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Posted On: 2020-10-18 22:38:52

Key highlights of standalone bank's performance

- A handsome beat of 6% on core PPOP driven by a robust recovery in core fee income (was only lower 3% yoy v/s our expectation of 20-25%) which was supported by improving momentum in loan-related and card fees.

- NII growth was in-line at 17% yoy. Core NIMs came-off to 4.1%, owing to surplus liquidity carry, sharp MCLR reduction and portfolio mix shift towards high-quality corporate advances. Margin dip was despite a material reduction in deposit cost resulting from decline in SA and RTD rates.

- Though opex was higher on pick-up in loan volumes, the core PPOP margin improved by 10 bps qoq to 3.2%. Core PPOP grew by 7% qoq and 14% yoy (better than Q1 FY21 performance)

- Significant decline in reported NPL ratios due to SC ruling not allowing NPL classification for accounts slipping post Aug 31; thus, also not allowing for planned early recognition of accounts based on analytical models. Otherwise, GNPL and NNPL would have been 1.37% and 0.35% respectively (flat compared to Q1 FY21).

- The bank was prudent to provide for impending slippages (from SC order + early recognition) and augment its Covid shield (now at 65 bps of Adv.).

- Capital accretion continues with CET-1 improving from 16.7% to 17% on sequential basis. Growth in RWA at 2.5% qoq v/s advances at 3.5% qoq.

HDB Financial continues to reel under pressure

- Loan growth decelerates to 2% yoy (book at Rs570bn).
- NII declines 5% yoy with liquidity buffer raised substantially.
- Profits slumps to Rs300mn (Rs2.1bn in Q2 FY20) on higher provisioning.
- Gross NPLs rise to 4.3%. Net NPLs elevated at 3.1% on lower coverage.

Bank performing ahead of expectations; but HDB Fin constricts material price target upgrade

We expect loan growth to not decelerate substantially in H2 FY21, aided by festive treats program and acceleration in economic activity. Similarly, NIM seems to have made a trough and should recover gradually from hereon. Basis encouraging collection efficiency trends and management's expectation of full normalization in a few months, the credit cost may not spike as feared earlier. Given encouraging business trends and management commentary, bank's valuation should mean revert over the medium term Our 1-yr target undergoes a slight upgrade to Rs1500.

Shares of HDFC Bank Ltd was last trading in BSE at Rs.1199 as compared to the previous close of Rs. 1169.15. The total number of shares traded during the day was 401346 in over 12293 trades.

The stock hit an intraday high of Rs. 1203 and intraday low of 1172.95. The net turnover during the day was Rs. 478414159.

Source: Equity Bulls

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