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.
Operating Profit (EBDIT)
Operating Profit Margin (%)
Profit before Tax
Provisions & contingencies
Profit after Tax/(Loss)
Net profit margin (%)
No. of Shares (eoy)
Diluted Earnings per share*
P/E (at current price)
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
Interest on advances
Income from investments
Interest on balance with RBI
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.
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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