Dear all,
Strong growth; stable NIM and asset quality intact
· HDFC Bank's advances grew (27.1%YoY, 6.4%QoQ) to INR 4.64tn in 4QFY16. Growth in advances was driven by retail (29.6%YoY, 4.2%QoQ) and non-retail advances continued its momentum growing (25.0%YoY, 8.5%QoQ), largely driven by emerging corporate book. Consequently, the loan mix stood at 48.2% and 51.8% respectively.
· Growth in retail advances was driven by personal loans (45.0%YoY, 6.2%QoQ), Business Banking (22.4%YoY, 2.5%QoQ), Auto (22.5%YoY, 1.7%QoQ) and Home loans (32.1%YoY, 12.0%QoQ). Overseas loans form 6.5% of loan book.
· Deposits grew (21.2%YoY, 4.3%QoQ) to INR 5.46tn supported by growth in CASA deposits (19.0%YoY, 12.8%QoQ) led by higher growth in SA (18.4%YoY, 9.2%QoQ). Consequently, CASA ratio was maintained at 43.2%. Term deposits grew (22.9%YoY) as of 4QFY16. The bank highlighted that the entire FCNR deposits of INR 3.4bn stands to mature between October and November.
Valuation: The stock trades at 2.8X FY18E P/BV and 14.8X P/E FY18E. Given, stable core performances, robust loan growth and excellent asset quality with marginal stressed assets (no 5:25 refinancing and SDR) will help the bank maintain high return ratios (ROA of 2%). We assign a 3.2X P/BV target multiple to FY18E, implying a target price of INR 1247. We retain our OUTPERFORMER rating on the stock. Risks: Market risk may impact of cost of funds, systemic decline in retail assets, executing growth in semi-urban / rural areas and increase in cost of savings deposits.
Regards,
CSEC Research
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