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HDFC Bank: On a growth spree - Views on News from Equitymaster
 
 
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  • Jul 17, 2002

    HDFC Bank: On a growth spree

    HDFC Bank has once again reported stellar performance for the first quarter ended June 2002. Fueled by its strong focus on retail banking, the bank's interest income grew by 23% and profits jumped by 33%, YoY. The bank also managed to improve its operating margins through cost control and lower interest cost.

    (Rs m) 1QFY02 1QFY03 Change
    Income from operations 3,882 4,792 23.4%
    Other Income 673 813 20.9%
    Interest expense 2,480 2,907 17.2%
    Net interest income 1,402 1,885 34.4%
    Other expenses 935 1,202 28.5%
    Operating Profit 467 683 46.3%
    Operating Profit Margin (%) 12.0% 14.3%  
    Provisions and contingencies 236 346 46.4%
    Profit before Tax 903 1,150 27.4%
    Tax 283 326 15.2%
    Profit after Tax/(Loss) 620 824 32.9%
    Net profit margin (%) 16.0% 17.2%  
    No. of Shares (m) 243.6 281.8  
    Diluted Earnings per share* 8.8 11.7  
    P/E Ratio   18.0  
    *(annualised)      

    During the quarter, the bank focused on balance sheet consolidation and on increasing the proportion of retail loans in overall asset growth. Its total deposits also grew by over 33% YoY to Rs 176 bn as on June 30, 2002. Low cost funds accounted for 41% of total deposits raised by the bank as on March 2002. The bank's relatively higher access to savings and current account funds has enabled it to bring down its average cost of funds (6.3% as on March 2002).

    Despite its ongoing network expansion, HDFC Bank managed to maintain its cost to income ratio at 45%, which is in line with its private sector peers. This coupled with the bank's higher fee based income fueled its bottomline growth. Taking advantage of higher operating profits, the bank increased its NPA provisions in the June quarter. Its net NPAs to advances ratio at 0.5% with NPA coverage of 85% is the best in the industry, reflecting the bank's asset quality.

    Revenue mix
    (Rs m) 1QFY02 1QFY03 Change
    Interest on advances 1,460 1,760 20.5%
    Income on investments 1,998 2,621 31.2%
    Interest on balance with RBI 421 405 -3.9%
    Others 2 6 171.4%
    Total 3,882 4,792 23.4%

    At the current market price of Rs 210 HDFC Bank is trading at a P/E of 18x 1QFY03 annualised earnings and Price/Book value ratio of 3x. The bank's valuations are one of the highest in the sector due to its ability to maintain strong profit growth and superior asset quality. Its capital adequacy ratio at 15% would support its future business expansion. 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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