Earnings Update - HDFC Bank (HDFCB IN) - Stable core performance; non-interest income a drag - CSEC Research

- HDFC Bank's advances grew moderately (13%YoY, 0.1% QoQ) to INR 4.95tn in 3QFY17 on account of repayments of about USD 2bn of overseas loans linked to FCNR deposits. Domestic advances grew steadily by (17.5%YoY, 3.5% QoQ) lead by growth in retail book (21.5% YoY, 5.4%) whereas Non-retail grew by (13% YoY, 1.2%). Consequently, the domestic loan mix stood at 55% and 45% respectively. Growth in domestic retail advances was driven by personal loans (33%YoY, 4% QOQ), Home loans (25%YoY,6% QoQ) and Auto (18%YoY, 4% QoQ).

- Deposits grew (21%YoY, 7.3% QoQ) to INR 6.34tn despite redemption of FCNR deposits to the extent of INR 200bn. Growth in deposits was supported by CASA base growing at 37%YoY due to the impact of demonetization. Consequently, CASA ratio improved by 5pps YoY to 45.4%. Term deposits grew (10%YoY, -1.6% QoQ) in 3QFY17.

- NIM stood at 4.1% in 3QFY17 reducing by 10bps compared to 2QFY17. NIM compression could be attributed to higher liquidity and incremental CRR during the quarter. Management indicated that NIM's have broadly been in range of 4-4.3%, and there exists no indication to move it out of the specified range in either direction.

Valuation: The stock trades at 2.9X FY19E P/BV and 15.8X P/E FY19E. Given the stable core performances, healthy loan growth and excellent asset quality with marginal stressed assets will help the bank maintain high return ratios (ROA of 2%). We revises upside our target price of INR 1,440 (Prev. Target INR 1,355) assigning a 3.2X P/BV of FY19E. We rate the stock an OUTPERFORMER.

Risks: Market risk may impact of cost of funds, systemic decline in retail assets, executing growth in semi-urban / rural areas and increase in cost of savings deposits.

Shares of HDFC BANK LTD. was last trading in BSE at Rs.1294 as compared to the previous close of Rs. 1287.55. The total number of shares traded during the day was 78143 in over 1886 trades.

The stock hit an intraday high of Rs. 1300 and intraday low of 1288.05. The net turnover during the day was Rs. 101198790.

Source : Equity Bulls

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