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HDFC Bank: Good show on margin front - Views on News from Equitymaster
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HDFC Bank: Good show on margin front
Apr 27, 2015

HDFC Bank declared the results for the fourth quarter and financial year ended March 2015 (FY15). The bank has reported 21.2% YoY and 20.5% YoY growth in net interest income and net profits respectively in FY15. Here is our analysis of the results.

Performance summary
  • Net interest income grows 21.2% YoY in FY15 on the back of 21% YoY growth in advances.
  • NIMs remain stable at 4.4% on the back of improvement in CASA proportion.
  • Other income grows by 13.6% YoY, with fees and commissions growing at 13% YoY.
  • Cost to income ratio drops from 46% in FY14 to 45% in FY15.
  • Net NPA to advances remain at 0.2% of advances in FY15 while restructured loans were slightly lower at 0.1% of loan book at the end of March 2015.
  • Capital adequacy ratio (CAR) comfortable at 16.8%, Tier I CAR at 13.7% at the end of March 2015.
  • The board declared dividend of Rs 8 per share for FY15 (dividend yield Ė 0.8%)


Rs (m) 4QFY14 4QFY15 Change FY14 FY15 Change
Interest income 107,885 130,063 20.6% 411,355 †484,699 17.8%
Interest expense 58,359 69,932 19.8% 226,529 †260,742 15.1%
Net Interest Income 49,526 60,131 21.4% 184,826 †223,957 21.2%
Net interest margin (%)       4.4% 4.4%  
Other Income 20,014 25,637 28.1% 79,196 89,963 13.6%
Other Expense 31,747 38,549 21.4% 120,422 †139,875 16.2%
Provisions and contingencies 2,861 5,766 101.5% 15,880 20,757 30.7%
Profit before tax 37,793 47,219 24.9% 143,600 †174,045 21.2%
Tax 11,666 13,383 14.7% 42,937 51,128 19.1%
Profit after tax/ (loss) 23,266 28,070 20.6% 84,783 †102,160 20.5%
Net profit margin (%) 21.6% 21.6%   20.6% 21.1%  
No. of shares (m)*         2,506.5  
Book value per share (Rs)         247.4  
P/BV (x)*         4.1  
*Book value as on 31st March 2015

What has driven the performance in FY15?
  • Being the 20% juggernaut, HDFC Bank closed the financials for FY15 with yet another year of about 20% growth in profits. Despite a slow start, the year ended with 21% growth in loan book. Most of it has come on the back of low risk loans and collateralized loans. The bank's focus has, however, moved back to retail loans. The bank has recently also raised capital through QIP to grow its loan book although the management believes that growth may continue to remain moderated in the near term. Deposit growth at 23% YoY, is higher than sector average. CASA (low cost deposits) as a share of total deposits went up to 44% in FY15. This helped the bank put up a good show on margin front despite the pressure on yields.

    Focus back onto retail
    (Rs m) FY14 % of total FY15 % of total Change
    Advances 3,030,638   3,654,950   20.6%
    Retail 1,475,921 48.7% 1,864,025 51.0% 26.3%
    Corporate 1,554,718 51.3% 1,790,926 49.0% 15.2%
    Deposits 3,673,969   4,507,960   22.7%
    CASA 1,598,177 43.5% 1,983,502 44.0% 24.1%
    Term deposits 2,075,793 56.5% 2,524,458 56.0% 21.6%
    Credit deposit ratio 82.5%   81.1%    

  • HDFC Bank has managed to contain the slippages over the past five quarters. The bank's gross NPAs were at 0.9% of advances in FY15. Net NPAs were at 0.2% of advances while the NPA coverage ratio was 80% in FY15. Total restructured loans were at 0.1% of gross advances and were already classified as NPAs at the end of FY15. These are therefore not really a concern.

  • As of March 2015, the bank's distribution network was at 4,014 branches and 11,766 ATMs in 2,464 cities, an increase of 611 branches and 160 ATMs over the past 12 months.

  • In February 2015, HDFC Bank raised Rs 98 bn through (qualified institutional placements) QIPs and American Depository receipts (ADRs). Through an ADR issue in the US, the bank raised Rs 78 bn; while Rs 20 bn was raised through a domestic QIP issue.
What to expect?
At the current price of Rs 1,073, the stock is valued at 3.0 times our revised estimated FY17 adjusted book value (after factoring in the QIP issue). We have reviewed our estimates for the stock post the QIP and have arrived at a target price of Rs 1,184 from FY17 perspective. 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.

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