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HDFC Bank: Flying high

Dec 29, 2000

HDFC Bank, promoted by the largest housing finance company in India (HDFC), is emerging as the fastest growing bank in the country. FY01 is likely to be a momentous year, which will see the Times Bank fully incorporated into the bank and its own robust organic growth. The bank has reported excellent growth in profits in the first two quarter of the year. This was partly due to the impact of Times Bank merger. The merger provided lot of synergies to the bank. Its deposits and advances are expected to achieve a healthy growth of over 100% in FY01. The merger has also added significant value to the bank in terms of increased branch network, wide geographic reach, enhanced customer base and opportunity to cross-sell the products.

HDFC Bank enjoys the highest operating margins among the other private sector banks in India mainly because of higher proportion of saving account deposits (14%) to total deposits. The remarkable point is that the bank has maintained its operating margins to over 40% despite the merger with Times Bank, which had comparatively lower margins.

Quarterly Overview

Year end March 31(Rs m) 1QFY01 2QFY01 3QFY01E 4QFY01E FY01E
Interest Income 2,786 2,929 3,041 4,992 13,747
Other Income 442 367 425 550 1,784
Total Income 3,227 3,296 3,465 5,542 15,531
Operating Profit 1,656 1,494 1,732 2,696 7,578
Other Expenses 841 652 912 1,497 3,902
Depreciation 122 108 152 160 541
Profit Before Tax 694 734 668 1,039 3,134
Tax 230 242 220 343 1,036
Net Profit 464 492 447 696 2,099
Equity shares (m) 243 243 243 243 243

Key Ratios

Particulars 1QFY01 2QFY01 3QFY01E 4QFY01E FY01E
Operating profit margin 43.6% 38.5% 43.0% 43.0% 42.2%
Tax / PBT 33.2% 33.0% 33.0% 33.0% 33.0%
Net profit margin 14.4% 14.9% 12.9% 12.6% 13.5%
Cash EPS (Rs) 9.63 9.86 9.86 14.07 10.85
EPS (Rs) 7.62 8.08 7.36 11.45 8.63

Apart from merger effect, HDFC Bank’s strong profit growth is driven by an expanded product range, enhanced customer acquisition, geographic expansion and higher level of penetration. The bank provides range of retail products, which include loan against shares, auto loans, personal loans and loan for consumer durables.

Further, the bank’s new partner, Chase Manhattan (15% holding in HDFC Bank) has a strong global clientele base. It is a leading custodian for foreign institutional investors (FIIs) in India. This will help HDFC Bank to generate additional business.

On the technology front, HDFC Bank has made significant progress in web enabling its core business. It is the first Indian bank to launch a payment gateway solution for use in its B2C Internet transactions. It will facilitate the users to shop online and pay by credit card. The bank also offers WAP based mobile banking services to its customers and has introduced the debit card during the year.

At the current market price of Rs 223 HDFC Bank gets a P/E multiple of 26 times its FY01 projected earnings with a Price/Book value ratio of 6 times. The stock has always outperformed the market due to its ability of maintaining the high growth rate both organically and through acquisitions.

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