HDFC Bank: Consistency in performance - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


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

HDFC Bank: Consistency in performance

Oct 10, 2003

HDFC Bank continues to report strong growth in its income as well as earnings. For 2QFY04, growth numbers are more or less in line with the trend in the last few quarters. While the topline has risen by a strong 34%, the bottomline has increased by a similar 31% on a YoY basis. A strong topline growth combined with a relatively lower rise in expenses has resulted in net interest margin improvement and consequently, operating margins. It must be noted that the strong performance in the September quarter has been achieved despite a significant fall in other income.

(Rs m)2QFY032QFY04Change1HFY031HFY04Change
Income from operations 4,796 6,402 33.5% 9,581 12,14826.8%
Other Income 1,276 863 -32.4% 2,037 2,185 7.3%
Interest expense 2,905 3,024 4.1% 5,811 6,0183.6%
Net interest income 1,892 3,378 78.6% 3,769 6,12962.6%
Other expenses 1,391 1,947 40.0% 2,582 3,74144.9%
Operating Profit 501 1,431 185.7% 1,187 2,388 101.2%
Operating Profit Margin (%)10.4%22.3%12.4%19.7%
Provisions and contingencies 434 63847.0% 730 1,33983.5%
Profit before Tax 1,344 1,65623.2% 2,494 3,23429.7%
Tax 447 4858.4% 773 98928.0%
Profit after Tax/(Loss) 897 1,17130.6% 1,721 2,24430.4%
Net profit margin (%)18.7%18.3%18.0%18.5%
No. of Shares (m) 281.9 283.5 281.9 283.5
Diluted earnings per share (Rs)*12.716.512.115.8
P/E ratio (x)19.8

The bank has reported a 44% growth in customer assets (including advances, corporate bonds) and a 29% growth in deposits in the September quarter on a YoY basis. HDFC Bank is one of the largest players in the retail credit segment. In the September quarter, retail advances have grown by 131% and now constitute 32% of total advances (23% last year). In our research model, we have assumed an advances growth rate of 45% in FY04 with net interest margins at 3.2%.

HDFC Bank has also benefited from growth in low cost retail deposits (retail savings deposits grew by 61% in the September quarter on a YoY basis). The strong growth in the same over the last few years has ensured that interest costs are low, enabling it to improve its net interest margins. Net interest margins currently stands at 3.6% compared to 3.3% in FY03.

While the bank has further expanded the scale of operations (253 branches currently compared to 231 in the same period last year), it has managed to keep operating costs under check. This is evident from the strong improvement in operating margins. Going forward, as the pace of expansion slows down, we are likely to see benefits accruing from increased productivity thus leading to improvement in operating margins.

While the bank continues to maintain its growth momentum, it has ensured that its asset quality is healthy. Net NPA to advances ratio has been maintained at a 0.4%, which is one of the lowest in the industry. We would also like to point out that the bank's strong bottomline performance has been maintained despite a significant fall in other income. This arose due to losses booked on investments in the September quarter, as against profits in the same period last year. While core fee based income has risen, fee income on forex and derivatives transactions has declined.

At the current market price of Rs 314, HDFC Bank is trading at a price to book multiple of 3.6x. While the bank has been able to maintain consistent growth momentum over the years, at the current juncture, valuation of this bank is the highest in the Indian banking sector. Considering this, investors need to look more carefully at the potential of the bank and ascertain whether such high valuations are justified in the face of rising competition.

Equitymaster requests your view! Post a comment on "HDFC Bank: Consistency in performance". Click here!


More Views on News

7 Stocks that Mutual Funds Can't get Enough of (Views On News)

Dec 1, 2021

Come hell or high water, these are the top Indian stocks which mutual funds never leave.

HDFC BANK Announces Quarterly Results (2QFY22); Net Profit Up 18.3% (Quarterly Result Update)

Oct 20, 2021 | Updated on Oct 20, 2021

For the quarter ended September 2021, HDFC BANK has posted a net profit of Rs 91 bn (up 18.3% YoY). Sales on the other hand came in at Rs 335 bn (up 5.6% YoY). Read on for a complete analysis of HDFC BANK's quarterly results.

5 Indian Banks with the Lowest NPAs. Here's How they Did It... (Views On News)

Sep 27, 2021

These banks have managed to maintain their asset quality even in the middle of a pandemic.

PNB Reports an Over Three-Fold Jump in Net Profit as Provisions Fall (Views On News)

Aug 3, 2021

The reduction in provisions for bad loans and asset quality stability may have aided the lender's earnings.

Here's Why IndusInd Bank's Net Profit Doubled in the June Quarter (Views On News)

Jul 28, 2021

All you need to know about the latest quarterly results of IndusInd Bank.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

5 Indian Companies Embracing Blockchain Technology (Views On News)

Nov 23, 2021

Blockchain adoption in India was slow in the past. Now, the technology is being well received.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Dec 3, 2021 (Close)


  • 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