HDFC Bank’s earnings grew by 34% YoY, in line with estimates. However NII growth was merely 28% YoY in1QFY08 (v/s estimated 44% growth), as margins decreased QoQ to 4.2% (4.1% in 1QFY07). HDFC Bank aggressivelybuilt up its term deposits during 1QFY08 recording QoQ growth of 37%. This faster deposit growth (putting pressure on margins) is a “catch up” as the bank had not grown its term deposits for the past three quarters. Loan growth was 33% YoY, above the industry growth of 25%. Asset quality has been maintained with gross NPAs at 1.3% and net NPAs at0.4% of customer assets.
Strong business growth; higher v/s industry
CASA ratio and NIMs decline QoQ, as bank builds up term deposit base
Other income grew by 77% YoY as fees maintain strong growth
Aggressive branch openings continue; 218 branches opened during last 9 months
Strong business growth; higher v/s industry
CASA ratio and NIMs decline QoQ, as bank builds up term deposit base
Other income grew by 77% YoY as fees maintain strong growth
Aggressive branch openings continue; 218 branches opened during last 9 months
With the aberration of a slow balance sheet growth and high margins now getting corrected, we expect balance sheet growth to be faster with margins in the range of 4.2-4.3%. Rapid branch expansion would ensure core deposit growth as well as sustainability of its relatively higher CASA ratio. On a post-diluted basis, we expect HDFC Bank to report EPS of Rs42.8 in FY08 and Rs58.6 in FY09. The book value in these years would be Rs332 and Rs379. RoE in FY08-FY09 is likely to be ~17%. The stock currently trades at 19.6x FY09E EPS and 3x FY09E BV.
Maintain Buy.
Maintain Buy.
