We reiterate BUY on HDFC Bank post our meeting that suggested acceleration in savings accounts addition, relentless growth momentum in retail segment and enduring resilience in asset quality. Currently at mean of 3.6x, valuation would likely re-rate to above 4x 1-year rolling fwd P/adj.BV amid intensifying headwinds for the banking system. We marginally increase our 9-month target price to Rs615.
CASA ratio would witness structural improvement in the longer term supported by improving maturity of substantial branches added, intense cross-selling and reversal in retail TD rates. The retail loan growth continues to be robust and well-diversified. CV/CE growth momentum is expected to moderate on a higher base. Corporate loan growth would be better than FY12 but the bank is unwilling to compromise margin. Asset quality continues to beat expectations of the bank itself. Slippages in most retail products remain significantly lower than priced-in. Bank still expects GNPL levels to normalize and RoAs to sustain near 1.6%.
CASA to improve in the longer term; branch addition/maturity, cross-selling and rate reversal being key drivers
Impacted by higher retail TD rates, savings growth of the bank moderated to 17% in FY12. In an interest rate up cycle whenever 1-3yr retail TD rates touch 9.5-10%, customers rush to lock-in at higher rates and are averse to keep material balances in savings account. However, savings account addition run-rate has improved in past few months and currently stands at 2-2.5lac/month. Maturity of the substantial branches added during FY09-11 and also widened distribution underlie increasing savings account traction.
In order to retain savings balances, HDFC Bank has been cross-selling multiple products such as Mutual Fund SIPs, broking accounts, credit cards, insurance, etc. The cross-selling ratio as defined by the bank as no of products/no of accounts stands at 1.5-1.6x; have been retained despite robust customer addition. For important customers categorized as Imperia, Preferred and Classic, the cross-selling ratio is 4x, 2-2.5x and 1-1.5x respectively. A comprehensive range of retail banking products enables HDFC Bank to deepen relationship by cross-sell.
Additionally, the reversal in interest rate cycle could improve CASA ratio as seen in the past. We expect CASA ratio to touch 52% by FY14.
|Y/e 31 Mar (Rs m)||FY11||FY12||FY13E||FY14E|
|Total operating income||148,783||175,405||217,025||264,977|
|Yoy growth (%)||20.3||17.9||23.7||22.1|
|Operating profit (pre-provisions)||77,254||89,505||108,790||135,637|
|yoy growth (%)||33.2||31.6||23.4||24.3|
|Adj. BVPS (Rs)||107.8||126.0||146.6||172.3|
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