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HDFC Bank: Maintains growth pace - Views on News from Equitymaster
 
 
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  • Apr 15, 2002

    HDFC Bank: Maintains growth pace

    HDFC Bank has reported a strong fourth quarter performance with 27% rise in interest income and 38% jump in net profits. The bank's better than expected performance was driven by exponential rise in other income and lower tax provisions.

    (Rs m) 4QFY01 4QFY02 Change FY01 FY02 Change
    Income from operations 3,628 4,620 27.3% 12,595 17,030 35.2%
    Other Income 571 1,040 82.2% 1,855 3,333 79.6%
    Interest expense 2,184 2,766 26.7% 7,538 10,737 42.5%
    Net interest income 1,445 1,854 28.3% 5,057 6,293 24.4%
    Other expenses 813 1,186 45.9% 3,096 4,180 35.0%
    Operating Profit 632 668 5.8% 1,961 2,113 7.7%
    Operating Profit Margin (%) 17.4% 14.5%   15.6% 12.4%  
    Provisions and contingencies 229 512 124.0% 666 1,192 79.0%
    Profit before Tax 973 1,196 22.8% 3,151 4,254 35.0%
    Tax 318 293 -7.8% 1,049 1,283 22.3%
    Profit after Tax/(Loss) 655 902 37.7% 2,101 2,970 41.4%
    Net profit margin (%) 18.1% 19.5%   16.7% 17.4%  
    No. of Shares (m) 243.6 281.4   243.6 281.4  
    Diluted Earnings per share* 9.3 12.8   7.5 10.6  
    P/E Ratio   17.3     21.0  
    *(annualised)            

    During the year, the bank's total advances grew at a healthy rate of 47% to Rs 68 bn primarily due to 81% rise in retail loans (Rs 15 bn). The proportion of retail loans to total loans has increased to 23% in FY02 from 18% in FY01. The bank's continuous efforts to launch new products fueled its number of retail clients to 2.2 m from 1.4 m as on FY01. In FY02, the bank launched credit cards and added two wheeler finance to its existing range of retail loan products. The bank has also widened its reach by increasing number of branches to 171 (from 139 in FY01) and doubling its ATM network to 479 (from 207) to cater to potential retail market.

    The growth pace of the bank's core advances seems to have slowed down during the fourth quarter. This is reflected from a 14% rise in interest on advances, in contrast to a healthier 32% growth witnessed in the first nine months of FY02. The bank derives major part of its revenues from wholesale banking where it caters mainly to corporate and institutional customers. Lower credit demand from this segment could have impacted its high revenue growth in the fourth quarter.

    Revenue mix
    (Rs m) 4QFY01 4QFY02 Change FY01 FY02 Change
    Interest on advances 1,418 1,616 14.0% 4,932 6,239 26.5%
    Income on investments 1,802 2,405 33.4% 6,356 8,640 35.9%
    Interest on balance with RBI 408 595 46.0% 1,306 2,140 63.9%
    Others 1 4 500.0% 1 11 841.7%
    Total 3,628 4,620 27.3% 12,595 17,030 35.2%

    HDFC Bank's other income contribution to total income increased to 16% from 13% in FY01. This was due to its active treasury management. The segment accounted for nearly 26% of pre tax profits. Going forward, other income may not grow at the current pace as interest rates decline in FY02 was more than expected, which accorded extraordinary gains to the bank through appreciation in bond prices.

    Despite the tough economic environment and challenging business conditions, the bank has maintained its asset quality at superior levels. Its net NPAs to advances ratio stood at just 0.5%, which is the lowest in the Indian banking sector. The bank has increased the provision amount by 79% in FY02, which was higher by Rs 406 m according to the US GAAP.

    At the current market price of Rs 222, HDFC Bank is trading at a P/E of 21x and Price/Book value ratio of over 3x. The bank's premium valuations are due to its strong growth rates over the last few years, superior quality of its assets and better interest margins. Its higher capital adequacy ratio at 13.9% as on March 2002 would facilitate the bank in its expansion plans. However, increasing competition from both foreign and other private sector banks could trim HDFC Bank's earnings growth and consequently its valuations.

     

     

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