HDFC Bank - 1QFY2013 Result Update - Reliance Securities

Another consistent quarter

Key highlights of the result

- Consistent in-line overall performance: HDFC Bank's Net Interest Income (NII) grew 22.3% yoy and 2.8% qoq to Rs3,484cr in 1QFY2013, due to higher growth in advances. Non-Interest Income grew 36.6% yoy and 2.5% qoq to Rs1,529cr, primarily contributed by fees and commissions. Due to lower branch additions this quarter, operating expenditure grew 25.7% yoy, whereas it declined 1.4% qoq to Rs2,433cr. Therefore, the cost-to-income ratio decreased ~200bp sequentially to 48.5%. Net Profit increased 30.6% yoy, however, it contracted marginally by 2.5% qoq to Rs1,417cr.

- Stable advances with high fixed deposits growth: Total advances grew 21.5% yoy and 9.2% qoq to ~Rs2.1 lakh crore as on June 30, 2012. Retail loans, which contributed 52.4% to the overall loan book, grew 33.4% yoy and 4.4% qoq to ~Rs1.1 lakh crore. Total deposits grew at a healthy pace of 22% yoy and 4.4% qoq to ~Rs2.6 lakh crore, while, CASA ratio stood at 46% of total deposits as on June 30, 2012. Savings account deposits stood at Rs76,674cr, an increase of 18.4% yoy and 3.6% 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 0.3% of advances, it continued to remain the lowest amongst the Indian banks. The provision coverage ratio (PCR) was at 81% as on June 30, 2012. Net Interest Margin (NIM) stood at 4.3%, an increase of ~10bp on a sequential basis.

- Other highlights of the quarter: Capital adequacy ratio stood at 15.5% with Tier 1 currently at 10.9%. The bank opened 20 branches and 796 ATMs in 1QFY2013, taking the total branch network to 2,564 and 9,709 ATMs spread across 1,416 cities.

Outlook and Valuation

HDFC Bank continued to report strong performance in 1QFY2013 with higher Net Profit and stable asset quality. The bank has grown consistently over the industry growth rate, with superior 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 the total assets to grow at a CAGR of ~22% over FY2012-14E. At the CMP of Rs587, the stock is trading at 3.3x FY2014E ABV. The stock has increased 7% since our last report. We, thus change our recommendation to Accumulate from Buy earlier on HDFC Bank based on limited upside of ~8% from the current levels. However, based on the Bank's high quality loan portfolio, negligible NPA risk, good ROE and robust capitalization, we maintain our target price of Rs632 with target multiple of 3.6x FY2014E ABV.

Risks to the view

- Uncertain domestic environment such as worsening fiscal deficit trends, political uncertainty and economic slowdown hold downside risks for our growth estimates.

Source : Equity Bulls

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