HDFC Bank Q1FY2020 - Result Update: Angel Broking

Mr. Jaikishan Parmar (Sr. Equity Research Analyst - BFSI, Angel Broking):

For Q1FY2020, HDFC Bank has reported a very strong set of operating numbers yet again coupled with stable GNPA/NPA. However, provision for unsecured credit and agri loan spiked, which led to jump in credit cost by 34bps/33.8bps on yoy/qoq basis. Loan growth moderated to 17.1% yoy (~24% in past three quarters) led by moderating auto loans and base effect in the unsecured segment.

Advances growth moderated: Softening of auto loan segment (contributes 28% of retail loans), which grew 9% yoy (flat qoq) led to moderate growth in advances. Personal and credit card loan have reported very healthy growth of 25% and 28% yoy respectively. However, it is slower than historical growth rate of 35% yoy. Deposits grew at 18.5% yoy (3.4% qoq) owing to 22.5% yoy growth in term deposit. CASA mix declined 270bps qoq to 39.7% (42.4% in 4QFY2019).

Core income under pressure, cost/income declines: Total other income grew at healthy rate of 30% yoy led by treasury gains. However, core fees barely grew at 12% primarily owing to plunge in mutual fund distribution fees and decline in disbursement in the unsecured book. Opex grew at 18.9% yoy (flat qoq), primarily led by higher employee expenses (+22.5% yoy). Further, the cost-tocore income ratio declined by 192bps/70bps on yoy/qoq basis to 39%. Management has guided 300bps declined in C/I over the next 3-5 years.

Provisions spiked: During the quarter, the key monitorable was spike in provision expenses i.e. 60%/38% on yoy/qoq basis. This was largely led by (a) agri portfolio, (b) step-up provision towards unsecured loan, (earlier the bank used to take write-off between 150-180 dpd, now provides 100% within 150dpd, (c) contingent provision worth of Rs. 165cr, and (d) growth in balance sheet size. Ongoing slowdown in auto segment and subdued environment in real estate has impacted the HDB financials. GNPA/NNPA was at 2.3%/1.7% (jump of 50bps/40bps qoq), largely NPA increased in construction finance segment. HDFC Securities' PAT declined by 8% qoq.

"Outlook & Valuation: Credit growth beat the industry growth rate driven by strong retail business. The strong liability franchise and healthy capitalisation provides earnings visibility. We value HDFC Bank using SOTP method, valuing standalone banking business at 3.5x of FY21 ABV and its two subsidiaries at Rs. 147/share. We recommend a Buy on the stock, with a target price of Rs. 2,620 / share."

Shares of HDFC Bank Ltd was last trading in BSE at Rs.2263.95 as compared to the previous close of Rs. 2297.05. The total number of shares traded during the day was 174971 in over 9616 trades.

The stock hit an intraday high of Rs. 2297.1 and intraday low of 2242.05. The net turnover during the day was Rs. 395558436.

Source : Equity Bulls

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