• JANUARY 14, 2002

HDFC Bank: 43% growth in profits

HDFC Bank continued its remarkable financial performance in the third quarter. The bank's earnings jumped by over 40% and income from operations was higher by 35%. The bank's performance is in line with our expectations.

(Rs m)3QFY013QFY02Change9m FY019m FY02Change
Income from operations 3,252 4,396 35.2% 8,966 12,410 38.4%
Other Income 475 855 79.9% 1,285 2,293 78.5%
Interest expense 1,980 2,794 41.1% 5,354 7,971 48.9%
Operating Profit 361 505 39.9% 1,330 1,445 8.7%
Operating Profit Margin (%)11.1%11.5% 14.8%11.6% 
Other expenses 912 1,097 20.3% 2,283 2,994 31.1%
Provisions and contingencies49276462.9%43767955.4%
Profit before Tax7871,08437.7%2,1773,05840.5%
Tax 259 330 27.2% 731 990 35.4%
Profit after Tax/(Loss) 528 755 42.9% 1,446 2,068 43.0%
Net profit margin (%)16.2%17.2% 16.1%16.7% 
No. of Shares 243.3 281.3   243.3 281.3  
Diluted Earnings per share*7.510.7 6.89.8 
P/E Ratio  21.8    23.9  

The bank has improved its operating margins through stiff contol on operating costs. However, a competitive environment resulted in a more than proportionate rise in interest expenses. The bank's cost to income ratio declined to 45% in 3QFY02 from 54% in the comparable previous quarter. A strong growth in other income also inflated its bottomline figure. Other income contributed 16% to the bank's total income, up from 13% in 3QFY01.

During the first nine months, the bank's income from core business of lending and investment income grew at healthy rates. Investment income currently contributes 50% of its total interest income. The proportionate contribution of this stream of revenues is likely to be on the higher side in the coming quarters as corporate lending opportunities are drying up.

Break-up of interest income
(Rs m)3QFY013QFY02Change9mFY019mFY02Change
Interest on advances 1,211 1,649 36.2% 3,514 4,623 31.6%
Income from investments 1,612 2,194 36.1% 4,554 6,235 36.9%
Interest on balance with RBI 429 549 28.0% 898 1,544 71.9%
Others 0 3 866.7% 1 7 1133.3%
Total 3,252 4,396   8,966 12,410  

The bank's business grew at an encouraging rate in the first nine months of the current year. While its total deposits grew by 34%, saving accounts deposits jumped by 66% (accounting for 17% of total deposits). Total number of retail accounts rose by 36% to 1.9 m from 1.4 m as on March 2001. Its branch network was expanded to 147 outlets in 63 cities from 131 outlets in 53 cities in March 2001, while the ATM network increased by 75% from 207 in March 2001 to 363 as on December 2001. With the launch of credit cards the bank has further expanded its retail banking offerings, which already included various deposit products, car loans, loans against shares & RBI Bonds, personal loans and debit cards among others.

At the current price of Rs 234, HDFC Bank is trading at a P/E of 20x 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%).

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