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HDFC Bank: Growth, prov. writeback boost profits
Apr 18, 2011

HDFC Bank declared its 4QFY11 results. The bank has reported 21% YoY growth in net interest income and 33% YoY growth in net profits for the period. Here is our analysis of the results.

Performance summary
  • Interest income grows 23% YoY in FY11 on the back of 27% YoY growth in advances.
  • NIMs remain stable due to marginally higher proportion of lower cost deposits (CASA 51% of deposits).
  • Other income grows at a tepid rate of 9% YoY for the fiscal.
  • Net NPA to advances improves marginally from 0.3% in FY10 to 0.2% in FY11. Provision coverage ratio at 82.5% at the end of FY11 (75% in FY10).
  • Capital adequacy ratio (CAR) comfortable at 16.2%, Tier I CAR at 12.2% at the end of FY11.
  • The board has approved stock split in the ratio of 1:5.
  • The bank has declared dividend of Rs 16.5 per share (dividend yield 0.7%).


Rs (m) 4QFY10 4QFY11 Change FY10 FY11 Change
Interest income 40,531 54,685 34.9% 161,727 199,282 23.2%
Interest expense 17,017 26,291 54.5% 77,863 93,851 20.5%
Net Interest Income 23,514 28,394 20.8% 83,864 105,431 25.7%
Net interest margin (%)       4.2% 4.2%  
Other Income 9,507 12,557 32.1% 39,831 43,352 8.8%
Other Expense 16,077 19,984 24.3% 59,398 71,529 20.4%
Provisions and contingencies 4,399 4,313 -2.0% 21,406 19,067 -10.9%
Profit before tax 16,944 20,967 23.7% 64,297 77,254 20.2%
Tax 4,178 5,508 31.8% 13,404 18,922 41.2%
Profit after tax/ (loss) 8,367 11,146 33.2% 29,487 39,265 33.2%
Net profit margin (%) 20.6% 20.4%   18.2% 19.7%  
No. of shares (m)         465.2  
Book value per share (Rs)         545.5  
P/BV (x)*         4.2  
*Book value as on 31st March 2011

What has driven performance in FY11?
  • With its customer base nearing 22 m, HDFC Bank retained loan growth rate that was well in excess of the industry average in FY11. Backed by more than 30% YoY growth in loans to retail customers and large corporate, the bank saw its advance book grow by 27% YoY. What is enthusing is that the loan growth was without compromising on margins and quality.

    The 30% YoY growth in CASA deposits kept the net interest margins (NIMs) stable at 4.2% despite the rise in interest costs.

    Balancing between corporate and retail..
    (Rs m) FY10 % of total FY11 % of total Change
    Advances   1,258,718   1,599,830   27.1%
    Agriculture         66,712 5.3%         84,791 5.3% 27.1%
    Retail      626,233 51.0%      819,113 51.2% 30.8%
    SMEs      168,668 13.4%      179,181 11.2% 6.2%
    Large corporates      381,391 30.3%      511,946 32.0% 34.2%
    Deposits   1,674,045   2,085,860   24.6%
    CASA      820,282 49.0%   1,063,789 51.0% 29.7%
    Term deposits      853,763 51.0%   1,022,071 49.0% 19.7%
    Credit deposit ratio 75.2%   76.7%    

    The management of HDFC Bank does not see the current NIMs being sustainable. It hopes to maintain the same in the range of 3.9% to 4.2% in FY12. Also the loan growth is expected to be tempered due to rising interest rates.

  • HDFC Bank has been able to grow its fee income base by 23% YoY in FY11. However, the proportion of fee to total income dropped to 24% as against 25% in FY10. Further, the gain on the fee income side has been eroded by the losses on revaluation and sale of investments, the absence of which would have otherwise aided the bank’s other income.

  • HDFC Bank has managed to contain the slippages over the past four quarters. HDFC Bank’s gross NPAs dropped from 1.4% of advances in FY10 to 1.1% in FY11. Net NPAs were 0.2% of advances while the NPA coverage ratio was 82.5% in FY11. Total restructured loans were at 0.4% of gross advances of which 0.1% was restructured loans classified as NPAs at the end of FY11. These are therefore not really a concern.

  • HDFC Bank added 261 branches in FY11 and maintained its cost to income ratio at around 48% as in FY10.

  • The record date for the stock split is yet to be announced. The face value of the stock will be subdivided from Rs 10 to Rs 2 post the stock split.

What to expect?
At the current price of Rs 2,315, the stock is valued at 2.6 times our estimated FY13 adjusted book value. The bank’s growth performance continues to remain largely in line with our estimates. A comfortable CAR (capital adequacy) position at 16.2% in FY11 offers sufficient headroom for growth without additional dilution. However, we do envisage muted asset growth and pressure on margins in the medium term.

We maintain our positive outlook on the bank from a long term perspective, and believe that there are reasonable upsides over the next 2 to 3 years. Research Pro subscribers can view latest updates here.

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