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HDFC Bank 4QFY2014 performance highlights and results update

April 29, 2014, Tuesday, 10:29 GMT | 06:29 EST | 14:59 IST | 17:29 SGT
Contributed by Angel Broking

HDFC Bank reported a healthy earnings performance with a bottom-line growth of 23.1% yoy for 4QFY2014. Margins for the bank increased by ~20bp qoq to 4.4% on back of FCNR (B) deposits utilization. Absolute gross NPA levels decreased by 0.9% qoq while absolute net NPA for the bank increased by 2.8% qoq, which is quite a moderate increase in context of the current macro challenges and the low base for the bank.

Balance sheet grows strong; Asset quality remains impeccable: During 4QFY2014, the bank’s business (both deposits and advances grew strong at 24.0% and 26.4% yoy. The core deposits and advances growth adjusted for FCNR deposits and related foreign currency loans stood at 16.9% and 21.8% respectively. Within the retail loan portfolio, a healthy buildup was witnessed in Credit cards, Personal loans and Home loans which grew by 21.2%, 16.6% and 15.0% yoy respectively. Savings deposits grew at a healthy pace of 16.9% yoy, while current deposits also grew healthy at 17.5% yoy. The Reported NIMs for the bank increased by around 20bp sequentially to 4.4%, primarily due to mobilization of amount raised during FCNR swap window. The bank’s non-interest income (excl. treasury) grew at a moderate pace of 13.2% yoy in spite of a robust performance on the forex income front, which grew at 25.2% yoy. Fees and commission income grew at a moderate pace of 10.0% yoy. The overall other income for the bank grew at a moderate pace of 11.0% yoy, during the quarter. On the asset quality front, the impeccable track record for bank continued. Gross NPA ratio declined marginally by 3bp sequentially to 1.0%, while the Net NPA ratio remained flat at 0.3%. The PCR (excl. write-offs) too remained largely stable qoq at 72.6%. Restructured advances remained flat at 0.2% of gross advances.

Outlook and valuation: With minimal NPA issues over the past couple of years, unlike other banks, the bank has had substantial management bandwidth to continue laying the building blocks for organic growth and market share gains. The bank’s branch network has grown by more than 50% over the last ten quarters. Though the current earnings trajectory at 23%+ yoy growth is lower than its illustrious track record of 30%+ earnings growth, still in light of the current macro environment, it is impressive and much better than other large private peers, which in our view, justifies a premium valuation multiple. At CMP, it the bank is trading at 3.0x FY2016E ABV. We recommend a Buy rating on the stock, with a target price of Rs.817.