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Robust business growth in uncertain macro environment
HDFC Bank (HDFCB) released a quarterly update highlighting key business numbers for 4QFY20. Here are the key highlights:
* Business growth showed strong momentum in 4QFY20, with total advances growing 21.2% YoY / 6.1% QoQ to INR9.9t, despite the impact of the COVID-19 outbreak, which impacted the last few days of Mar’20.
* The bank’s deposit base increased to INR11.5t, posting robust growth of 24.2% YoY / 7.4% QoQ v/s 25.2% YoY / 4.5% QoQ witnessed in 3QFY20.
* HDFCB’s CASA ratio has increased 250bp QoQ, but declined 40bp YoY to 42%. This implies 23.1% YoY (+14.2% QoQ) growth in CASA deposits; term deposits grew at ~25% YoY (+3% QoQ).
* During the quarter, the bank purchased loans aggregating to INR54.8b (INR42.6b in 3QFY20) through a direct assignment route from HDFC Ltd.
* Valuation and view: HDFCB's business growth remains robust in a tough macro environment, where economic activity is being impacted due to the COVID-19 outbreak, which kept lending activity muted in the last few days of Mar’20. We expect overall loan growth over FY21 to be affected by the ongoing lockdown. Asset quality is also likely to be impacted, resulting in higher credit cost; however, provisioning buffers should limit the overall impact on earnings. A strong liability franchise would support margins, while higher liquidity levels would enable the bank to ride the current crisis. The appointment of a new CEO (as Mr Puri’s tenure comes to an end in Oct’20) is expected to be a huge event. We maintain Buy, with a revised TP of INR1,150 (3x Sep’21E ABV for the bank).
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