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HDFC Bank – Best of the lot, but not cheap

April 27, 2009

HDFC Bank reported 4QFY09 earnings and here is an update on the same:
NII increased c12.8% yoy, lower than our forecast due to slower loan growth and lower margins. NIMs declined 10bp sequentially to 4.2% in 4Q09 (4.4% in 4Q08), largely due to a decline in yield on loans but supported by a higher low cost deposits (CASA) ratio. Core fee income (+46% yoy) and treasury gains (cRs2.4bn) drove other income past our estimates.

Asset Quality:
Provision for NPLs was about 0.6% of loans in 4Q09 (1.7% in FY09). Asset quality in absolute terms was largely stable on a qoq basis. The provision coverage ratio was maintained at about 68% as of March 2009.Retail unsecured loans constitute about 30% of Gross NPLs. The total standard loans which have been restructured or where restructuring is under consideration is a mere 0.1% of gross loans as of March 2009.

HDFC Limited has the option to convert 26.2m of warrants into equity shares at Rs1,530 per share in FY10. HDFC Bank management stated that even if the warrants were not converted, the bank did not see the need to raise equity capital in the medium term to maintain the CAR and fund growth.

HDFC Bank is expected to report an EPS of Rs 68 for FY10 and Rs 78 for FY11.

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