Consistent performer HDFC Bank saw its profit growth skidding from the 20% level it has routinely reported in the past. Consolidated net profit grew 15% year-on-year to Rs3,865.3 crore in the quarter ended December, boosted by higher fees, interest income and other income.
Given the ambiguity around demonetization, this beat has come as a surprise since the Street was working with a lower number. A Bloomberg poll of 18 analysts had estimated a net profit of Rs3,770.8 crore.
Shares of the private sector lender gained nearly 2% after earnings were announced on Tuesday.
HDFC Bank’s loan growth was up 13.45% year-on-year in the third quarter of fiscal year 2017 (Q3FY17), but lower than the 18.1% growth reported in Q2FY17. Loan growth in the quarter gone by was anticipated to take a hit due to outflows on account of FCNR (foreign currency non-repatriable) deposits redemption and SME (small and medium enterprises) repayments. Also, low-cost deposits were expected to be strong due to the demonetization exercise. The bank’s total deposits grew 21.1% year-on-year to Rs6.35 trillion in the quarter gone by.
Net interest margin (NIM), which has been hovering in the 4.2-4.4% range for the past many quarters, moderated to 4.1% in Q3FY17. The mismatch in loan growth and deposit growth could be one of the factors that may have impacted NIM. In Q2FY17, NIM was at 4.2% and 4.4% in Q1FY17.
Meanwhile, the bank’s asset quality remained stable. Gross non-performing assets (NPAs) moved up marginally to 1.05% and net NPAs rose 0.32% on a sequential basis. Net interest income rose 17.55% from a year earlier to Rs8,309.09 crore.
HDFC Bank has been a rock-steady performer and its stock therefore trades at premium valuations. Its one-year forward (FY18) price-to-book multiple stands at 3.28 times, much higher than peers.
Going ahead, investors will watch the movement in NIM and whether profit growth bounces back to earlier levels or whether growth in the mid-teens is the new normal.