Mr. Jaikishan Parmar (Sr. Equity Research Analyst - BFSI, Angel Broking):
"Loan growth strong led by pick up in corporate loan book: Softening of auto loan segment (contributes 25% of retail loans), which grew 2.3% yoy led to moderate growth in advances. Credit card and personal loans reported healthy growth of 28.6% yoy and 23.3% yoy, respectively. Wholesale loans grew by 26.6%, while retail loans moderated to 14.1% yoy. Despite heavy advertisement during festive season, retail growth remained moderate.
Non-interest income grew strong, cost/income declined: Total other income grew at a healthy rate of 35.5% yoy led by healthy core fee income. Core fee income grew by 24.1% yoy owing to sustained growth in payment-related fees (~35% of total) and improvement in fees from third-party products (improvement in yield). The management said that retail accounts for ~93% of fee income, while treasury gains and one-off recovery from the resolution of a NCLT matter also supported other income. From last four quarters, the bank's C/I is consistently in a declining trend, and for Q3FY2020, CI declined 50bps/87bps on yoy/qoq basis to 37.9% on the back of 18% yoy growth in operating expenses and revenue growth of 19% yoy. Management has guided for 300bps decline in C/I over the next 3-5 years.
Asset quality disappoints; slippages, credit costs higher: In absolute terms, GNPA went up by Rs. 919cr, up 7.3% qoq and stood at 1.42%, NPA increased by Rs. 677cr, up 17% qoq. The provision coverage ratio for the quarter declined ~300bps to 67% even after taking ~37% growth in provisions. Gross slippages remained high at Rs. 5,300cr (2.4% annual slippages), this was largely driven by slippages in agriculture portfolio and one-off corporate slippages. However, core slippages were at 1.7%. Management gave positive commentary on retail asset quality while sounded a bit concerned about CV/CE portfolio owing to the weak underlying macro environment. The credit cost ratio remained high at 1.3%.
Outlook & Valuation: Credit growth beat the industry growth rate driven by strong retail business. The strong liability franchise and healthy capitalisation provides earnings visibility. We value HDFC Bank using SOTP method, valuing standalone banking business at 3.7x of FY2021 ABV and its two subsidiaries at Rs. 78/share. We recommend a Hold on the stock, with a target price of Rs. 1,390/ share."
Shares of HDFC Bank Ltd was last trading in BSE at Rs.1244.15 as compared to the previous close of Rs. 1254.9. The total number of shares traded during the day was 177060 in over 7139 trades.
The stock hit an intraday high of Rs. 1255 and intraday low of 1239. The net turnover during the day was Rs. 220277463.