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HDFC + Kotak Bank Results Review

January 23, 2008

HDFC Bank – HDBK has raised margins even further to 4.3% (4% previous quarter), fee income growth has jumped to over 35% (after a relatively modest sub 30% show over the last year), and while costs are a pressure point, pre-provisioning profit growth is a robust 67%. This is impressive and suggests HDBK could now be on a higher earnings growth path.

HDBK’s balance sheet, for all the above reasons, has for long been the best in the sector – this quarter is no exception. HDBK now appears to be leveraging it more aggressively – loans are up 48% yoy, the retail book is growing well above industry averages, asset quality remains under control with less than 1% NPAs.

Kotak Mahindra Bank – KTKM has recorded a bumper 3Q08 – quantitatively and qualitatively. Profits – well ahead of expectations; growth – strong and broad based across businesses; Strong and well-rounded show: margins are up (partly boosted by new capital), loan growth remains broad and 50%+, and healthy asset quality. Negative qoq deposit growth the only let-up. Distribution expansion ambitions are raised – seeking to roll out 250 branches (149 currently) by year-end.

KTKM sustains market leadership comfortably, record 76% securities revenue growth, though there is some loss in market share and yields. Expect Kotak Bank to report an EPS of Rs 24.35 and Rs 29.91 for FY08 and FY09 respectively.

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