41.1 3.7 47.4 (2.6)
C/D (x) 82.5 85.0 (2.5) 80.9 1.6
Non-interest income (%) 28.8 31.7 (2.9) 29.6 (0.8)
Cost to Income (%) 45.7 42.7 3.0 51.4 (5.8)
RoE (%) 21.4 21.7 (0.3) 20.9 0.5
RoA (%) 2.0 2.0 - 2.0 -
CAR (%) 16.1 14.7 1.4 16.8 (0.7)
Gross NPA (%) 1.0 1.0 - 1.0 0.0
Net NPA (%) 0.3 0.3 - 0.2 0.1
Source: Company, India Infoline Research

Sharpdeceleration in retail segment continues; core loan growth better-than-expectedat 21% yoy   

HDFC Bank delivered a better-than-expectedloan growth of 21% yoy, excluding the FCNR (B) deposits related lending. Growthin Retail loans segment moderated further to 10% yoy from 14% yoy in theprevious quarter. The segmental growth rate has decelerated substantially from 27%yoy in Q4 FY13. The growth slowdown continues to be driven by Vehicle Financeportfolio (CV/CE, Auto and 2W loans) which was nearly flat yoy led by 10.5%de-growth in CV/CE book. The contribution of this business within the Retailsegment has come-off to 34% as compared 37% in Q4 FY13. Business Banking(segmental share at 17%) growth also moderated significantly to 2% yoy ascompared to 9% yoy in the previous quarter. After decelerating in earlierquarters, Credit Cards (21% yoy) and Personal Loans (17% yoy) witnessed agrowth pick-up. Growth in Corporate loans accelerated to 48% yoy with the bookexpanding 9% qoq. The softening of wholesale funding rates and sharpdeceleration in retail loans are likely to have encouraged HDFC Bank to driveincremental loan growth from the Corporate segment. Consequently, loan mixshifted drastically with the Retail segment share falling to below 50% after 10quarters.

CASAratio improves to 45%; to rise further in longer term 

ExcludingFCNR (B) deposits raised during Q3 FY14, deposits growth was 17% for the year,much lower than credit growth. Savings deposits growth witnessed a significantrevival from 7.4% yoy in Q3 FY14 to 17% yoy in Q4 FY14. Aided by year-endfloats, Current deposits grew sharply by 26% qoq rising to 17% of deposits ascompared to 14% in the previous quarter. Overall, CASA ratio improved by 370bpsqoq to 44.8%. HDFC Bank added 67 branches during Q4 FY14 and plans to add200-300 branches pa in coming years. Improving mobilization at young branches(opened in the previous 24-36 months), sustained brisk network expansion(largely in under banked areas) and cyclical softening of TD rates is likely todrive CASA ratio improvement in the longer term.       

NIMperformance was strong; outlook encouraging

Versus ourexpectation of 10bps improvement, HDFC Bank's NIM rose by 20bps qoq to 4.4%.Based on our computations, while the yield on advances continued to drift down,the steep decline in cost of funds drove material improvement in the margin. Asper the bank, blended lending yield has come-off by ~30bps over the past fourquarters impacted by shift in overall loan mix and product mix movement withinCorporate segment (increase in share of very low margin international book) andRetail segment (decline in contribution of Vehicle financing and increase inshare of home loans). The material fall in deposits cost during the quartercould be attributed to softening of wholesale borrowing rates and improvementin CASA especially the share of current deposits. Further progress on CASAfront and cyclical decline in TD/Bulk rates should drive HDFC Bank's funding costlower over the next couple of years whereas blended lending yield could receivesupport from growth revival in retail segment especially vehicle loans.Therefore, longer term NIM outlook is encouraging. 

Feegrowth continues to be sluggish; C/I ratio improves significantly    

Sustainedsluggishness was seen in fee income growth, has been in the modest band of10-14% yoy over the past few quarters. Third party product distribution fees,which has been severely impacted by adverse regulatory changes, volumemoderation and mix change, shrunk by 19-20% yoy with its share declining to 7%from 15%. Most of the other fee streams grew at a reasonably healthy rate of15-17% yoy. Forex income was lower 24% qoq at Rs2.5bn on account of reducedvolatility in the currency. Opex growth continued to moderate and stood at just1% yoy (compared to 18% yoy in Q4 FY13) driven by efforts towards costrationalization/productivity. Further, over the past few quarters the bank hasbeen adding largely low-cost branches. Core cost/income ratio (excludingtreasury performance) improved substantially by 610bps yoy to 46%. Improving businessproductivity of younger branches (2-4 years old) and a gradually improving NIM isexpected to further drive efficiency gains for the bank.

Slippagescontinue to be benign; asset quality to remain robust  

Onthe back of benign slippages, Gross NPLs were flat in absolute terms whiledeclining marginally qoq as a ratio. Consequently, credit cost was lower atannualized 38bps on total provisioning basis. Outstanding stock of restructuredassets continues to be negligible at 0.2% of loans. We believe that bank'sasset quality would remain steady in coming quarters aided by a gradualimprovement in economic environment. This view underpins our modest credit costassumptions for FY15/16. Quarterly annualized RoA stood at impressive 2%supported by margin expansion and lower provisioning. Capital adequacy stands robustwith Tier-1 ratio at 11.8% after including FY14 audited profits. 

RetainBUY and raise 9-12 month target price to Rs827

Weestimate HDFC Bank to continue to deliver historically high RoAs of 2% in FY15and FY16 supported by robust NIMs, improving cost metrics and stable assetquality. High inherent profitability and performance predictability of the bankwill support its premium valuation. Absolute valuation at 2.9x FY16 P/adj.BVdoes not look expensive in the context of industry-best RoA delivery. Retain BUYrecommendation on HDFC Bank and raise 9-12m target to Rs827.  

Financial Summary

Y/e 31 Mar (Rs m)

FY13

FY14

FY15E

FY16E

Total operating income

226,637

264,022

322,471

397,456

yoy growth (%)

21.4

16.5

22.1

23.3

Operating profit (pre-prov)

114,276

143,600

180,975

225,539

Net profit

67,263

84,782

107,381

135,077

yoy growth (%)

30.2

26.0

26.7

25.8

 

 

 

 

 

EPS (Rs)

28.3

35.3

44.8

56.3

Adj.BVPS (Rs)

150.2

177.8

211.9

254.3

P/E (x)

25.7

20.5

16.2

12.9

P/BV (x)

4.8

4.1

3.4

2.9

ROE (%)

20.3

21.3

22.5

23.7

ROA (%)

1.8

1.9

2.0

2.0

Dividend yield (%)

0.8

0.9

1.2

1.5

CAR (%)

16.8

16.1

15.2

13.9

Source: Company, India Infoline Research

 

 

 

***Note: This is a NSE Chart

 

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