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MOSL: HDFC BANK (Buy)-Steady performance continues-contingent provisions to insulate earnings

HDFC BANK: Steady performance continues; contingent provisions to insulate earnings against any impending stress

(HDFCB IN, Mkt Cap USD81.5b, CMP INR2131, TP INR2500, 17% Upside, Buy)

 

• Healthy loan growth and improved other income helped HDFCB to report strong 3QFY19 PAT of INR55.9b (20% YoY) in line with our estimates. NII grew by 22% YoY to INR125.7b (in line) while margins were stable at 4.3%. Over 9MFY19, PPoP grew by 21.5% while PAT grew by 19.7%.
• Core fee income grew by 27% YoY to INR36.5b led by healthy payments/cash management fees. Treasury gain of INR4.74b v/s loss of INR0.33b in 2QFY19 boosted other income growth by 27% YOY to INR49.2b.
• Opex grew 17% YoY/7% QoQ (higher than estimate by 5%) and resulted in PPoP growth of 27.5% YoY (26% YoY growth in core PPoP). Cost-income ratio improved 150bp QoQ to 38.4% (40bp improvement in core cost-income ratio). 
• Loans grew 24% YoY (+4% QoQ) to INR7.8t. The growth was driven by retail segment (4.8%/24% QoQ/YoY) – mainly personal loans, credit cards and home loans. Deposits growth of 22% YoY (+2.3% QoQ) was largely supported by growth in term deposits at 29% YOY while CASA growth was modest at 13% YOY. CASA mix, thus, reduced to 40.7% (42% in 2QFY19).
• Slippages stood at INR40b (2.04% annualized, 1.7% excluding Agri slippages) leading to 8% QoQ increase in GNPA while NNPA increased 9% QoQ to INR33b. GNPA/NNPA ratio increased by 5bp/2bp at 1.4%/0.4%. The bank made contingent provisions of INR3.2b to insulate itself against any stress in the agri portfolio in view of the impending general elections/recent waivers.