Motilal Oswal remains 'Neutral' on HDFC Bank

HDFC Bank's 2QFY13 PAT grew 30% YoY to INR15.6b (in line with estimates). Key positives: (1) above industry average loan growth (+9% QoQ, 23% YoY), (2) strong core fee income (+6% QoQ and +22% YoY), and (3) stable asset quality. Key highlights:

- NII grew 7% QoQ and 27% YoY (3% above estimate) to INR37.3b. The NII growth outpaced asset growth as it included INR1b of income on account of dividend from MF, adjusted for which NII was in line with the estimate. However, this gain was offset by largely similar amount of loss on sale of investment and thus had a neutral impact on profitability. Core margins declined ~10bp QoQ.

- Loan growth was driven by continued traction across the retail (+10% QoQ and 33% YoY) segment. Growth in non-retail loan was strong as well at 7% QoQ (+13% YoY).

- SA deposits' growth was healthy at +3% QoQ and +15% YoY and core CASA ratio was stable QoQ at 46%.

- Other highlights: 1) Credit was contained at 30bp and the bank made floating provisions of INR750m in 2QFY13. Outstanding pool of floating provisions stood at INR17.5b (~INR7.4/share) and 2) the bank remains adequately capitalized with Tier I ratio at 11.4% (including 1HFY13 profits).

Valuation and view: HDFCB is best placed in the current environment with (1) CASA ratio of ~46%, (2) growth outlook of 1.3x the industry, (3) improving operating efficiency, (4) expected traction in income due to strong expansion in branch network and (5) best in the class asset quality. Though we remain positive on the bank's business, we believe valuations are rich. Maintain Neutral.

Source : Equity Bulls

Keywords