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HDFC Bank: No signs of pain in FY12 - Views on News from Equitymaster

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HDFC Bank: No signs of pain in FY12

Apr 18, 2012

HDFC Bank declared the results for the fourth quarter and full year 2011-12 (FY12). The bank has reported 17% YoY growth in net interest income and 32% YoY growth in net profits for the fiscal. Here is our analysis of the results.

Performance summary
  • Net interest income grows 19% YoY in 4QFY12 on the back of 22% YoY growth in advances.
  • NIMs came in marginally higher at 4.2% at the end of FY12 (CASA at 48% of total deposits).
  • Other income grows by 19% YoY, despite fees and commissions growing in excess of 23% YoY.
  • Overall loan and deposit growth in FY12 were 22% and 18% respectively.
  • Net NPA to advances remain stable at 0.2% of advances in FY12. Provision coverage ratio at 82.4% at the end of March 2012.
  • Capital adequacy ratio (CAR) comfortable at 16.5%, Tier I CAR at 11.6% at the end of FY12.
  • The bank recommended dividend of Rs 4.3 per share (dividend yield 0.8%).

Rs (m) 4QFY11 4QFY12 Change FY11 FY12 Change
Interest income 54,686 73,880 35.1% 199,282 272,863 36.9%
Interest expense 26,291 39,997 52.1% 93,851 149,895 59.7%
Net Interest Income 28,395 33,883 19.3% 105,431 122,968 16.6%
Net interest margin (%)       4.1% 4.2%  
Other Income 12,557 14,919 18.8% 43,352 52,437 21.0%
Other Expense 19,984 24,671 23.5% 71,529 85,900 20.1%
Provisions and contingencies 4,313 2,983 -30.8% 19,067 14,372 -24.6%
Profit before tax 20,968 24,131 15.1% 77,254 89,505 15.9%
Tax 5,508 6,618 20.2% 18,923 23,461 24.0%
Profit after tax/ (loss) 11,147 14,530 30.3% 39,264 51,672 31.6%
Net profit margin (%) 20.4% 19.7%   19.7% 18.9%  
No. of shares (m)**         2,338.3  
Book value per share (Rs)         126.1  
P/BV (x)*         3.8  
*Book value as on 30th December 2011

What has driven performance in FY12?
  • Despite a relatively muted growth of 22% YoY in loan book, HDFC Bank completed the latest fiscal (FY12) showing no other signs of pain. However, with its customer base nearing 22 m, HDFC Bank managed to once again outpace the industry average. Backed by more than 25% YoY growth in loans to retail customers, the bank has managed the balance sheet expansion. However, in the retail category, the lending seems to have been aggressive in the gold loan, CV loan and credit card segments. These together, however, comprised less than 25% of HDFC Bank's retail loan book.

    Breakup of retail loans
    (Rs m) FY11 % of total FY12 % of total Change
    Advances 1,601,803   1,954,200   22.0%
    Agriculture 84,896 5.3% 103,573 5.3% 22.0%
    Retail 801,130 50.0% 1,003,470 51.3% 25.3%
    SMEs 214,642 13.4% 218,870 11.2% 2.0%
    Large corporates 501,136 31.3% 628,287 32.2% 25.4%
    Deposits 2,085,427   2,467,060   18.3%
    CASA 1,059,397 50.8% 1,194,057 48.4% 12.7%
    Term deposits 1,026,030 49.2% 1,273,003 51.6% 24.1%
    Credit deposit ratio 76.8%   79.2%    

    The higher growth in term deposits relative to CASA (due to elevated rates on the former) did not dampen the bank's net interest margins (NIMs) in the fourth quarter. In fact, at 4.2%, the NIMs are well within the bank's target range of 3.9% to 4.2%. If term deposit costs move lower, a marginal improvement in NIMs cannot be ruled out in the medium term.

    Retail loan growth tops sector average
    (Rs m) FY11 % of total FY12 % of total Change
    Home loans 114,900 14.3% 142,590 14.2% 24.1%
    Auto loans 221,340 27.6% 263,980 26.3% 19.3%
    CV loans 81,770 10.2% 130,500 13.0% 59.6%
    Loan against securities 11,510 1.4% 10,460 1.0% -9.1%
    Personal loans 102,760 12.8% 138,910 13.8% 35.2%
    Credit cards 48,730 6.1% 69,600 6.9% 42.8%
    Gold loans 13,160 1.6% 30,180 3.0% 129.3%
    Other retail advances 206,960 25.8% 217,250 21.6% 5.0%

  • HDFC Bank has been able to grow its fee income base by 24% YoY in FY12. However, the proportion of fee to total income dropped to 23% as against 25% in FY11. Further, the gain on the fee income side has been eroded by the losses on revaluation and sale of investments due to higher bond yields, 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. The bank's gross NPAs dropped from 1.1% of advances in FY11 to 1.0% in FY12. Net NPAs were 0.2% of advances while the NPA coverage ratio was 82.4% in 4QFY12. These included floating provisions of Rs 7 bn. Total restructured loans were at 0.4% of gross advances of which 0.3% was restructured loans classified as NPAs at the end of FY12. These are therefore not really a concern.

  • HDFC Bank added 558 branches during the past 12 months of which 343 were in 4QFY12 itself. The bank has been aggressive in expanding to tier III to tier VI cities. However, going forward the expansion will depend upon the rate of breakeven of the new branches. The bank maintained its cost to income ratio at around 49% for FY12.

What to expect?
At the current price of Rs 537, the stock is valued at 2.9 times our estimated FY14 adjusted book value. The bank's growth performance continues to remain largely in line with our estimates. A comfortable CAR (capital adequacy) position offers sufficient headroom for growth without additional dilution. However, we do envisage muted asset growth 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. Please refer to the stock split adjusted target price in the latest recommendation report.

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