HDFC Bank Ltd. | Q3FY20 Result Update | Non-interest income led to higher than expected PAT growth; Robust corporate loan growth

18 Jan
Growth

HDFC Bank Ltd. | Q3FY20 Result Update | Non-interest income led to higher than expected PAT growth; Robust corporate loan growth

Hits:

·    Overall advances grew by 19.9% YoY to INR 9.36lac cr led by corporate growth which has registered 26.6% YoY growth and constituting 49% of overall advances. Retail loans growth has moderated due to muted growth in vehicle loans.

·    Deposits grew by 25% YoY to INR 10.67tn. CASA grew by 21.5% YoY (Highest growth in 8 quarters). Bank’s retail deposits constitute 78% of overall deposits.

·    CASA ratio improved sequentially by 24bps to 39.5%

·    Other Income grew by 36% YoY to INR 6,669cr due to higher fees and commission income growth of 24% YoY at INR 4,527cr. Also, Bank recorded one-off other income of INR 200cr in the quarter towards NCLT resolution.

·    Overall cost-to-income ratio improved by 51bps/ 88bps YoY/ QoQ respectively to INR 37.9%. Moderation in cost-income ratio is on guided path aided by slower growth in branch against the guidance.

·    Annualised Credit cost of 130bps including to accelerated provision of INR 700cr for certain corporate accounts is in-line with our estimates. Adjusting the accelerated corporate provision, the credit cost remained at 92bps.

·    Overall GNPA/NNPA were only marginally up by 4bps/6bps QoQ respectively to 1.42% and 0.48%, in-line with our estimates.

Miss:

·    Retail Book growth of 14% YoY (51% mix) is multi-year low growth recorded by the bank. Ex-vehicle book (Auto, 2W & CV/CE) grew by 19% YoY. Also the vehicle book growth of 1.3% YoY is multi-year low growth for the bank.

·    Calculated NIM for the quarter declined by 38bps YoY to 4.6% driven by higher liquidity coverage ratio of 140% in Q3FY20 vs 132% in Q2FY20.

·    Bank has reported INR 3,839cr of core slippage (annualised slippage ratio of 170bps). This slippage excludes lumpy slippages (Including agri slippages) of ~INR 1,500cr. This is one of the highest slippages reported by the bank.

Key Takeaways from conference call:

·    Management continues to view overall vehicle finance portfolio from a very granular perspective.

·    Overall slippages are INR 3,839cr in this quarter exclusive of lumpy slippages of ~INR 1500r, of which 60%-65% is agri slippages.

·    NIM was pressurized due to higher LCR. However, company recorded higher non-interest income growth by way to higher trading gains (Monetizing assets) and one-off NCLT related income leading to healthy overall net revenue growth.

·    PCR at 67%; including contingent provisioning PCR is ~ 78%

·    Bank to notify regulators regarding the shortlist of new CEO by July- August 2020.

View of Edelweiss Professional Investor Research:

·    Overall, we believe the result was above estimates driven largely by the non-interest income growth and overall asset quality and credit cost not deteriorating beyond our estimation. Bank will continue to grow its corporate book robustly growing forward with cautiously growing its vehicle finance book due to asset quality concerns and stressed macro-environment.

·    However, slippages remained elevated for the quarter. We need to monitor this number closely going forward as it can have an impact on the asset quality of the bank.

Valuation

At the CMP of INR 1,278, stock is trading at 3.5x FY21 ABV.

INR Cr Q3FY20  Q3FY19  %change  Q2FY20  %change
Interest Earned            29,370            25,890 13.4            28,166 4.3
Interest Expended            15,197            13,314 14.1            14,651 3.7
Net interest income            14,173            12,577 12.7            13,515 4.9
Other Income              6,669              4,921 35.5              5,589 19.3
Net revenue            20,842            17,498 19.1            19,104 9.1
Operating expenses              7,897              6,719 17.5              7,406 6.6
Operating Profit            12,945            10,778 20.1            11,698 10.7
Provisions and Contingencies              3,044              2,212 37.6              2,701 12.7
PBT              9,902              8,567 15.6              8,997 10.1
Taxes              2,485              2,981 -16.6              2,652 -6.3
PAT              7,416              5,586 32.8              6,345 16.9
Adjustment                     –                       –   0.0                     –   0.0
Adjusted PAT              7,416              5,586 32.8              6,345 16.9
No. of Equity Shares (In Crs)                  548                  544 0.7                  547 0.1
Adj. EPS (INR) 13.5 10.3 31.9 11.6 16.8
Ratios Q3FY20  Q3FY19  %change  Q2FY20  %change
Cost-Income Ratio (%) 37.9% 38.4% -51 bps 38.8% -88 bps
Yield on IEA 9.5% 10.2% -72 bps 9.4% 11 bps
Cost of funds 5.6% 6.0% -35 bps 5.6% 3 bps
Spread 3.9% 4.3% -37 bps 3.8% 8 bps
NIM 4.6% 5.0% -38 bps 4.5% 8 bps
Balance Sheet Q3FY20  Q3FY19  %change  Q2FY20  %change
Advances         9,36,030         7,80,951 19.9         8,96,984 4.4
Deposits      10,67,433         8,52,502 25.2      10,21,615 4.5
CD Ratio 87.7% 91.6% -392 bps 87.8% -11 bps
CASA 39.5% 40.7% -120 bps 39.3% 24 bps
Asset Quality Q3FY20  Q3FY19  %change  Q2FY20  %change
% of Gross NPAs 1.4% 1.4% 4 bps 1.4% 4 bps
% of Net NPAs 0.5% 0.4% 6 bps 0.4% 6 bps
Provision Coverage Ratio 66.7% 69.7% -300 bps 69.7% -297 bps

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