HDFC Bank: OPM under pressure - 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: OPM under pressure

Oct 22, 2001

HDFC Bank has reported stunning growth in both profits and interest income for the quarter ended September '01. The bank's operating margins however, declined steeply by 370 basis points.

(Rs m)2QFY012QFY02Change
Interest Income 2,929 4,132 41.1%
Other Income 367 765 108.2%
Interest Expenditure 1,803 2,697 49.6%
Operating Profit (EBDIT) 1,126 1,435 27.4%
Operating Profit Margin (%)38.5%34.7%
Other Expenditure 652 962 47.4%
Profit before Tax8411,23947.2%
Provisions & contingencies117 16743.0%
Tax 242 378 56.1%
Profit after Tax/(Loss) 482 693 43.8%
Net profit margin (%)16.5%16.8%
No. of Shares (eoy) 243.3 281.2
Diluted Earnings per share*6.99.9
P/E (at current price) 22

Although, the bank's topline grew by 41%, the growth in operating profit was trimmed by a significant reduction in operating margins. This could be due to the bank's higher cost of borrowings. However, with other income doubling YoY during the quarter, net profits flared up by over 40%. Other income now accounts for 16% of the bank's total income compared to 11% in 2QFY01 (15% in 1QFY02). The bank's cash management services and forex business also showed healthy growth rates.

During the quarter, the bank's income from core business of lending increased by 28%. However, its proportionate contribution to total revenues declined to 37% in the current quarter from 40% in 2QFY01. Against this, interest expenses increased by 50%. This clearly indicate a downturn in its corporate lending business resulting in pressure on interest spread.

On the other hand, income from investments continued to show buoyant growth in the current quarter on the back of favourable debt market conditions. This revenue stream dominates the bank's total revenues and accounts for about 49% of total. Another interesting point is a 95% jump in interest on balance with RBI. As the lending opportunities are declining, banks are increasingly parking their funds with the RBI. With a rise in interest rate on CRR to 6.5% from the earlier 6%, HDFC Bank is likely to gain further in the coming quarters.

Break-up of interest income
(Rs m)2QFY012QFY02Change
Interest on advances 1,184 1,513 27.8%
Income from investments 1,450 2,043 40.9%
Interest on balance with RBI 295 574 94.5%
Others 0 2 -
Total 2,929 4,132 41.1%

HDFC Bank has maintained its cost to income ratio at 44%. Its tax rate however, increased to 31% from 29% in 2QFY01 due to provision of Rs 31.7 m for deferred taxation according to AS-22. Excluding this figure, tax rate would remain at 29% and earnings would rise by 50%.

The bank's business grew at an encouraging rate in the first half of the current year. While its total deposits grew by 42%, saving accounts deposits jumped by 66%. Total number of retail accounts rose by 25% to 1.8 m.

At the current price of Rs 221, HDFC Bank is trading at a P/E of 19x 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 higher capital base is likely to support its rapid growth in future. (Consequent to the ADS issue, HDFC Bank's capital adequacy ratio increased to 16.5%). Even in this tough economic environment, the bank has maintained its overall financial performance in the current quarter. This coupled with the quality of its management is likely to accord the premium valuations to its stock compared to other banking stocks.

Equitymaster requests your view! Post a comment on "HDFC Bank: OPM under pressure". 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 6, 2021 02:59 PM


  • 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