HDFC 1QF13: Result Review

HDFC Bank 1QF13 result review | TP – Rs650 | Rating: ADD

Earnings performance consistent, strong QoQ leap in business, maintain ADD

HDFC Bank’s 1QF13 earnings repeated the usual stellar performance and closely mimicked our expectations. The NII at Rs34,840mn and net profit at Rs14,117mn were both in-line with SSLe of Rs35,063mn and Rs 14,102mn respectively. Business growth saw continued momentum growing 21% YoY, led by a 22% YoY deposit growth while advances increased 21% YoY. CASA though marginally down sequentially was healthy (46%), cost of funds (calculated) increased 60bps to 5.4% which was matched by a 70bps increase in yields resulting in NIM marginally improving to 4.3%. We maintain ADD rating and revise the target price to Rs 650.

NIMs improve to 4.3%, fees up 24% YoY, recent organic growth keeps C/I ratio elevated: NIMs improved 10bps QoQ to 4.3% driven by improvement in loan yields though CASA declined 200bps QoQ on average daily basis. Fee income grew 23.7% YoY while customer forex income increased 27% YoY. The operating costs remained elevated and cost-income ratio was at 49% (as against 48% a year ago) as the full impact of +300 branches added in March 2012 materialised. The bank added 20 branches during 1QF12. HDFC Bank plans to add 250-300 branches to its network during F13e.

Strong business growth, CASA, retail proportion marginally lower QoQ: HDFC Bank booked a 21% YoY growth in business – loans growing 21.1% YoY and deposits 22% YoY. Though quarter end CASA was lower 200bps QoQ at 46%, it still remained higher than its peers. Corporate loan growth was higher in the quarter. Retail loans’ proportion declined 280bps QoQ to 52% though the growth remained strong at 32.3% YoY. CVs, recorded strongest growth. The gold loan portfolio (though still a small piece) has continued with a robust growth more than doubling to Rs30.2bn in a year’s span.

Performance to support valuations; maintain ADD: Consistence earnings performance driven by a structurally robust franchise shall keep HDFC Bank’s valuations at a premium. We raise F13e and F14e net profit estimates 5% and 2.25% respectively. Maintain ADD with a revised price target Rs650, or 4x 2QF14e ABV Rs163.