HDFC Bank, the second-largest private sector bank in India, has reported healthy growth in its net interest income (NII) and net profit for Q3FY09, almost in line with our expectations.
Net interest income (NII) and net profits have risen 21.6% and 30.2%, respectively, for Q3FY09 (taking merged numbers with CBoP for Q3FY08 also).
Moderate balance sheet growth (proforma y-o-y growth of 16.8%) along with q-o-q improvement in margins (4.3% in Q3FY09 vs. 4.2% in Q2FY09) and lower ’Other operating expenses’ mainly contributed to this.
Uptick in gross NPA, both in absolute terms (y-o-y growth of 33.6% in Q3FY09) and as a percentage of gross assets (increased from 1.6% in Q2FY09 to 1.9% in Q3FY09) are of some concern.
We are slightly tweaking our earnings estimates downward for FY09E & FY10E and maintaining a BUY rating on the stock with a target price of Rs.1150 based on P/ABV of 3.0x its FY10E adjusted book value and P/E of 17.5x its FY10E earnings.