EUR 120.00 For Business Accounts Only

MOSL: HDFC BANK (Buy)-In-line performance-prudential provisioning to facilitate steady earnings growth

HDFC BANK: In-line performance; prudential provisioning to facilitate steady earnings growth

(HDFCB IN, Mkt Cap USD94.3b, CMP INR2376, TP INR2750, 16% Upside, Buy)

 

• HDFCB reported 1QFY20 PAT of INR55.7b (+21% YoY, in-line). The bank stepped up provisions on the unsecured book, created a contingent provision of INR1.6b and additional general provision of INR0.9b toward the NBFC/HFC sector.
• NII grew 23% YoY to INR132.9b (in-line), while margins contracted 10bp QoQ to 4.3%. Core fee income grew 12% YoY to INR35.5b; treasury gain of INR2.1b boosted other income growth to 30% YoY.
• Opex grew ~19% YoY (flat QoQ) despite higher PSLC cost, resulting in healthy PPoP growth of ~29% YoY (core PPoP up 22% YoY). C/I ratio declined ~70bp QoQ to 39% (70bp improvement in the cost/core income ratio).
• Loan growth moderated to 17% YoY (+1% QoQ) to INR8.3t due to slowdown in auto segment (8.5% YoY v/s 21.1% in 1QFY19). Corporate segment grew by 18% YoY (flat QoQ), whereas retail segment growth slowed down to 16.5% YoY. Deposits growth of 18.5% YoY (+3.4% QoQ) was led by 22.5% YoY growth in term deposits, while CASA grew at 13% YoY (-3% QoQ). CASA mix declined 270bp QoQ to 39.7% (42.4% in 4QFY19).
• Slippages stood at INR42.2b (2.1% annualized) led by higher agri slippages, resulting in ~5% QoQ increase in GNPA, while NNPA rose 11% QoQ. GNPA/NNPA ratio increased by 4bp QoQ to 1.4%/0.4%. Coverage ratio declined to 69.7% (-170bp QoQ).
• Other highlights: (a) Tier 1 ratio stood at 15.6%. (b) Subsidiaries: HDB Financial - (i) Gross loans grew ~23% to INR563b; it reported PAT of INR2.2b (-3% QoQ). (ii) GNPA/NNPA was at 2.3%/1.7% (+50bp/+40bp). HDFC Securities - (i) Reported PAT of INR665m, representing a decline of 8% QoQ.
• Valuation and view: HDFCB's operating performance remains strong, although business growth has shown moderation, reflecting weakness in the consumption-linked lending segments and cautious stance on unsecured loans. We lower our growth estimates marginally - expect the bank to deliver 19%/20% loan book/PAT CAGR over FY19-21, led by stable margins and a continued improvement in operating leverage. Maintain Buy with a target price of INR2,750 (3.8x FY21E ABV for the bank).