HDFC Bank Q2FY18 Result Update Rating - NEUTRAL - Arihant Capital Markets

HDFC Bank reported steady set of numbers. Interest Income increased by 15% YoY to Rs. 19,670 cr, while on QoQ basis it increased by 5%. Interest Expenses increased by 9% YoY, while on QoQ basis it increased by 7% to Rs. 9,916 cr. Net Interest Income increased by 22% on YoY basis and 4% on QoQ basis to Rs. 9,725 cr. Reported Net Interest Margin stood steady at 4.3% on QoQ basis.

Non-Interest revenue was higher by 24% QoQ to Rs. 3,605 crs. Within this segment, revenues from fees & commissions increased to Rs 2,614 crs. Foreign exchange & derivatives revenue stood at Rs. 384 cr & sale of investment was Rs. 355 cr v/s. Rs. 283 crs on YoY basis.

Cost to Income increased to 42.6% against corresponding quarter of previous year. Operating cost for the quarter increased by 14% YoY to Rs 5,540 cr. The bank added 2 branches this quarter to its network. 52% of the branches stay in semi-urban and rural areas.

Bank saw strong growth with advances which grew by 22% while the deposits grew by 16% YoY. Domestic retail to wholesale loans composition stood at 55:45. CASA grew by 24% YoY. CASA ratio decreased to 43% against 44% in corresponding quarter of previous year.

Asset quality saw a deterioration this quarter. Bank reported GNPA at 1.26% while Net NPA stood at 0.43% against 1.02% and 0.30% respectively. Provisions stood at Rs 1,476 cr against Rs 749 cr YoY and Rs 1,559 cr sequentially. The Bank had participated in a project loan (where the Bank had a 2.3% share) which underwent flexible structuring under the 5:25 regulatory framework as approved by the Joint Lenders Forum (JLF) in February 2016. The Bank is in ongoing discussions and correspondence with the regulator in relation to certain observations made on the implementation of the JLF-approved flexible structuring scheme.

NIM for the quarter stood at 4.3%. Capital Adequacy for the bank stood at 15.1% with Tier-1 CAR at 13.3%. The Return on Assets for the quarter stood at 0.47%

Valuation:

HDFC bank continued to report balanced performance. We have valued stock on P/ABV(x) of 4.1(x) to its FY19E adjusted book value of Rs 458 per share and arrived at a fair value of Rs. 1,880. We have 'NEUTRAL' rating on the stock.

Shares of HDFC Bank Ltd was last trading in BSE at Rs.1793.1 as compared to the previous close of Rs. 1798. The total number of shares traded during the day was 139101 in over 1628 trades.

The stock hit an intraday high of Rs. 1817 and intraday low of 1781. The net turnover during the day was Rs. 249440417.

Source : Equity Bulls

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