Profits soar higher as asset quality stabilises
HDFC Bank was incorporated in August 1994. It provides corporate banking and custodial services and is also involved in treasury and capital markets. In addition, it offers project advisory services and capital market products, including GDR and currency bonds.
* During Q2FY21, HDFC Bank witnessed further recovery as loans and advances went up 15.8% YoY (+3.5% QoQ), while deposits grew 20.3% YoY (+3.4% QoQ). Operating profit before provisions improved 18.1% YoY (+7.7% QoQ). Core Net interest margin (NIM) stood at 4.1%.
* Capital Adequacy Ratio improved to 19.1% (vs. 17.5% in Q2FY20).
* Proforma GNPA/NNPA ratio (adjusted for borrowings not recognised as NPA) stood at 1.37%/0.35% as against 1.36%/0.33% in Q1FY21.
* Pickup in retail borrowings on the back of upcoming festive season to rally growth in the coming months. We retain our BUY on the stock with an upgraded target price of Rs. 1,420 based on 3.5x FY22E BVPS.
HDFC Bank continues to deliver strong performance
Q2FY21 Net interest income was up 16.7% YoY to Rs. 15,776cr, aided by continued growth in loans and advances amounting to Rs. 1,038,34cr (+15.8% YoY). Meanwhile, deposits grew 20.3% YoY to Rs. 1,229,310cr, as time deposits registered a 15.7% YoY growth, and CASA went up 27.5% YoY. Other income saw a recovery, increasing to Rs. 6,092cr (+9.0% YoY) owing to gain on sale of investments of R. 1,016cr. Cost to income ratio stood at 36.8% compared to 38.8% in Q2FY20 as operating expenses grew at a comparatively lower pace (+8.8% YoY). Provisions (incl. contingencies worth Rs. 2,300 towards proforma NPA) increased 37.1% YoY to Rs. 3,704cr. Despite this, PAT rose 18.4% YoY to Rs. 7,513cr (+18.4% YoY).
Key concall highlights
* Liquidity coverage ratio during Q2FY21 improved to 153% vs. 140% in Q1FY21.
* Bank is in the process of identifying additional 100 branches by the end of FY21.
* Domestic loan mix as per Basel II norms for Retail – Wholesale stood at 48:52.
* Though Bank has made necessary provisions, certain accounts for the quarter have not been declared as NPAs owing to an interim order by the Supreme Court.
* Bank has launched Festive Treats, a 45-day promotional program with several offers for its customers, to drive growth.
* As of June 30, Bank’s total branch count stood at 5,430 along with 15,292 ATMs.
Aditya Puri retires; Sashidar Jagdishan picks up reins
HDFC Bank’s MD & CEO Aditya Puri retired leaving a lasting legacy, Q2FY21 being the last quarter for the Bank with him at its helm. Under his leadership, Bank had a stellar run with profits rising multi-fold from Rs. 80 lakh in 1994-95 (when he took over as its MD & CEO) to Rs. 26,257cr in 2019-20. Post RBI’s approval, the Bank officially appointed Mr. Sashidar Jagdishan, one of its long time veterans, as Puri’s successor to take it forward, effective October 27.
Outlook & valuation
Asset quality has remained steady, and is expected to improve in the coming months. Even as retail loan growth slowed down expectedly, the wholesale loan portfolio improved drastically. Banking on the upcoming festive season to reflect positively on HDFC Bank’s earnings in the near term. Reiterating our BUY rating, we value the stock at 3.5x FY22E BVPS with a revised target price of Rs. 1,420.
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