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HDFC Bank: OPM under pressure - Views on News from Equitymaster
 
 
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  • Oct 18, 2002

    HDFC Bank: OPM under pressure

    HDFC Bank continues with its stellar performance in the second quarter ended September 2002. Fueled by strong focus on retail banking, interest income grew by 17% and profits jumped over 29% YoY for 2QFY03. However, the performance was not as impressive as its June quarter.

    (Rs m) 2QFY02 2QFY03 Change 1HFY02 1HFY03 Change
    Income from operations 4,132 4,817 16.6% 8,014 9,609 19.9%
    Other Income 765 1,215 58.9% 1,438 2,028 41.1%
    Interest expense 2,697 2,905 7.7% 5,177 5,811 12.3%
    Net interest income 1,435 1,913 33.3% 2,837 3,798 33.8%
    Other expenses 962 1,420 47.7% 1,897 2,622 38.2%
    Operating Profit 474 493 4.0% 940 1,176 25.0%
    Operating Profit Margin (%) 11.5% 10.2%   11.7% 12.2%  
    Provisions and contingencies 167 364 117.7% 404 710 76.0%
    Profit before Tax 1,071 1,344 25.4% 1,974 2,494 26.3%
    Tax 378 447 18.2% 661 773 16.9%
    Profit after Tax/(Loss) 693 897 29.3% 1,314 1,721 31.0%
    Net profit margin (%) 16.8% 18.6%   16.4% 17.9%  
    No. of Shares (m) 281.2 281.9   281.2 281.9  
    Diluted Earnings per share* 9.8 12.7   9.3 12.2  
    P/E Ratio   15.3     16.0  
    *(annualised)            

    During the June quarter, the bank reported a 23% growth in interest income and higher growth in profits at 33%. Not only that, the operating margins of the bank had improved significantly to 14.3% during 1QFY03. However, in 2QFY03 HDFC Bank saw its operating margins dip from 11.5% last year to 10.2%, indicating a competitive environment in the banking sector.

    During the first half of FY03, the bank's growth in each of its major business franchise and in particular in the retail business was driven primarily by customer acquisition, accelerated geographic expansion and higher levels of penetration. The total number of branches (including extension counters) and ATMs increased by 32 and 144 respectively, in 1HFY03.

    Despite 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. Credit quality of the bank remains amongst the best in the industry with gross NPAs at around 3% and Net NPAs at around 1% of customer assets.

    Revenue mix
    (Rs m) 2QFY02 2QFY03 Change 1HFY02 1HFY03 Change
    Interest on advances 1,513 1,883 24.5% 2,974 3,643 22.5%
    Income on investments 2,043 2,648 29.6% 4,041 5,269 30.4%
    Interest on balance with RBI 574 280 -51.3% 995 684 -31.2%
    Others 2 7 170.8% 5 12 171.1%
    Total 4,132 4,817 16.6% 8,014 9,609 19.9%

    At current market price of Rs 195 HDFC Bank is trading on a multiple of 16x 1HFY03 annualised earnings and Price/Book value ratio of 2.8x. 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 has however, come down from 15% in June quarter to 13.3% currently.

     

     

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