HDFC Bank (HDFCB IN) - Core performance remains strong; provisioning drag PAT growth - CSEC Research

Core performance remains strong; provisioning drag PAT growth

- HDFC Bank's advances grew healthy (19.4%YoY, 12% QoQ) to INR 5.54tn in 4QFY17. Domestic advances grew steadily by (23.7%YoY, 12.8% QoQ) lead by growth in retail book (28.6% YoY) whereas Non-retail grew by (18.7% YoY). Consequently, the domestic loan mix stood at 53% and 47% respectively. Growth in domestic retail advances was driven by Business Banking (43.3% YoY), Personal loans (34.6%YoY), Auto (23.6%YoY) and Home loans (20.5%YoY).

- Deposits grew (17.8%YoY, 1.4% QoQ) to INR 6.44tn despite redemption of FCNR deposits to the extent of USD 3bn. Growth in deposits was supported by CASA base growing at 30.8%YoY led by both savings and current account deposits. Consequently, CASA ratio improved by 479bps YoY to 48%. Term deposits grew (7.9%YoY) in 4QFY17.

- NIM improved by 20bps and stands increased to 4.3% in 4QFY17. NIM expansion could be attributed to lower interest cost on higher CASA base. 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.

- Asset quality remained stable with GNPAs at 1.05% and NNPA increasing by 1bps QoQ at 0.33%. Provision coverage ratio is well maintained at 68.7%. Overall provisions for the quarter were noted at INR 12.6bn as against 7.2bn in 3QFY17.

Valuation: The stock trades at 3.3X FY19E P/BV and 18.4X 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 upgrade our target price of INR 1,670 (Prev. Target INR 1,440) assigning a 3.6X 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.1532.1 as compared to the previous close of Rs. 1533.45. The total number of shares traded during the day was 104890 in over 2324 trades.

The stock hit an intraday high of Rs. 1542.25 and intraday low of 1526. The net turnover during the day was Rs. 160516112.

Source : Equity Bulls

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