Institutional Eq

Quarterly results

uities
HDFC Bank Outperform
20 July 2010 Riding on its lending strengths
India HDFC Bank capitalised on its lending strengths to compensate for its
Banking Sector weakness in fee income during 1QFY11. The bank reported 34% YoY
PAT growth aided by higher-than-expected growth in advances, NIMs in
Price: Rs. 2,048* line with our expectations, 29% growth in NII, 420 bps improvement in
Target price: Rs. 2,297 CASA, and an improving asset quality. We reiterate our Outperform
rating on HDFC Bank, with a target price of Rs. 2,297.
Stock details
Growth in advances beats expectations
Bloomberg code HDFCB IN Higher-than-expected advances growth of 41% YoY (short-term funding including 3G
MCap Rs/US$ mn 941,378/19,993 funding to the telecom sector boosted the overall advances growth by 10% YoY).
Outstanding shares (mn) 460 Growth has been healthy in both retail advances (24% YoY) and wholesale advances
(40% YoY adjusted for short-term funding) driven by both working capital and term
52-wk H/L (Rs) 2,111/1,353
loans.
3m avg trd vol (US$ mn) 30.4199214187108
Margins in line with our expectations
Nifty / Sensex 5386/17928
NIMs at 4.3% were in line with our expectations despite a very high advances growth
of 41% and the bank’s high dependence on SB accounts (which form 29% of total
Shareholding pattern (%) deposits). Also quite impressive are a 37% YoY growth in CASA deposits and a 420
100%
bps improvement in CASA ratio aided by a 40% YoY growth in SB deposits and 34%
20
12
in demand deposits.
50% 44 Asset quality improvement in line with our expectations
24 GNPAs and NNPAs declined sequentially. Loan loss provisions declined from 2.6%
0%
in 1QFY10 of average loans to 1.6% during the current quarter largely on account of
Mar-07 Mar-08 Mar-09 Mar-10
Promoters FIIs DIIs Public & Others the running-down of CBoP advances and improving economic conditions.
Fee income growth lower but expected to improve
Fee income growth stood at 15% despite a 40% YoY growth in advances. This is
Stock performance (%)
lower than our expectations that the bank would be able to generate higher insurance
1m 3m 1yr commissions in 1HFY11 as fee-based income would be under pressure post new
Absolute 2.8 5.9 42.5 ULIP guidelines effective from September 2010. We have estimated 20% fee income
growth for FY11 in line with management guidance.
Nifty 2.4 3.5 23.1
150 Reiterate Outperform
We reiterate our Outperform rating on HDFC Bank with a TP of Rs. 2,297, valuing
100
the bank at 3.8xFY12E P/ABV on the back of 27% PAT CAGR for FY10-12E driven
50 by lower provision charges. We expect HDFC bank’s premium valuations to stay due
0 to higher-than-industry advances growth rates and superior return ratios.
Jul-09 Nov-09 Mar-10 Jul-10
Key financials
Nifty Index HDFC Bank
In Rs. mn, year-end March
Source: Bloomberg, Prowess.
*Note: Priced at close of 19 July 2010. FY08 FY09 FY10E FY11E FY12E
Net interest income 52,297 74,211 83,878 103,186 132,629
Non-interest income 23,758 32,906 38,076 44,984 53,021
Pre provision profits 37,791 51,788 64,311 77,730 100,587
PAT 15,927 22,448 29,502 36,211 47,309
EPS (Rs.) 45.7 52.7 64.5 79.1 103.4
EPS (consensus) (1) 65.3 85.3 109.9
EPS growth 26.3 15.4 22.3 22.7 30.7
ROE (%) 17.8 16.9 16.1 15.8 18.0
PE (x) 28.4 20.2 24.7 21.3 16.3
ROA (%) 1.3 1.3 1.5 1.4 1.5
P/ABV (x) 6.2 6.0 4.4 3.9 3.4
Indiabulls research team
Source: Company , Indiabulls research.

Research also available on Bloomberg (IBULLS <GO>), Thomson, Reuters and FactSet page.
 HDFC Bank

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20 July 2010 Indiabulls Research 2