HDFC Bank - Best bet in the current environment - Antique

Result Highlights

HDFC Bank reported net profits of INR18.4 during the quarter, in line with consensus estimates and our estimates. Quality of earnings progression continued to remain impressive despite challenging macro which is a reflection of the strength of the franchise. Both Asset Quality and fee income marginally disappointed which is a function of the envrioment. Upgrade to Buy given lack of choices in the financial sector.

Buoyancy in loan growth continues driven by corporate

Advances for the bank continued to remain strong at 21% YoY and 8% QoQ driven by disbursements to the corporate segment. The bank has gained market share in the working capital segment given its strong CASA franchise and low base rates. Disbursements to corporate segment were at 14% QoQ which also tends to be seasonal. Growth in retail segment at 3% QoQ. Within the retail segment, growth has come in from personal loans and CV segments loans.

Overall loan mix still continues to remain in favor of retail segment and retail now constitutes 54% of loan book. Bank management also indicated that they have gained market share in various retail segments. Guidance on overall loan growth continues to remain at 3-4% above industry growth.

Marginal disappointment on Asset Quality; Higher corporate slippages

Asset quality for the bank marginally disappointed with absolute GNPA increasing 16%QoQ. GNPA ratio for the bank increased 3bps QoQ to 1%. Management highlighted that there were higher slippages in the corporate segment which resulted in drop in loan loss coverage ratio. Proportion of slippages during the quarter was 54:46 in favour of retail. Slippages in the retail segment were primarily in the CV/CE book and are under control. Restructured advances continued to remain stable at 0.3% levels, thereby indicating limited stress in the corporate portfolio. Loan loss coverage ratio remained healthy at 74%. Despite stress levels across few retail products, we do not foresee a sharp rise in credit costs for FY12-14e as the bank continues to hold floating provisions to the tune of INR 18bn.

Valuation & Outlook

HDFC Bank has once again demonstrated during this quarter that it continues to remain the best banking franchise within Indian financials. The bank remains best positioned in maintaining above industry growth, NIM over 4%, CASA at +45% levels and 30%+ PAT growth - despite tough challenging environment. We upgrade our stock from Hold to Buy as we believe that the bank is best positioned to navigate through extremely turbulent times.

Source : Equity Bulls

Keywords