HDFC Bank
HDFC Bank delivered steady performance for Q3FY2019, with PAT growth of 20.3% yoy. Pre-provision profit grew at healthy rate largely owing to strong other income growth (up 27.2% yoy) and contained cost (up mere 17.2% yoy). NIM was stable at 4.3%, as increase in COF was offset by increase in yield. However, provisions went up primarily owing to stress in agri portfolio and slippages. The slippages for Q3FY2019 were at 2% though ex-agri at 1.7%. The bank managed to reduce its expenses and brought down the cost/income ratio from 40.4% in Q3FY2018 to 38.4 % in Q3FY2019.
Healthy operating profit growth ;
NIM stable During Q3FY2019, the bank’s advances grew by 23.7% yoy, with retail and wholesale (including overseas) growing at 23% yoy and 26% yoy respectively. The net interest income during this period grew by 21.9% yoy, led by advances growth and stable NIM. Core fees income grew by 27% yoy to `3,650cr supported by healthy payment/cash management fees. Total other income also grew at healthy rate of 27.2% with Treasury gain of ₹474cr vs. loss of ₹33cr in 2QFY2019. Total deposits surged by 22% yoy and 2.3% qoq in Q3FY19. CASA deposits accounted for 40.7% of the total deposits.
On the asset quality front, provision cost went up primarily owing to management decision to take contingent provision of ₹320cr in anticipation of higher stress on recently announced farm loan waiver. Annualised fresh slippages for Q3FY2019 were at elevated level of 2% (ex-agri 1.7%), which led to an increase in GNPA /NPA by 8%/9% qoq to 1.38%/0.42%.
Outlook & Valuation : Credit growth beat the industry growth rate, driven by strong retail business. The strong liability franchise and healthy capitalisation provides earnings visibility. We value HDFC Bank using SOTP method valuing standalone banking business at 3.3x of FY21 ABV and its two subsidiaries at `146/share. We recommend a Buy on the stock, with a target price of `2,500.