Result Review: HDFC Bank

Result Review: HDFC Bank

HDFC Bank reported a net profit growth of 43% y-o-y in Q2FY09, from Rs369 crore to Rs528 crore, in line with estimates and driven by robust core performance.

Growth in net profit was 29% after making adjustments for the merger with Centurion Bank of Punjab (CBoP) to enable a like-to-like comparison.

Advances grew 64% y-o-y (34% post-adjustment) to Rs1,02,222 crore though deposits grew at a slower pace of 47% y-o-y (21% post-adjustment) to Rs1,33,781 crore, with the CASA ratio remaining strong at around 44% (though recording a sequential decline by 1% on account of flat sequential growth in current account deposits).

Reported NIMs improved by about 10bp sequentially, allowing HDFC Bank to post 61% y-o-y growth (40% post-adjustment) in Net Interest Income. Non-Interest Income grew 33% yoy (flat post-adjustment and below our expectations).

Provisioning expenses were higher by 20% y-o-y (8% post-adjustment) less than estimated and on a negative note, contributing to an increase in Gross and Net NPAs by 10bp.

Operating expenses increased 69% yoy (32% yoy), in line with expectations. Network expansion was strong, with the Bank adding a substantial 183 branches and 364 ATMs in 2QFY2009.


At the CMP, the stock is trading at 15.5x FY10E EPS of Rs70.2 and 2.3x FY10E Adjusted Book Value of Rs464.1 that factors in conversion of warrants allotted to HDFC.

We have a positive outlook on the Bank due to its strong low-cost deposit franchise, dominant transaction banking business, multiple fee income revenue streams, strong growth outlook and A-list management.

We maintain a BUY on the stock, with a 12-month target price of Rs1,463.