HDFC Bank - Mission accomplished AGAIN... - Elara

In Q4FY13, HDBK reported strong results on the back of improvement in core margin and change in a trend in stressed assets after four quarters in a row. Improvement in margin stemmed mainly from higher mobilisation of low-cost deposits and increase in retail assets composition. Reduction in GNPLs and up-gradation of restructured loans and consequential reduction in credit cost aided profitability. Post netting off all the adjustments with respect to retail assets origination commission/charges paid and/or received and recovery on written-off accounts, operating profit and bottomline were in-line with our estimates. We re-iterate our positive view on the stock with an Accumulate rating.

Higher mobilisation rate of low-cost deposits reduced funds' cost

During the quarter, SA deposits mobilisation rate increased to INR 63bn as compared to INR 25bn-28bn per quarter in last nine months. Rapid branch additions, increased expansion of retail asset products and improvement in business banking led to better SA deposits. CA deposits also gained momentum aiding liabilities costs. On asset side, the bank recorded higher traction in housing loan, vehicle loan, personal loan, business banking and gold loan product lines. Retail book composition further increased to 56.9% from 53.8% in Q3FY13; repayments in wholesale loan books primarily led to decrease in their share. The bank adjusted retail assets origination charges/commission paid or/and received from interest income on credit book line to operating overhead line in accordance with the central bank's guidelines. The bank's margin improves by 20bps to 450bps (from 430bps without adjustments); net impact on operating profit gets nullified.

Valuation

We revised upward our FY14/FY15 earnings estimate on the back of better margin and write-back of NPL provision by 5.5%/9.7% respectively and increase our target price by 12.6% to INR758 at 3.6x adjusted book value FY15 (based on three stage dividend discount valuation methodology). We maintain our Accumulate rating on the stock with a revised target price of INR758.

Source : Equity Bulls

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