Accumulate HDFC Bank - Stable quarter led by other income - IDBI Capital

HDFC Bank Ltd. (HDFCB) reported Net Interest Income (NII) of Rs31.2 bn, up 12.2%/5.8% YoY/QoQ, largely in line with our estimate (IDBIest Rs31.7 bn). NII was driven by credit growth of 22% YoY and stable margins at 4.1%. PAT for the quarter stood at Rs14.3 bn, up 31%/19% YoY/QoQ, ahead of estimate (IDBIest Rs13.3 bn), due to higher than expected other income. Other income stood at Rs14.2 bn (IDBIest Rs13 bn), up 26%/17% YoY/QoQ. GNPA ratio and NNPA ratio stood at 1.0% and 0.2%, respectively. Provisioning coverage ratio stood at 80.3% in the quarter, as against 81% last quarter.

We revise our earnings estimate upwards by 6%/5% for FY12E/FY13E to Rs47.6 bn/Rs59 bn due to higher other income growth and lower than expected provision expense. We value the stock at 3.7x on our estimated one year forward adjusted book value (ABV) of Rs137.9, which translates to a revised price target of Rs510. Maintain ACCUMULATE.

Key Highlights

Strong advances growth

Advances grew 22% YoY to Rs1,943 bn. Retail, which grew 17% YoY to Rs996 bn, constitutes 51% of the total portfolio. Of the total retail loan book, auto sector constitutes 26%, business banking 17%, and commercial vehicle, housing loan and personal loan comprise 13% each.

Other income surprises positively

Other income grew 26% YoY to Rs14.2 bn, higher than our estimate of Rs13 bn. Fee income grew 20% YoY to Rs11.3 bn while forex income grew by 69% YoY to Rs3.7 bn. Growth in fee based income was witnessed across the product range. Further, 20% of the forex income was trading related.

Provisioning lower than estimate

Total provision stood at Rs3.3 bn against our estimate of Rs3.8 bn. The lower provision was on account of lower delinquencies than expected. GNPA remained flat sequentially at 1.03% while NNPA stood at 0.2%. Provision coverage (excluding write off) stood at 81.3% as against 83% last quarter.

Outlook and Valuation

Our ABV stands revised upwards by 1%/2.4% to Rs116.3/Rs137.9 for FY12E/FY13E. Further, RoE and RoA stands at ~1.5% and 17% in FY12E. At CMP, the bank is trading at 4.2x/3.5x its FY12E/FY13E ABV. With stable margins, balanced loan book and superior asset quality, we believe that HDFCB is the best conservative play in the current volatile environment. We value the bank at its 6 year historical P/ABV multiple of 3.7x and arrive at revised price target of Rs510. Maintain ACCUMULATE.

Source : Equity Bulls

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