Neutral on HDFC Bank - 3QFY2012 Result Update - Angel Broking

For 3QFY2012, HDFC Bank reported healthy 31.4% yoy growth in net profit to Rs.1,430cr, inline with our as well as street estimates. Steady NIMs coupled with largely stable asset quality was the key highlight of the results. We maintain our Neutral recommendation on the stock.

Another quarter of steady performance: The bank's net advances growth slowed down to 3.1% qoq, while deposit buildup was also lower, growing by a marginal 0.8% qoq. (On a yoy basis, both advances and deposits grew by 22.1% and 21.0%, respectively). Corporate loans for the bank grew at modest pace of 15.0% yoy, however retail loan book growth was strong at 29.5% yoy despite the rise in interest rates over the last one year. Yoy growth in retail loans was driven by CV, Business banking, Personal loans and Credit card business. In fact on a qoq basis, the corporate book shrank by 1.7% qoq, while retail book grew by 8.0% qoq. The bank ran down Rs.5000-6000cr of high cost wholesale deposits during 3QFY2012 which along with traction in retail business helped the bank maintain NIMs (4.1%) on a sequential basis. The pace of CASA deposits accretion for the bank was moderate in 3QFY2012 with a growth of 14.3% yoy. Other income growth for the bank was healthy at 25.9% yoy, primarily due to pick up in forex income / derivatives income (68.6% yoy). Fee income growth was also healthy at 19.6% yoy. The bank witnessed a treasury loss of Rs.82cr during 3QFY2012 on account of MTM losses on bond investments and investments in MFs. The bank maintained its strong asset quality track record during 3QFY2012 as well. Gross and Net NPA ratios remained stable at 1.0% and 0.2%, respectively.

Outlook and valuation: HDFC Bank is trading at 3.3x FY2013 ABV, which is only slightly lower than its median of 3.45x (over FY2005-FY2011), even as the rest of the banks are trading close to the bottom of their valuation range. We believe current valuations largely factor in the positives, leaving limited upside in the stock. Hence, we maintain our Neutral recommendation on the stock.

Source : Equity Bulls

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