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HDFC Bank: Growing fast

Nov 13, 2000

HDFC Bank, India’s No. 1 private sector bank, has reported an excellent performance over the years. The bank has achieved strong growth in each of its key business franchisees, driven by an extended product range, enhanced customer acquisition, geographic expansion and higher levels of penetration. The bank has a network of 125 branches and 144 ATMs across the country. Investment in alternative channels of distribution – phone banking, net banking and mobile banking has helped the bank to provide value added services to its customers. The bank’s deposit base in the last five years has increased to Rs 84 bn, a compounded annual growth rate of 87%. During the same period its advances grew by a CAGR of 74% to Rs 34 bn. Its lower credit/deposit ratio of 0.4 times suggests its increasing investments. The bank’s investments (government securities, bonds, shares and mutual funds) in the past five years grew at a CAGR of 107% to Rs 57 bn and are comparatively higher than its advances. Currently income from investments accounts for more than 50% of its total operating income. This volatile stream of revenues could affect its future growth of operating income, which has grown at a CAGR of 68% in the past three years.

Financial Snapshot
  Fiancial Year CAGR
Year ended March 1998 1999 2000 Past 3 yrs Next 3 yrs*
Operating income 2,408.0 3,760.8 6,798.7 68.0% 37.2%
Other income 620.1 681.0 1,253.5 42.2% 30.0%
Total revenues 3,028.1 4,441.8 8,052.2 63.1% 36.4%
Operating profit 1,032.5 1,469.0 3,055.9 72.0% 26.6%
Profit before tax 943.7 1,169.0 1,948.8 43.7% 29.0%
Profit after tax 631.7 824.3 1,200.4 37.9% 29.0%
* Projected

Particulars FY98 FY99 FY00
Operating margins 42.9% 39.1% 44.9%
Net profit margins 26.2% 21.9% 17.7%
EPS (Rs) 3.2 4.1 4.9

The productivity measures in general have shown an improved performance in FY00. Nevertheless, the critical thing to watch for is an improvement in these ratios in the coming years. With its merger of Times Bank, FY01 could show outstanding results. But we believe, operating income and profit growth of the bank could slow down in the next few years, as competition intensifies leading to pressure on margins.

Productivity measures
Particulars FY98 FY99 FY00
Net profit/employee (Rs m) 1.0 0.8 0.8
Deposits/employee (Rs m) 33.0 30.0 42.0
Deposits/branch (Rs m) 644.6 511.4 759.3
Employees/branch (x) 19.4 17.3 13.5
Credit/Deposit Ratio (x) 0.38 0.48 0.40

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