HDFC Bank (HDFCBANK IN): Stable performance but higher provisions are worrisome
Dated: 22nd July 2019
1QFY20 Results
- Net Interest Income (NII) increased 23% YoY to Rs 1,32,943 mn. The NII margins improved by 21 bps YoY to 4.4%.
- Operating Profit before Provisions and Contingencies (PPOP) increased by 29% YoY to Rs 1,11,472 mn. The provisions other than tax increased 60% YoY to Rs 26,137 mn which included specific loan loss provisions of Rs 24,135 mn (+69% YoY).
- Reported PAT grew by 21% YoY to Rs 55,682 mn.
- The advances grew by 17% YoY to Rs 82,97,298 mn driven by 20% YoY growth in the corporate & other loans to Rs 38,16,757 mn. The retail loans increased by 15% YoY to Rs 44,80,541 mn. The domestic loan mix between retail: wholesale stood at 54:46.
- The asset quality as of 30th June 2019 deteriorated with GNPAs at 1.4% (v/s 1.36% as of 31st March 2019) and NNPAs at 0.43% (v/s 0.39% as of 31st March 2019).
- HDFC Bank reported 18% YoY growth in deposits with 13% YoY growth in CASA to Rs 37,90,010 mn and 23% YoY growth in term deposits to Rs 57,55,530 mn.
Management Commentary
- The Capital Adequacy ratio as of 30th June 2019 stood at ~16.9%; as against the regulatory requirement of ~11%.
- Total provisions (comprising specific provisions, general provisions and floating provisions) were ~115% of the gross NPAs as of 30th June 2019 v/s 117% as of 31st March 2019. The Bank held floating provisions of Rs 14,510 mn as of 30th June 2019.
- GNPAs ex-Agri stood at 1.17% as of 30th June 2019 v/s 1.09% as of 30th June 2018.
- The Board of Directors has declared a special interim dividend of Rs 5 per equity share of Rs 2 to commemorate 25 years of the Bank’s operations.
Consensus Estimate (Source: market screener website)
- The closing price of HDFC Bank is Rs 2,303/- on 22-Jul-19. It traded at 3.5x / 3.1x the consensus book value for FY20E /21E of Rs 650/ 751 respectively.
- Consensus target price of Rs 2,717/- implies a P/B of 3.6 x on the FY21E book value of Rs 751/-.
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