MOSL: HDFC BANK (Buy) - PPoP growth improves further-operating leverage continues to boost earnings

HDFC Bank: PPoP growth improves further; operating leverage continues to boost earnings

(HDFCB IN, Mkt Cap USD77.5b, CMP INR1951, TP INR2350, 20% Upside, Buy)

•  HDFCB reported strong 32% YoY growth in core PPoP (~4% beat), led by steady revenue growth and controlled opex. However, higher provisions resulted in 20% YoY growth in net profit.
• Loans grew 27% YoY (+4% QoQ) to INR6.3t. Incremental growth in the quarter was driven by retail loans (4.6%/30% QoQ/YoY), resulting in an increase in its loan mix share to 68.6%. Business banking, personal loans and credit cards continue to report strong growth within the retail segment.
• Fee income growth improved to 30% YoY, which, coupled with strong FX income of INR4.26b, resulted in 23% YoY growth in other income. This was despite 35% YoY decline in treasury gains to INR2.6b. Opex growth was controlled at 18% YoY (+3% QoQ), which enabled further 106bp QoQ decline in the C/I ratio to 40.4%.
• CASA deposits grew 4% QoQ, even as term deposit base declined slightly. CASA ratio, thus, improved by 110bp QoQ to 44%. This enabled margins to remain stable at 4.3%.
• GNPL/NNPL increased by 7% QoQ each; however, elevated provisions at INR13.5b helped maintain a stable coverage ratio of 66%. HDFCB upgraded one of the divergent accounts in sync with the JLF decision (INR17b), as the account has NIL overdues. The divergence amount, thus, stands reduced at INR2.94b from INR20.5b originally, according to the RBI assessment.