Neutral on HDFC Bank - 4QFY12 Results Update - Motilal Oswal

HDFC Bank's 4QFY12 PAT grew 30% YoY to INR14.5b (in-line with estimates). While NII was 5% above estimate, higher than expected opex (+7%) led to in-line PAT. Key highlights:

- Strong growth in retail segment: Loans grew 22% YoY but were flat QoQ. However retail growth was strong at 34% YoY and 7% QoQ. Thereby share of retail loans in overall loans increased to 54.8% v/s 51.6% in 3QFY12.

- CASA ratio remains strong at 48%+: CASA grew 6% QoQ and ~9% YoY led by healthy growth in SA Deposits (+5% QoQ and +17% YoY). While CA declined 2% YoY, adjusted for one-offs growth would have been 7%+ YoY.

- Margin improved 10bp QoQ - better than est.: Reported margin improved 10bp QoQ to 4.2% led by containment of cost of funds and higher share of high yielding retail loans during the quarter.

- Strong fee income growth; cost to core income increases QoQ: Fee income grew 24% YoY vs 18% YoY for 9MFY12. Other operating expenses increased sharply +20% QoQ led by strong distribution expansion and one of expense to the tune of INR1b. Cost to core income ratio increased to 53.3% v/s 51.7% in 3QFY12.

- Asset Quality remains healthy: Performance on asset quality remained healthy with GNPAs in absolute terms being flat QoQ. Slippage ratio for FY12 stood at ~1%. During FY12 HDFCB made additional floating provision of INR7b taking overall pool of floating provision to INR14.35b (INR6/share)

Valuation and view: HDFC Bank is best placed in the current environment as core operations is expected to remain strong, however, we believe valuations are rich. The stock trades at 3.7x FY13E BV and 3.1x FY14E BV. Maintain Neutral.

Source : Equity Bulls

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