HDFC Bank - Another robust quarter - Reliance Securities

Key highlights of the result

Consistent in-line overall performance: HDFC Bank's Net Interest Income (NII) grew 19.3% yoy and 8.7% qoq to Rs3,388cr in 4QFY2012, due to higher growth in advances. Non-Interest Income grew 18.8% yoy and 5.1% qoq to Rs1,492cr, primarily contributed by fees and commissions. With increase in the bank branch distribution network, operating expenditure grew 23.5% yoy and 14.3% qoq to Rs2,467cr. Therefore, the cost-to-income ratio increased 298bp to 50.6%. Net Profit increased by 30.4% yoy and 1.6% qoq to Rs1,453cr on the back of lower provisioning expenses.

Stable advances growth with high CASA deposits: Gross advances grew 22.2% yoy and 0.6% qoq to ~Rs2.0 lakh crore as on March 31, 2012. Gross retail loans which contributed ~55% to the overall loan book grew ~34% yoy to Rs1.1 lakh crore. Total deposits grew at a slower rate of 18.3% yoy and 6.1% qoq to ~Rs2.5 lakh crore, while, CASA ratio stood at 48.4% of total deposits as on March 31, 2012. Savings account deposits stood at Rs73,998cr, an increase of 16.6% yoy and 5.2% qoq.

Robust asset quality with steady NIMs: Asset quality remained stable with GNPAs at 1.0% of gross advances and net non-performing assets at 0.2% of net advances. Total restructured assets stood at 0.4% of advances, it continues to remain the lowest amongst the Indian banks. The provision coverage ratio was at ~82.4% as on 4QFY2012. Net Interest Margin (NIM) stood at 4.2% in 4QFY2012, increased 10bp on a sequential basis.

Other highlights for the quarter: Capital adequacy ratio stood at 16.5% with Tier-1 currently at 11.6%. The bank opened 343 branches and 1,803 ATMs in 4QFY2012, taking the total branch network to 2,544 and 8,913 ATMs spread across 1,399 cities.

Outlook and Valuation

HDFC Bank has continued to report strong profit with higher margins and stable asset quality. The bank has grown consistently over the industry growth rate, with superior asset quality and return ratios. Also, the margins have been the highest amongst peers due to its high CASA deposits. Going forward, we forecast the bank's earnings to grow at a CAGR of ~25% and expect the total assets of the bank to grow at a CAGR of ~22% over FY2012-14E. At the CMP of Rs551, the stock is trading at 3.1x FY2014E ABV. We introduce FY2014 earnings and rollover our target price on FY2014E to Rs632 with a target multiple of 3.6x FY2014E ABV, indicating an upside of ~15% from the current levels. Based on the bank's high quality loan portfolio, negligible NPA risk, good ROE and robust capitalization, we recommend a Buy on HDFC Bank.

Risks to the view

- Uncertain domestic environment such as worsening fiscal deficit trends, political uncertainty and lower demand would call for lower estimates.

Source : Equity Bulls

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