X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
HDFC Bank: Exceeds FY14 profit estimates by 17% - Views on News from Equitymaster
StockSelect
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

HDFC Bank: Exceeds FY14 profit estimates by 17%
Apr 22, 2014

HDFC Bank declared the results for the fourth quarter and financial year ended March 2014 (FY14). The bank has reported 17% YoY and 26% YoY growth in net interest income and net profits respectively in FY14. Here is our analysis of the results.

Performance summary
  • Net interest income grows 17% YoY in FY14 on the back of 26% YoY growth in advances.
  • NIMs move up slightly to 4.4% at the end of FY14, despite the fall in CASA proportion.
  • Other income grows by 17% YoY, with fees and commissions growing at 11% YoY.
  • Cost to income ratio drops from 49.6% in FY13 to 45.6% in FY14.
  • Net NPA to advances move up from at 0.2% of advances in FY13 to 0.3% in FY14. Restructured loans were also 0.2% of loan book at the end of March 2014.
  • Capital adequacy ratio (CAR) comfortable at 16.1%, Tier I CAR at 11.8% at the end of FY14.
  • Board recommended dividend of Rs 6.85 per share (dividend yield 0.9%)

Rs (m) 4QFY13 4QFY14 Change FY13 FY14 Change
Interest income 93,239 107,885 15.7% 350,648 411,355 17.3%
Interest expense 50,286 58,359 16.1% 192,537 226,529 17.7%
Net Interest Income 42,953 49,526 15.3% 158,111 184,826 16.9%
Net interest margin (%)       4.3% 4.4%  
Other Income 18,036 20,014 11.0% 68,526 79,196 15.6%
Other Expense 31,362 31,747 1.2% 112,361 120,421 7.2%
Provisions and contingencies 3,005 2,861 -4.8% 16,770 15,880 -5.3%
Profit before tax 29,627 37,793 27.6% 114,276 143,601 25.7%
Tax 7,723 11,666 51.1% 30,243 42,937 42.0%
Profit after tax/ (loss) 18,899 23,266 23.1% 67,263 84,784 26.0%
Net profit margin (%) 20.3% 21.6%   19.2% 20.6%  
No. of shares (m)*         2,398.7  
Book value per share (Rs)         181.3  
P/BV (x)*         4.0  
*Book value as on 31st March 2014

What has driven performance in FY14?
  • HDFC Bank's performance during the last quarter of FY14 seems rather healthy in comparison to that over previous few quarters. The growth in loan book and deposits has particularly seen an uptick backed by growth in foreign currency loans. Adjusted for the one time increase in foreign currency (FCNR) deposits swapped with RBI under the special window in the quarter ended December 2013, and the related foreign currency loans, core deposits and advances growth for the year was 16.9% and 21.8% respectively. HDFC Bank's total advances in overseas branches as of March 2014 were at 8% of the total advances as against 4% as of March 2013.

    HDFC Bank's above average loan growth, of 26.4% YoY did not reflect the underlying subdued sentiment in the credit market. Investors must note that most of the loan growth has come in on the back of growth in low yield assets in the corporate segment. The bank also has enough capital headroom to grow its loan book although the management believes that growth may continue to remain moderated in the near term. Deposit growth at 24% YoY, is also above sector average. This was fuelled by demand for term deposits. CASA (low cost deposits) as a share of total deposits fell from 47.4% in FY13 to 44.8% in FY14.

    Good balancing act
    (Rs m) FY13 % of total FY14 % of total Change
    Advances 2,397,152   3,030,000   26.4%
    Retail 1,363,880 56.9% 1,496,740 49.4% 9.7%
    Corporate 1,033,272 43.1% 1,533,260 50.6% 48.4%
    Deposits 2,962,395   3,673,370   24.0%
    CASA 1,404,175 47.4% 1,645,670 44.8% 17.2%
    Term deposits 1,558,220 52.6% 2,027,700 55.2% 30.1%
    Credit deposit ratio 80.9%   82.5%    

  • The higher growth in term deposits relative to CASA (due to elevated rates on the former), however, did not dampen the bank's net interest margins (NIMs) substantially. In fact, at 4.4%, the NIMs are at the higher end of the bank's target range of 4.0% to 4.4%. If term deposit costs move lower, a marginal improvement in NIMs cannot be ruled out in the medium term. Nevertheless, since the lending to corporate can also fetch lower yields, we have been conservative in our assumptions.

  • HDFC Bank has been able to grow its fee income base by 10% YoY in FY14. Also, the proportion of fee to total income remained stable at 23%. Further, the bank booked a lower profit on revaluation and sale of investments in FY14 as against that in FY13. Given the volatility in bond markets, we would prefer to be conservative about treasury gains in FY15.

  • HDFC Bank has managed to contain the slippages over the past five quarters. The bank's gross NPAs were at 1.0% of advances in FY14. Net NPAs, however moved up marginally to 0.3% of advances while the NPA coverage ratio was 80% in FY14. Total restructured loans were at 0.2% of gross advances and were already classified as NPAs at the end of FY14. These are therefore not really a concern.

  • The detailed breakup of retail loan portfolio shows that the bank has sharply cut down CV loans, gold loans and loan against securities. However, home loans personal loans and credit cards have aided retail loan growth over the past 12 months. The substantial fall witnessed in gold loans seems to have been affected by regulatory restrictions.

    Breakup of retail loans
    (Rs m) FY13 % of total FY14 % of total Change
    Home loans 167,830 12.3% 193,020 12.9% 15.0%
    Auto loans 309,420 22.7% 330,600 22.1% 6.8%
    CV loans 161,060 11.8% 144,200 9.6% -10.5%
    Loan against securities 12,100 0.9% 11,210 0.7% -7.4%
    Personal loans 175,000 12.8% 204,080 13.6% 16.6%
    Credit cards 101,140 7.4% 122,570 8.2% 21.2%
    Gold loans 49,650 3.6% 40,420 2.7% -18.6%
    Other retail advances 387,680 28.4% 450,640 30.1% 16.2%
What to expect?
At the current price of Rs 728, the stock is valued at 3.0 times our estimated FY16 adjusted book value. In terms of our estimates for the bank for FY14, while the revenue estimates were exceeded by just 4%, higher other income and lower provisioning helped the bank exceed our profit estimates for the fiscal by 17%. Going forward we do not see the bank facing significant pressure on margins and asset quality. The restructured loan book of the bank is also the lowest in the sector. That HDFC Bank is keeping a close watch on its cost to income ratio is also encouraging. At the current valuations we recommend investors to hold on to the stock.

To Read the Full Story, Subscribe or Sign In


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

HDFC BANK SHARE PRICE


Feb 16, 2018 (Close)

TRACK HDFC BANK

  • Track your investment in HDFC BANK with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

HDFC BANK - INDUSIND BANK COMPARISON

COMPARE HDFC BANK WITH

MARKET STATS