HDFC Bank - Strong operating performance but upsides limited - Religare

Q1FY13 was yet another stellar quarter for HDFCB. NII growth was slightly above estimates led by a QoQ improvement in NIMs and strong business growth. Other income growth was boosted by strong fee income and FX revenues. Asset quality was pristine with GNPLs/NNPLs stable QoQ. However, the CASA ratio declined 240bps QoQ due to outflows from current account deposits. While HDFCB is well-placed in a challenging macro environment, expensive valuations leave little room for upside. HOLD.

- Strong business growth; NIMs improve marginally: Advances grew by 9% QoQ (21.5% YoY) driven by the non-retail (up 15% QoQ), CVs, credit cards and personal loan segments (Fig 5). However, CASA deposits were down 1% QoQ (up 14% YoY) due to a 9% decline in current account deposits (up only 7% YoY). Savings deposit mobilisation was healthy at 3.5% QoQ and 18.4% YoY. NIMs improved from 4.2% in Q4FY12 to 4.3% in Q1FY13 driven by higher LDR and an uptick in yield on assets.

- Asset quality stable: GNPLs declined to sub-1% as retail asset quality continued to be healthy. Total provisions increased to Rs 4.9bn from Rs 3bn in Q4FY12; of this, specific provisions were at Rs 1.8bn (implying annualised credit costs of just 36bps). HDFCB made floating provisions of Rs 2.4bn, taking total the floating provisions to Rs 16.8bn. Total restructured assets stood at just 0.3% of advances.

- Other income strong; C/I at 48%: Other income grew by 37% YoY on strong fee/FX revenues and trading profits of Rs 665mn (as against a loss of Rs 413mn in Q4FY12). The C/I ratio declined from 50.6% in Q4FY12 to 48.5% in Q1FY13 (the ratio in Q4FY12 was higher due to branch expansion and one-off costs of Rs 1bn-1.2bn).

- Valuations expensive; maintain HOLD: The stock is currently trading at 4.0x FY13 BV and 21.5x FY13 EPS. While earnings visibility remains high and asset quality concerns low, expensive valuations leave little room for upside.

Source : Equity Bulls

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