IGI Logo

‘Covid second wave impacts performance; recovery to remain strong ’

* HDFC Bank (HDFCB) reported weak set of numbers for Q1FY22, below our estimate, with PAT declining by -5.6% QoQ to Rs7,730 cr. The impact of localized lockdown due to Covid second wave seems elevated as the bank stated that business activity remained contained for the 2/3rd of the quarter. Covid led economic uncertainty headed to weak retail loan origination, low third-party product sale income, while higher slippages due to poor collections resulted in elevated provisioning.

* NII growth remained weak at 8.6% YoY due to pressure on yield. Lower yielding assets mix, high LCR and interest reversal on slippages put pressure on NIM which declined by 10 bps to 4.1%. Fee income was impacted 23% QoQ because of contained business activity in economy.

* Slippage was recorded at 2.54% in Q1 (1.7% in Q4FY21) impacted by weak collections. GNPA rose by 16 bps sequentially to 1.47% even the high writeoffs of Rs 3,100 cr (Rs3,500 cr in Q4FY21). Bank made contingent provision of Rs600 cr during quarter taking total to Rs6,596 cr. Total provision including standard, contingent, general and floating (Rs1,451 cr) stood at satisfactory level at 146% of GNPA, thereby providing support to balance sheet amidst Covid led uncertainty. Covid restructuring book rose to 0.8% in Q1FY22 v/s 0.6% in Q4FY21.

* Wholesale credit grew by 18.1% YoY, while retail loan book finally showed sign of improvement with 10.2% YoY expansion after sluggish growth in the past four quarters. Presenting sanguine business outlook for bank, the mgmt highlighted significant improvement in collection efficiency, increase in retail incremental disbursements and lower bounce rate. Demand for retail loans has been restored to 80% of Q4FY21. HDFCB remains positive on SME segment as incremental NPAs formation have been relatively lower with improvement in cash flow situation.

* Pick up in incremental retail disbursement along with continue traction in wholesale segment indicates strong business growth going forward. However, slippages from retail segment amid Covid led uncertainty to require close monitoring.

* We maintain ‘Buy’ rating on stock with target price at Rs1700 (standalone business at Rs1,630 valued at P/ABVx 3.4 FY23E and subsidiaries’ valuation at Rs70).

NII growth remains weak; provisioning weigh on profitability NII grew at 8.6% YoY due to weak interest income despite -8.4% YoY contraction in interest cost. High growth low yielding assets, excess liquidity and interest reversal impacted interest income leading to 10 bps QoQ decline in NIM to 4.1%. Fee income de-grew by 23% QoQ as localized lockdown impacted business activity weighing particularly on third party products sale income. C/I ratio declined to 35% from 37.2% in the previous quarter. Provisioning rose by 24.1% YoY & 2.9% QoQ to Rs4,831 cr due to increase in slippage thereby impacting bottom line during quarter. Net profit grew by 16.1% YoY & -5.6% QoQ in Q1 to Rs7,730 cr.

Business growth remains strong; retail credit growth improves Advances grew by 14.4% YoY led by wholesale segment which expanded by 18.1% YoY. Retail credit growth also improved to 10.2% YoY from 6.7% in the previous quarter. Incremental retail demand growth trend is looking strong with Bureau data indicates current demand for retail loans has reached at 80% of 4QFY21 level. Deposits grew by 13.2% YoY with CASA share stood at 45.5%.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://choicebroking.in/disclaimer

Views express by all participants are for information & academic purpose only. Kindly read disclaimer before referring below views. Click Here For Disclaimer