HDFC Bank has maintained its growth trajectory by reporting a 34% jump in earnings for the June quarter. The bank's interest income has also witnessed an encouraging growth of 39%.
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However, the bank's operating margins have gone down by significant 750 basis points to 36%. Nevertheless, they are the highest in the banking sector. With increasing challenges in the banking sector, it will be difficult for the bank to sustain high operating margins.
During the quarter, HDFC Bank's other income recorded a growth of over 50% and accounted for 15% of total income. Other income relates to non fund based activities including commission, fees, foreign exchange earnings and earnings from debt securities.
Surprisingly, the bank's other expenses were lower by 3% in 1QFY02. Its cost to income ratio also declined to 45% (from 58% in 1QFY01). However, the ratio was in line with aggregate 45% in FY01.
HDFC Bank has provided Rs 236 m in the current quarter as provisions for non-performing assets (NPAs). The bank's NPA coverage ratio of 86% is the highest in the banking sector, reflecting the transparency of its accounts.
During the quarter, the bank raised US$ 173 m through an ADS issue and listed its stock on the NYSE. Consequent to this issue, the capital adequacy ratio will exceed 16% from the current 10%.
At the current price of Rs 234 HDFC Bank is trading at a P/E of 20x FY02 projected earnings. Its Price/Book value ratio of 3x (after considering ADS issue) is comparatively higher than its peers. We have projected about 40% growth in the bank's earnings for FY02. The bank's increased capital base is likely to support its rapid growth in future. Considering the high management quality and earnings growth, the bank is likely to get premium valuations.
HDFC Bank declared the results for the third quarter of financial year ending March 2017 (3QFY17). The bank has reported 18% YoY and 15% YoY growth in net interest income and net profits respectively in 3QFY17.
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