A tad early to call material margin expansion as we await delivery on loan mix change
- Asset quality: Annualized gross slippage ratio for 2QFY22 was 1.8% (Rs 53bn), with recoveries and upgrades amounting to Rs 35bn
- Margin picture: NIM at 4.1% was flat QoQ, which is still lower than the lower end, at 4.2%, of the long-term range for net interest margin
- Asset growth: Advances grew 4.4%/15.5% QoQ/YoY driven by commercial and rural banking, which grew 6.8%/28.5% QoQ/YoY
- Opex control: Total opex rose 13.7%/15.2% QoQ/YoY, employee expenses rose 7.3%/16.7% QoQ/YoY and other expenses rose 17.0%/14.5% QoQ/YoY
- Fee income: Fees and commissions rose 27.3%/25.5% QoQ/YoY driven by rebound in payments business, among other factors
Our view - A tad early to call material margin expansion as we await delivery on loan mix change
Restructured book nearly doubled QoQ from 80 bps of loan book to 152 bps of loan book: Management stated that the potential impact from restructured book on GNPA ratio could amount to 10-20 bps. Annualized credit costs for the quarter amounted to 1.3%, including 40 bps due to incremental contingent standard asset provisions. Contingent provisions, along with floating provisions and other general provisions amount to 124 bps of advances. Of the outstanding GNPA ratio of 1.35%, 20 bps are standard accounts to borrowers whose other facilities are NPA.
Management stated that pressure on NII was due to transition from retail to wholesale in terms of loan mix: They, further, averred thatthe bank has reached an inflection point and now, retail loan share will improve, supporting improved NII growth. On the liability side, CASA growth at 28.7% YoY handily outpaced term deposit growth at 4.2% YoY.
Within commercial and rural banking, rural loans grew a standout 12% QoQ: Management stated that rural loans could grow 20-25% in FY22, conservatively speaking. Commercial transportation finance, mid-corporate loans and wholesale SME grew 5.2%, 5.6% and 7.5% QoQ, respectively. Management further stated that wholesale SME loans could grow as much as 50% in FY22.
We maintain 'Add' rating on HDFCB with a revised price target of Rs 1790: We value the standalone bank at 3.6x FY23 P/BV for an FY22E/23E/24E RoE profile of 15.8/16.9/17.4%. We assign a value of Rs 81 per share to the subsidiaries, on SOTP.
Shares of HDFC Bank Limited was last trading in BSE at Rs. 1685.90 as compared to the previous close of Rs. 1639.05. The total number of shares traded during the day was 304067 in over 13416 trades.
The stock hit an intraday high of Rs. 1690.00 and intraday low of 1639.05. The net turnover during the day was Rs. 508733339.00.