HDFC Bank - Q1FY18 Result Update Rating - HOLD - Arihant Capital Markets

HDFC Bank reported steady set of numbers. Interest Income increased by 13% YoY to Rs. 18,669 cr, while on QoQ basis it increased by 3%. Interest Expenses increased by 6% YoY, while on QoQ basis it increased by 3% to Rs. 9,298 cr. Net Interest Income increased by 20% on YoY basis and 3% on QoQ basis to Rs. 9371 cr. Reported Net Interest Margin increased to 4.4 vs 4.3 on QoQ basis.

Non-Interest revenue was higher by 25% QoQ to Rs. 3,517 crs. Within this segment, revenues from fees & commissions increased to Rs 2,578 crs. Foreign exchange & derivatives revenue stood at Rs. 297 cr & sale of investment was Rs. 331 cr v/s. Rs. 277 crs on YoY basis.

Cost to Income ratio stood at 42.7% decreasing against corresponding quarter of previous year. Operating cost for the quarter increased by 13% YoY to Rs 5,368 cr. The bank added 12 branches this quarter to its network. 52% of the branches stay in semi-urban and rural areas.

Bank saw strong growth with advances which grew by 23.4% while the deposits grew by 17% YoY. Domestic retail to wholesale loans composition stood at 54:46. CASA grew by 29% YoY. CASA ratio improved to 44% against 40% in corresponding quarter of previous.

Asset quality saw a deterioration this quarter. Bank reported GNPA at 1.24% while Net NPA stood at 0.44% against 1.04% and 0.33% respectively. Provisions stood at Rs 1,559 cr against Rs 867 cr YoY and Rs 1262 cr sequentially. The bank witnessed a 60 percent rise in its incremental NPAs from the agriculture sector as loan waivers across states impacted the credit discipline among borrowers. The bank expects the stress to continue. In line with an RBI directive, the bank has put in place a boardapproved policy on provisioning for standard assets at rates higher than the regulatory norm.

NIM for the quarter stood at 4.4%. Capital Adequacy for the bank stood at 15.6% with Tier-1 CAR at 13.6%. The Return on Assets for the quarter stood at 0.48%

Valuation:

HDFC bank continued to report balanced performance. We have valued stock on P/ABV(x) of 4(x) to its FY19E adjusted book value of Rs 469 per share and arrived at a fair value of Rs. 1,874. We have 'HOLD' rating on the stock.

Shares of HDFC BANK LTD. was last trading in BSE at Rs.1749.75 as compared to the previous close of Rs. 1739.35. The total number of shares traded during the day was 120829 in over 2266 trades.

The stock hit an intraday high of Rs. 1755 and intraday low of 1733.75. The net turnover during the day was Rs. 210556476.

Source : Equity Bulls

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