Result Analysis: HDFC Bank Ltd.

Result Update Q2FY22

 

Particulars (In ₹. Cr)	Q2FY22	Q1FY21	Q2FY21	QoQ %	YoY%
Interest Income	31354	30483	29977	2.86%	4.59%
Other Income	7400	6288	6092	17.68%	21.47%
Total Income	38754	36771	36069	5.39%	7.44%
Interest Expended	13669	13474	14200	1.45%	-3.74%
NII	17685	17009	15777	3.97%	12.09%
Interest Expenses as % of Interest Earned	43.60%	44.20%	47.37%	-1.37%	-7.97%
Operating profit	11882	10,306	10110	15.29%	17.53%
Operating Margin	30.66%	28.03%	28.03%	9.39%	9.38%
Profit After Tax	8,834	7,730	7,513	14.28%	17.58%
PATM (%)	22.80%	21.02%	20.83%	8.43%	9.44%
Basic EPS (in Rs. )	16	14	13.7	14.29%	16.79%
Segment Revenue	Q2FY22	Q1FY21	Q2FY21	QoQ %	YoY%
Treasury	8,650	8,644	8,098	0.07%	6.82%
Retail Banking	28,214	26,974	27,683	4.60%	1.92%
Wholesale Banking	15,662	14,407	13,912	8.71%	12.58%
Other banking operation	5,424	4,863	4,964	11.54%	9.27%

Result Highlight:

• Interest Income of the Bank rose by86% QoQ and 4.59 YoY to ₹ 31354 crore. Other income rose 17.68 % QoQ to ₹ 7400 Crore.

• NII improved 12.09% to ₹ 17685 crore. Core Net Interest Margin was at 4.1%.

• Bank reported operating profit at ₹ 11882 compared to ₹ 10110 Y-o-Y and operating margin is 30.66%

• Net profit rose 17.58% YoY to ₹8834 crore for the September quarter compared with ₹ 7513 crore in the same quarter last

• Gross NPA fall from 1.47% to 1.35%, while Net NPA fall from 0.48% to 0.40%.

• Capital Adequacy Ratio of the bank improved from 19.1% to 20%.

 

• HDFC Bank reported improvement in credit growth to 15.4% YoY vs 14% YoY (Q1FY22) supported by rise in retail loan growth.

• Restructured assets increased to 1.52% of advances vs 0.8% (QoQ) led by sharp rise in personal loan portfolio.

• Commercial and Rural Business saw robust growth of 27.4% YoY, 7.4% QoQ, capturing strong underlying economic activity

• HDFC Securities total income grew by 42% to ₹ 489 crore and PAT grew by 44% to 239 crore.

• HDB Financial Service Ltd was at ₹ 1916 crore as against ₹ 1703 crore same quarter last year, PAT was

₹ 191 crore compared to a loss of ₹ 85 crore for quarter ended September 30 2020.

 

Management commentary: 

• On way to see strongest growth in rural & SME business going ahead working diligently to expand more footprints in rural mkt/ villages By December/January, expect recoveries to be back to pre-covid levels.

• Credit card spend for the bank has grown 36% YoY and sequentially 27%. The initial days of October show 42% growth in cards spends over similar period in September driven by festive spends. In last 5 weeks of quarter, bank issued 416,000 credit cards, which it expects to sustain and grow”

• Management on Advances said that the bank book has shown growth, although the domestic vehicle unit’s sales witnessed a drop of 37% for September 21 over September 20. However, auto loan disbursal for HDFC bank in value terms is increased by 36% in the same period. The business in the textile sector is expecting a growth of 30%-40%, home appliances businesses are talking about a 20% higher growth than pre-COVID levels.

• Rural banking saw a 12% QoQ growth, helped by record disbursement, strong customer acquisition, deeper village penetration in 1 lakh village where the bank already operates, because of crop diversification, small and marginal farmers, strong sowing from June to July and rural infra support initiatives.

• The core annualized slippage ratio for current quarter is 1.8%. During the quarter the recoveries and upgrades were at about Rs.3,500 cr, Write off in the quarter were approximately Rs.2,600 cr, approx. 25 basis points. Sale of NPA was of Rs.500 cr. The restructuring under RBI resolution framework for COVID-19 stands at 152 basis points.

• Last 6-8 quarters saw transition of retail and wholesale mix. Currently momentum on retail is picking up. NII on RWA stands at 6%

• Other expenses would be increasing as retail is recovering and also Cost of acquisition, sales, marketing expenses etc increasing. As Retail activity will go up, so as the cost will also go up.

• Technology cost saw normal increase and increased by 15-16% and 4-5% QoQ, while cost per acquisition going down will offset the expenses at same time

• Paytm tie up will benefit bank in broad base merchant acquisition, bank relationship toward merchant will improve.

 OUTLOOK

HDFC Bank reported improvement in credit growth to 15% YoY vs 14.4% YoY. Domestic Corporate book slow down to 6% (10% in Q1FY22) and retail book improves to 13% vs 9% YoY (Q1FY22). Deposits growth improved to 14% YoY (4% QOQ) vs 13% YoY in Q1FY22; CASA deposits grew by 28% resulted CASA ratio at 46.8% vs 45.5% YoY. ). NII grew slowly by 12% YoY, however NIMs remain stable. PPoP grew by 14% YoY as cost to income ratio remains stable at 37%; fee income grew by 26% YoY. Provision grew by 6% YoY resulted into low credit cost at 1.3% vs 1.8% YoY, biggest positive was HDB Financial result which reported profit this quarter and GNPA fall to 6.1% from 7.8% last quarter, Management commentary is also positive as they expect strong growth in rural & SME business going ahead and they are working diligently to expand more footprints in rural market, Bank continues to gain mkt share: Q2FY22 was at 10.94% vs 10.11%YOY & vs 10.58%QOQ.while High second wave restructuring and QoQ rise in Opex was key negative, since the management is focusing more on digital banking Opex going forward can be contained, Management in their conference was quite positive on Indian economy and expect NPA to improve going forward. At the CMP of ₹1688, HDFC Bank is trading at PE multiple of 26x. Valuing the company at 28x FY23E EPS, we recommend buy on HDFC Bank at CMP of for the Target Price of ₹ 2020.

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