EUR 120.00 For Business Accounts Only

MOSL: HDFC BANK (Buy)-Business growth robust; Asset quality deteriorates slightly

(HDFCB IN, Mkt Cap USD98.5b, CMP INR1278, TP INR1500, 17% Upside, Buy)

Prudential provisioning to enable steady earnings trajectory
** HDFCB reported core PPoP growth of 19% YoY while elevated provisions resulted in PBT growth of 16% YoY. PAT at 33% YoY was aided by lower tax rate. Slippages were elevated though the operating performance remained strong with stable margins, robust fee growth and improving C/I ratio.

** We fine-tune our estimates factoring in strong other income and higher provisions as the bank has created certain specific provisions. Maintain Buy.

Strong earnings beat led by other income; PCR declines
** PAT grew 33% YoY led by treasury income of INR6.8b, NCLT recovery came in at INR2b. Fees were robust even as provisions increased. NII grew 13% YoY to INR141.7b (in-line) with margins stable at 4.2%.

** Core fee income grew 24% YoY to INR45.3b, driving 19% YoY growth in total revenues. Opex grew ~18% YoY as the bank added 382 branches and ~18k employees over the past year. C/I ratio stood at 37.9% (-90bp QoQ, -61bp QoQ in core-cost income). Thus, PPoP grew 20% YoY to INR129.5b.

** Loan book increased 20% YoY, led by the corporate segment (+27% YoY) while retail loan growth was soft at 14.1% YoY. Within retail, credit cards and personal loans grew 11%/7% QoQ. Deposits grew 25% YoY while CASA mix increased 20bp QoQ to 39.5%.

** Slippages stood at INR53.4b (2.4% annualized, INR38.4b of core slippage), resulting in ~7% QoQ increase in GNPA. NNPA increased 18% QoQ. GNPA/NNPA ratios increased by 4bp/6bp QoQ. Coverage ratio declined ~300bp QoQ to 66.7%. HDFCB made specific loan-loss provisions of INR7b.

** Subsidiaries: HDB Financial – For 3QFY20, loan growth stood at 15% YoY (INR592b) and PAT at INR3.4b (+16% YoY). HDFC Securities – Net revenue stood at INR2.1b (+17% YoY) and PAT at INR943m (+35% YoY) for 3QFY20.