Post-Q2 results, what investors in HDFC Bank should focus on1 min read . Updated: 22 Oct 2019, 07:15 AM IST
- Asset quality, too, was stable, with gross non-performing assets at 1.38%, as against 1.33% in year-ago quarter
- Though a widespread slowdown is evident, the lender has not seen any asset quality deterioration in its retail pool of vehicle finance, said the management
Considering the state of the Indian economy, HDFC Bank Ltd’s performance in the second quarter of FY20 was decent. The bank’s provisional figures had indicated that it expected the results to be stable. Its September quarter earnings were largely in line with expectations.
Net profit growth was driven by lower taxation, loan growth and higher profit on sale of investments. The private sector lender’s net profit in the September quarter grew around 27% year-on-year to ₹6,345 crore. Asset quality, too, was stable, with gross non-performing assets at 1.38%. This stood at 1.33% in the year-ago quarter.
Overall year-on-year loan growth at 25% was driven by home, agricultural and corporate loans. However, the ongoing slump in the automobile sector weighed on its retail loan book, which grew around 15% year-on-year.
In a post-earnings conference call, the management said that vehicle finance disbursal in the second quarter had been better than in the first, and the bank expects a boost around Diwali.
Though a widespread slowdown is evident, the lender has not seen any asset quality deterioration in its retail pool of vehicle finance, said the management.
Analysts say that excluding the vehicle category, the HDFC Bank’s retail loan book grew 19% year-on-year. While the management sounded hopeful, investors in this stock should closely watch for any further deterioration.
Subdued growth in retail loans led to weakness in net interest income growth; the slow balance-sheet growth was also one of the key disappointments. So, improvements there will be looked at.
Other than these, a transition in leadership could also weigh on the stock’s performance. HDFC Bank’s chief Aditya Puri could retire mid-way in FY21 due to a rule that sets 70 years as the maximum age for top banking executives to hold office.
This calendar year, the HDFC Bank stock has gained twice as much as the Nifty Bank Index at 16%, outpacing peers. The Nifty Bank index climbed just 7.22%.
Rewarded for its steady earnings performance, it is one of the most expensive stocks in the banking space. The HDFC Bank stock trades at a one-year-forward price-to-book multiple of 4 times, much higher than ICICI Bank Ltd and Axis Bank Ltd.