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 |