MOSL: HDFC BANK (Buy)-Strong performance continues-business growth gaining further momentum

HDFC Bank - 2QFY19: Strong performance continues; business growth gaining further momentum

(hdfcb IN, Mkt Cap USD72.8b, CMP INR1966, TP INR2400, 22% Upside, Buy)

• HDFCB reported PAT of INR50.1b (21% YoY), largely in line on the back of healthy loan growth and improving margins. NII grew by 21% YoY to INR117.6b (6% beat) as NIMs expanded 10bp QoQ to 4.3%. Core fee income grew by 26% YoY while treasury loss of INR0.33b v/s INR3.6b profit in 2QFY18 dragged other income growth. Our full-year estimate suggests HDFCB will deliver PAT of INR115.3b in 2HFY19 (INR96.1b in 1HFY19).
• Opex grew 14% YoY/5% QoQ (slightly higher than estimate) and resulted in PPoP growth of 21% YoY (27% YoY growth in core PPoP). C/I ratio improved 100bp QoQ to 39.9% and management has suggested it will continuously improve.
• Loans grew 24% YoY (+6% QoQ) to INR7.5t. Incremental growth was driven by the retail segment (5.5%/24% QoQ/YoY), mainly through personal loans, credit cards and two-wheelers. Deposits growth of 21% YoY (+3.4% QoQ) trailed loan growth bringing up the credit deposit ratio to 90.1% (87.9% in 1QFY19).
• Slippages stood at INR32.8b (1.85% annualized) leading to 6% QoQ increase in GNPA to INR100.9b while NNPA increased 4% QoQ to INR30.3b. GNPA/NNPA ratio remains stable at 1.3%/0.4%, respectively.
• Other highlights: (1) CASA ratio was stable at 42%, (2) Tier-1 ratio improved to 15.6% (post recent capital raise) with total CAR of 17.1%.