Re: {LONGTERMINVESTORS} HDFC Bank: thread

 Dear all,

Lower operating and provisioning cost support PAT growth

·         HDFC Bank's advances grew (18%YoY, 5%QoQ) to INR 4.94tn in 2QFY17. Growth in advances was driven by domestic retail loans (21.7%YoY) whereas corporate book showed a modest growth of 14.3%YoY. Consequently, the domestic loan mix stood at 54% and 46% respectively. Growth in retail advances was driven by personal loans (40%YoY) and Auto (23%YoY).

·         Deposits grew (16.7%YoY, 3%QoQ) to INR 5.9tn supported by growth in CASA deposits (18.8%YoY) led by higher growth in SA (21.6%YoY, 4.7%QoQ). Consequently, CASA ratio improved by 69bps YoY to 40.4%.  Term deposits grew (15.4%YoY) in 2QFY17.

·         NIM stood at 4.2% in 2QFY17 reducing by 20bps compared to 1QFY17. NIM contraction was driven by competition, lower spreads and holding a larger liquidity to enable a smoother FCNR redemption. Management indicated that NIM's have broadly been in range of 4-4.3%, and there exists no indication to move it out of the specified range in either direction.

·         Asset quality improved marginally by 2bps QoQ with GNPAs and NNPA at 1.02% and 0.30% respectively. Provision coverage ratio is well maintained at 70.6%. Overall provisions for the quarter were noted at INR 7.5bn as against 8.7bn in 1QFY17. The restructured book saw no change on a YoY basis and stood at 0.1%. Slippage ratio improved to 1.4% from 1.8% in 1QFY17. The total credit cost for 2QFY17 was at 62bps vs. 76bps in 2QFY16.

Valuation: The stock trades at 3.2X FY18E P/BV and 17.4X P/E FY18E. Given, stable core performances, healthy loan growth and excellent asset quality with marginal stressed assets will help the bank maintain high return ratios (ROA of 2%). We maintain our target price of INR 1,355 assigning a 3.5X P/BV of FY18E. We rate the stock an OUTPERFORMER. 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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