Hold HDFC Bank - Quarterly Review - Karvy

Numbers in line

HDFC Bank's numbers are in line with our expectations. PAT at Rs14.2 bn grew by 30.6% YoY backed by decent balance sheet growth of 22%, sequential NIMs expansion of 10bps, stable asset quality and treasury gains of Rs0.7bn as against treasury loss of Rs0.4bn in Q1FY12.

- Asset Quality Still Holding: HDFC Bank has still been able to hold on to its pristine asset quality with Gross NPA of 1% and provision coverage of 81%. We believe asset quality has peaked and it will be a major challenge to improve further, hence, we factor slight deterioration from here on.

- Decent Business Growth: Deposits as well as advances have grown at a decent pace of ~22%. CASA has been on a declining trend with compression of 310bps YoY and 240bps sequentially to 46%. Although retail loans have grown at a higher rate of 33% YoY, still its proportion in total loans has decreased by 240bps sequentially to 52% on account of muted sequential growth.

- Expansion in NIMs: NIMs have expanded by 10bps sequentially as well as against last year to 4.3% reflecting positive full impact of CRR cut. Management has continued its NIMs guidance range of 3.9-4.3%. NIMs should see slight compression in next quarter post cut in its base rate by 20bps to 9.8% in June end.

Outlook & Valuation

At the CMP the stock is trading at 21.9x and 18.8x FY13E and FY14E earnings, and at 3.8x and 3.4x P/ABV FY13E and FY14E respectively. This, we feel is reasonable considering its consistent performance and its focus towards quality growth. We have increased our estimates by 2% and 3% for for FY13E and FY14E respectively after factoring slightly lower credit cost. We continue to maintain a HOLD rating on the stock with the price target of Rs622 based on P/ABV of 3.6x FY14E. Risks: Asset quality could have peaked.

Source : Equity Bulls

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