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* HDFCB reported a steady quarter with 30% YoY growth in PAT (8% beat). This was supported by lower provisions and higher ‘other income’. NII grew 21% YoY, while PPoP grew 22% YoY to INR187.7b (in line).

* Loan growth was driven by strong traction in Commercial and Rural Banking and a sequential pick-up in retail. Deposits registered a modest growth of 1.6% QoQ.

* Asset quality ratios remained broadly stable as slippages increased to INR58b. The restructured book declined to 27bp of loans (vs. 31bp in 4QFY23). PCR declined 81bp QoQ to 74.9%.

* We introduce forecasts for the merged entity and estimate the bank to deliver net earnings of INR654b/798b/957b over FY24-26, translating into RoA of 1.9-2.1%. We reiterate our BUY rating on the stock.

PAT grew 30% YoY; margin stable at 4.1%

* NII grew 21% YoY to INR236b (4% miss), while margins were stable at 4.1%. PAT grew 30% YoY to INR119.5b (8% beat).

* ‘Other income’ grew 44.5% YoY and 5.7% QoQ to INR92b, aided by treasury gain of INR5.5b in 1QFY24 vs. a treasury loss of INR13.1b in 1QFY23 and also driven by higher Foreign exchange and derivative income. Excluding treasury income, ‘other income’ rose 12.7% YoY.

* Opex was high at 34% YoY and reflected continued investment in business and rising mix of retail assets. The C/I ratio stood at 42.8% (core C/I ratio at 43.6%). PPoP grew 22% YoY (inline); while core PPOP grew ~9.2% YoY vs. 14% YoY in 4QFY23. Provisions declined 10% YoY to INR28.6b (29% below MOSLe).

* Loans grew 16% YoY, led by robust 29% YoY growth in Commercial and Rural loans and 29.3% YoY growth in Agri loans. Retail loans grew 18% YoY, while Wholesale loans grew 11% YoY. Mortgage mix in the merged loan book stood at 35%. Deposits rose ~19% YoY, while CASA grew ~11% YoY. CASA ratio moderated to 42.5%, while the CASA ratio for the merged entity stood at 39%.

* On the asset quality front, GNPA/NNPA ratios increased marginally to 1.17%/ 0.3%, as slippages increased to ~INR58b (1.4% of loans). PCR declined slightly to ~74.9%. The restructured book fell to ~INR43b (27bp of loans) vs. 31bp in 4QFY23. The bank continues to carry contingent provisions and holds floating provisions of INR112b. CAR stood at 18.9% with tier-1 ratio of 16.9% and CET-1 of 16.2%.

* Subsidiary performance: Revenue for HDFC Securities fell 15% YoY to INR4.9b, while PAT remained stable at INR1.9b in 1QFY24. HDB Financial reported 5% QoQ growth in loans to INR736b, while revenue grew 5.5% YoY. PAT stood at INR5.7b vs. INR4.4b in 1QFY23. GS-3 assets stood at 2.48% (down 25bp QoQ), while CAR stood at 19.8%.

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