Dalal Street Investments

HDFC Bank Sailing Smooth as Ever – Rating Must be Higher than Sovereign Rating

April 20, 2012

This is one Company and Group [HDFC] which is very cautiously managed yet Grows above its Sectoral Average and Deserves a Rating Higher than Government of India’s Sovereign Rating. No Kidding!

HDFC Bank reported 4Q earnings of Rs14.5bn, up +30% yoy led by topline and lower provisions, as asset quality continues to remain comfortable. Topline grew +19% yoy driven by 22% loan growth and margins holding-up at 4.2% yoy on rising share of retail loans. CASA remains high at 48.4%. Core fee income grew +24% yoy, ~85% from retail.

HDFC Bank Financials: For Full Year, it earned Rs 5167 Crore and is expected to earn Rs 6600 Crore for FY 2013. NII came in 4% ahead of GSe, up +19% yoy, as NIMs expanded 10bps qoq to 4.2% on stronger. Retail advances that grew 34% yoy, including credit card (+42% yoy), unsecured retail loans (+35% yoy) and other retail loans 77% yoy (CVs, gold loan, Kisan credit card, tractors).Fee income was up 24% yoy likely driven by retail assets and account management fees, 3% ahead of GSe, this was however offset by 0.7bn of capital loss. Gross/Net NPA were at 1%/0.2% of loans and HDBK has floating provision of Rs14.4bn or 0.7% of loans.

Management sees no pressures on growth or quality near term, and its strong capital adequacy ratio of 16.5% (Tier I 11.6%) should provide adequate support. HDFCB significantly expanded its geographical presence across India, adding more new cities in FY12 than earlier, going from 1,000 to 1,400 cities – mostly in tier-3 to tier-6 cities. Of the total branches, 46% of the branches in semi-urban to rural locations. Management does not expect any substantial change in the breakeven of new branches – approximately 2 years.

HDFC Bank EPS / Target PriceHere are the Various Analyst Estimates for FY2013 and Stock Target Price.
Angel – Rs 28.30 and Target of Rs 567
ENAM – Rs 27.20 and Target of Rs 610
Kotak – Rs 27.8 and Rs 565
Citi – Rs 28.20 and Target of Rs 550
Goldman Sachs – Rs 27.20 and Target of Rs 550
Morgan Stanley – Rs 28.50 and Target of Rs 600
Deutsche Bank – Rs 29 and Target of Rs 595
Credit Suisse – Rs 27.20 and Target of Rs 575
BOFA Merrill – Rs 28.20 and Target of Rs 600

Due to consistent Performance not in Quarters or Years, but for a Decade, the bank will always quote at a Higher P/E. However, now that other banks have woken up to the competition, we will retain an ACCUMULATE rating on market correction and BUY during market SELL OFF on HDFC Bank.


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