HDFC Bank - 2QFY2016 Result Update - Angel Broking

HDFC Bank continued its trend of delivering consistent earnings performance quarter after quarter. For 2QFY2016, it registered a net profit growth of 20.5% yoy which is in line with our expectation.

Advances grow strongly; Asset quality top-notch: During 2QFY2016, the loan book grew at a rapid pace, ie by 27.9% yoy. Retail growth picked further traction; the growth in the retail book was at 29.3% yoy, which took the total contribution of retail as a proportion of total advances book to 49%. Corporate credit growth rate, at 23.4% yoy, stood well above that of the industry.

Current and Savings account deposits also saw fairly healthy growth, ie of 20.8% yoy and 18.7% yoy, respectively. Time deposits saw further stronger momentum, growing at 37.8% yoy, which continued to outshine the CASA deposits growth. Because of the spurt in fixed deposits and in-turn total deposits, the CASA ratio came in at 40%.

The NIM came off by 14bp qoq to 4.20%; the decline was on account of cuts in base rates to pass on policy rate reductions by the central bank and owing to higher fixed deposits growth. The bank's non-interest income (excluding treasury) grew by 22% yoy, with fee income growing by 21.6% yoy.

Asset quality continued to remain healthy with the Gross NPA rate at 0.91%, declining by 4bp qoq, in a challenging macro environment. The Net NPA ratio stood at 0.25% for the quarter, as against 0.27% in 1QFY2016. The Provision Coverage Ratio (PCR) stood at 72.9%.

Outlook and valuation: Credit and deposit growth beat the industry growth rate, driven by strong retail business, healthy CASA and continued network expansion. This provides strong visibility for a robust 20% earnings trajectory, coupled with high quality of earnings. This in our view justifies a premium valuation multiple. At the current market price, the bank is trading at 3.3x FY2017E ABV. We recommend a Buy rating on the stock, with a target price of Rs. 1,265.

Shares of HDFC BANK LTD. was last trading in BSE at Rs.1107.85 as compared to the previous close of Rs. 1094.8. The total number of shares traded during the day was 366720 in over 3560 trades.

The stock hit an intraday high of Rs. 1113.1 and intraday low of 1099.85. The net turnover during the day was Rs. 406288313.

Source : Equity Bulls

Keywords