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HDFC Bank - In-line earnings, asset quality continues to hold up - BRICS
Posted On : 2012-10-16 20:33:58( TIMEZONE : IST )
HDFCB reported a growth of 30%+ in PAT in Q2FY13. Core PPoP(excluding trading income) was up 26% (0.2% ahead of expectation), although reported PPoP came in 5.3% below expectation, owing to higher MTM losses. Asset quality remains impeccable, with total provision cost at 53bps, out of which, credit cost was 30bps. After adjusting for trading loss and provisions at a constant PCR of 70%,core PAT grew 34.3% yoy (7.2% ahead of expectation) - one of the strongest beat in recent memory. Loan book is a healthy mix of retail and wholesale assets (53:47). While retail assets grew at a faster clip, wholesale assets is also slowly picking up pace. We continue to recommend HDFCB for its earnings consistency, steady book value appreciation and strong provision buffer (floating+general+specific isat 1.94% of gross advances). In the near term, though, the upside is likely to be limited, given the premium valuation (3.8x forward book). Retain Add, upping price target to Rs615 (from Rs605).
Long-term strategy intact: HDFCB's geographical reach has widened to 1,454 cities (2,620 branches) from 327 cities (761 branches) in FY08. In the last two-and-half years (post FY10), it has added 895 branches, and assuming that these branches break-even between 20-36 months, HDFCB's profitability ought to improve rapidly in the coming quarters. The impact of its geographical expansion is best visible in the loan-against-gold product, which is up 85.5% yoy and is 3.2% of the retail book, as against 2.3% in Q2FY12.
Change in estimates: We maintain NIM estimate at 4.25% between FY13-14, although we reduce loan growth estimate marginally to 27.3% and 23.4% in FY13-14. The higher loss in trading in Q2FY13 results in non-interest income falling by 5% for FY13 and 1.6% in FY14. As a result, we estimate PPoP to fall by about 1% in FY13-14, which is offset by lower provision expenses, as asset quality should hold up much better than earlier estimated. FY13-14 EPS estimate moves up by 0.1% and 1.1% in FY13-14. We estimate a CAGR of 31.8% in the PAT over FY12-14.
Valuation: At 3.8x forward book, the optimism is fully priced in. We value the stock at Rs615 (3.7x forward book and 18.8x 12 month forwardearnings). Retain Add.
