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HDFC Bank 2QFY2013 performance highlights and results update

Contributed by Angel Broking

For 2QFY2013, HDFC Bank reported a healthy 30.1% yoy growth in its net profit to Rs.1,560cr, in-line with our as well as the street’s estimates. Strong balance sheet growth, stable asset quality were the key highlights of the result. We recommend a Neutral rating on the stock

Another quarter of steady performance: HDFC Bank’s net advances growth was strong at 22.9% yoy, while deposit buildup was also healthy, growing by 18.8% yoy. On the CASA front, the current account (adjusted for one-offs) and savings account deposit accretion was moderate, growing at 16.4% and 14.7% yoy, respectively. The share of retail to overall loan book increased from 52.4% in 1QFY2013 to 53.2% for 2QFY2013, on back of lower wholesale lending (6.9% qoq compared to 10.1% qoq in retail loans). In spite of lower corporate lending, the bank’s margins declined by10bp qoq, primarily due to reduction in its base rate by 20bp to 9.8% (on 30th June 2012). Fee based income growth for the bank in 2QFY2013 was strong at 19.6% yoy, primarily due to a strong performance on the third party commission front, leading to a 22.4% yoy growth in commission and brokerage income. The forex income growth was however modest at 8.2% yoy, mostly due to lower exchange rate volatility during the quarter. The bank maintained its strong asset quality track record during 2QFY2013 as well. Gross and net NPA ratios remained stable at 0.9% and 0.2%, respectively. The bank made lower floating rate provisions (Rs.75cr in 2QFY2013 compared to Rs.240cr in 2QFY2012) due to which the provisioning expenses were lower by 20.0% yoy. Hence, in spite of operating income growth of 22.2% yoy, the bank owing to lower provisioning cost (floating provisions) was able to achieve above 30% yoy growth at the bottom-line level. The total floating provisions for the bank now stand at Rs.1,750cr.

Outlook and valuation: HDFC Bank is currently trading at one-year forward 3.8x P/ABV (3.6x FY2014 ABV), higher than its median of 3.5x (over FY2005-12). We believe the current valuations largely factor in the positives, leaving limited upside in the stock. Hence we recommend a Neutral rating on the stock.