HDFC Bank - Results in line with expectations, Rating changed from Buy to Accumulate - Aditya Birla Money

Key Highlights

- Net Profit after tax for the current quarter increased 30.6% YoY (-2.5% QoQ) to Rs.14173.9 mn. The growth in PAT on YoY basis, was mainly driven by 22.3% YoY (2.8% QoQ) increase in the NII (led by robust growth in advances 21.5% YoY and 9.2% QoQ coupled with slight improvement in NIMs) and 36.6% YoY (2.5% QoQ) increase in other income. The main contributor to other income for the quarter was fees & commissions of Rs.11433 mn, which was up by 23.9% YoY. The sequential decline in profits despite lower operating expenses was on the back of 63.4% jump in provisions. C/I ratio declined by 203 bps QoQ (24 bps YoY) during the quarter aided by robust growth in other income and lower branch additions during the quarter.

- Net Interest Margins (reported) during the quarter registered an increase of 10 bps both on YoY and QoQ basis despite higher growth in low yielding corporate book. This was mainly on the back of shift in retail mix coupled with lower bulk deposit rates (primarily at the shorter end of the yield curve) during the quarter. Added to this, cut in CRR during the quarter further aided in margin expansion. Going forward, the management expects the margins to remain in the current range with some moderation of ~4-5 bps owing to reduction in base rate by 20 bps from 10.0% to 9.8% on June 30, 2012.

- Total business of the bank registered a robust growth of ~21.8% YoY (6.5% QoQ) as at Q1FY13. Deposits grew by 22.0% YoY (4.4% QoQ), whereas Net Advances grew by 21.5% YoY (9.2% QoQ). As guided by the management, the Bank has scaled up corporate loan book during the quarter which grew ~11% YoY (~15% QoQ). On the other hand, retail book grew 33% YoY (4% QoQ). Due to higher sequential growth in corporate loan book, the share of corporate book in the total loan book grew to 47.6% in the quarter against 45.2% in Q4FY12. On the retail side, the bank witnessed strong growth in CV and equipment loans segments. On the deposit side, the bank witnessed a decline CASA ratio from 48.4% in Q4FY12 to ~46.0% in the current quarter mainly led by sluggish growth in CA deposits together with higher growth in term deposits. The growth in term deposits at ~29.4% outpaced total deposits growth of 22.0% (on the back of higher growth in NRE term deposits) which resulted in fall in CASA during the quarter.

- Asset quality continued to remain stable with gross NPA at 0.97% (1.04% YoY, 1.01% QoQ) and net NPA at 0.19% (0.18% YoY, 0.18% QoQ). With no restructuring during the quarter, the outstanding restructured book slipped to 0.3% of advances against 0.4% QoQ. Provision coverage based on specific provisions was at 81.0%.

- The bank had opened 20 new branches in this quarter taking the total number of branches to 2564. The bank plans to add ~250-350 branches each year going forward.

Outlook and Valuations

We estimate HDFC Bank to report an EPS CAGR of 26.2% over FY12-FY14E. ABV is estimated to grow at 17.5% CAGR during the same period. The bank continued show of impressive performance across all operating parameters, reflecting the bank's strong and dynamic business model. HDFC Bank has always commanded a premium valuations vis-à-vis its peers due to its track record of consistent growth in earnings and assets. We believe the bank to continue to command premium valuations going forward. The stock currently trades at 4.0x FY13E ABV and 3.4x FY14E ABV. We retain our March 13 target price at Rs.635.9, implying an upside of 8.3% from current levels, thus changing our rating for the stock from Buy to Accumulate.

Source : Equity Bulls

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