EUR 120.00 For Business Accounts Only

MOSL: HDFC BANK (Buy) 4QFY20 RESULT: High contingent provisions drive flat PBT; 3 candidates finalized for CEO

(HDFCB IN, Mkt Cap USD63.2b, CMP INR910, TP INR1200, 32% Upside, Buy)

Prudential provisioning to enable steady earnings trajectory
* HDFC Bank (HDFCB) reported healthy business growth in 4QFY20, led by continued strength in its corporate portfolio while retail growth was soft. Operating performance stood flat as margin expansion was offset by lower fee income due to the COVID-19 impact. Further, the bank has made contingent provisions of INR15.5b, which affected earnings.

** We have fine-tuned our other income estimates factoring in the current trends, which has resulted in ~2% cut each in our FY21E/FY22E earnings. Maintain Buy.

Stable earnings performance; provision coverage improves to 72%
** HDFCB reported a steady quarter with PAT growth of ~18% YoY (-7% QoQ), supported by NII growth of 16% YoY (7% QoQ) as margins increased 10bp QoQ to 4.3%. However, provisions spiked to INR37.8b (+24% QoQ) as the bank made contingent provision of INR15.5b toward COVID-19. For FY20: NII/ PPoP/PAT grew 16%/23%/25% YoY to INR562b/INR487b/INR263b.

** Core fee income growth moderated to ~15% YoY to INR42b affected by the lockdown, which resulted in loss of fees/other income of INR4.5b. Opex grew ~16% YoY led by employee expenses (+20% YoY). C/I ratio increased to 39% (+110bp QoQ) while PPoP stood flat QoQ at INR129.6b (+20% YoY).

** Loans grew 21% YoY, led by corporate loans (+29% YoY) while retail loan growth was soft at 14.6% YoY. Within retail, credit cards were flat QoQ while personal loans grew 5.5% QoQ. Deposits increased 24% YoY while CASA mix soared to 42.2% (+270bp QoQ). LCR ratio stood at 132%.