HDFC Bank, India’s largest private sector bank has posted outstanding financial performance for the first half ended 2001. The interest income of the bank jumped by more than 100% and profits grew by 79%.
However, the first half results of the bank are not comparable with the corresponding previous period due to the merger of Times Bank. The merger provided lot of synergies to the bank. Its deposits and customer assets achieved a healthy growth of 155% and 104% respectively during the 1HFY01.
The bank enjoys the highest profits margins in the banking sector. Even after the merger of Times bank, HDFC Bank has been able to improve its operating margins by 160 basis points to 41%. This is remarkable considering the fact that Times Bank had comparatively lower operating margins. The higher operating margins are mainly on account of higher proportion of saving account deposits (14%) to total deposits. The bank’s saving account deposits witnessed a year on year growth of 190% during the first half of 2001.
The number of retail accounts of the bank increased to over a million in 1HFY01 (compared to 825,000 as on March 2000). The bank’s retail loan product range includes loan against shares, auto loans, personal loans and loans for consumer durables. Its recently launched NRI business is also witnessing strong growth rate. Thus, HDFC Bank is well positioned to grow its retail franchise with its enhanced customer base, wide product range and strong brand equity.
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We have projected an earnings growth of 74% and income growth of more than 100% for the year ended March 2001. The banks’ profit growth in the current year would be higher due to the merger with Times Bank. It derives more than 50% of its revenues from investment. Its excessive reliance on the volatile stream of revenues raises the risk for maintaining its future growth.
Nevertheless, HDFC Bank’s future profit is expected to be above industry rate. Low cost of saving account deposits coupled with quality of services (investment in technology) provided by the bank will fuel its future growth. At the current market price of Rs 224 HDFC Bank is trading at a P/E multiple of 26 times its FY01 projected earnings with a Price/Book value ratio of 6 times. The bank enjoys comparatively higher valuations among the other private sector banks.
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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