HDFC Bank announced its 4QFY2009 results yesterday, reporting a net profit growth of 34% y-o-y to Rs631 crore, marginally below estimates on account of lower-than-expected Net Interest Income (NII).
This was partly on account of reduced pricing power on loans as compared to 3QFY2009 and partly on account of the full impact of high cost bulk deposits contracted in 3QFY2009 coming through in 4QFY2009.
The CASA ratio improved to 44% partly on account of year-end increase in current account balances.
But in terms of more indicative average daily balances, growth in current accounts was negligible during FY2009 due to the substantial fall in capital market floats during the year.
The Bank’s Fee income grew at a robust 46% y-o-y to Rs715cr, driven by the retail segment as well as wholesale segment. The Bank also booked large treasury gains of Rs244 crore.
Forex and Derivative linked income was also strong at Rs153 crore. Staff expenses were 13% lower sequentially partly on account of rationalization in field staff in line with peers. The Bank did not add any branches during 4QFY2009, although it did add 118 more ATMs.
By the end of FY2009, the Bank had restructured loans amounting to Rs120 crore, of which Rs69 crore were NPAs. At the same time, NPA provisions continue to be high, again in consonance with the Bank’s credit mix.
Gross slippages for FY2009 stood at about Rs3,000 crore and NPA provisions at Rs1,727 crore, were about 15-20bp higher than expectations as a percentage of average assets, partly on account of eCBoP-related NPAs.
Out of total provisions of Rs657 crore during the quarter, NPA provisions were about Rs600 crore, also higher than expectations.
Outlook and valuation
We believe HDFC Bank is among the most competitive banks in the sector and is poised to maintain its profitable growth over the long-term.
We believe the bank’s competitive advantages, driving gains in CASA market share and traction in multiple fee revenue streams, can support up to 5% higher core sustainable RoEs vis-à-vis sectoral averages over the long term, creating a material margin of safety in our target valuation multiples.
At the CMP, the stock is trading at 17.3x FY2010E EPS of Rs63 and 2.5x FY2010E ABV of Rs445. We maintain BUY on the stock, with a 12-month target price of Rs1,366, implying an upside of 25%.