HDFC Bank - 4QFY2011 Results Flash

For 4QFY2011, HDFC Bank clocked a healthy net profit growth of 33.2% yoy to Rs1,115cr in line with our estimates of Rs1,110cr.

Advances growth slowed down to 0.5% sequentially (~1.5% post adjusting for selldown of ~Rs1,500cr), typical of HDFC Bank’s 4th quarter strategy. Deposit accretion was strong (8.5% qoq and 24.6% yoy) albeit pace of CASA deposits accretion remained relatively moderate at ~26%, with growth in saving account deposits continuing to decline (down from 42.8% as of 4QFY2010 to 27.2% as of 4QFY2011). However CASA ratio continues to remain best-in-class at 52.7% (51% after adjusting for one-off movements). The bank was able to sustain its reported NIM at 4.2% sequentially. The bank delivered reasonable growth in other income in which fees and commission income, with yoy growth of 23.2%, along with forex and derivative income which rose by 36.3% yoy. The bank has added 261 branches during FY2011 (growth of 15.1% yoy compared to 22.2% growth in FY2010), taking its branch network 1,986 branches.

Asset quality of the bank continued to improve with gross and net NPAs sequentially declining by 4.9% and 10.4%, respectively. Slippages rate for FY2011 declined sharply to ~1.1% from ~2.6% for FY2010. Provision coverage ratio (excluding technical write-offs) improved to 82.5%, even without including substantial ~Rs230cr of floating provisions. The bank also made other contingent provisions of ~Rs100cr, of which half was towards the MFI segment. The restructured advances grew by ~34% (from 0.3% of gross advances as of 3QFY11 to 0.4%) to ~Rs640cr which included the applications received from MFIs for restructuring.

The bank has proposed a split in face value from Rs10 to Rs2, record date for which would be announced afterwards. Though the business growth has moderated a tad bit  in the recent quarters, in our view the bank is in a position to deliver a healthy earnings CAGR of ~28% over FY2011-FY2013E aided by sustained NIMs underpinned by the bank’s strong CASA deposit franchise. At the CMP, the stock is trading at 3.3x FY2013E ABV. We maintain our Accumulate recommendation on the stock with a Target Price of Rs2,655.

Exhibit 1: 4QFY2011 Actual vs. Estimates
(Rs cr)	Actual	Estimates	Var. (%)
Net interest income	2,839	2,878	(1.3)
Non-interest income	1,256	1,056	18.9
Operating income	4,095	3,934	4.1
Operating expenses	1,998	1,893	5.6
Pre-prov. profit	2,097	2,041	2.7
Provisions & contingencies	431	427	0.9
PBT	1,666	1,614	3.2
Prov. for taxes	551	504	9.3
PAT	1,115	1,110	0.4

  Source: Company, Angel Research

Exhibit 2: 4QFY2011 Performance summary

(Rs cr)	4QFY2011	3QFY2011	% chg (qoq)	4QFY2010	% chg  (yoy)
Interest earned	5,469	5,230	4.6	4,053	34.9
Interest expenses	2,629	2,453	7.2	1,702	54.5
Net interest income	2,839	2,777	2.3	2,351	20.8
Non-interest income	1,256	1,128	11.3	904	39.0
Operating income	4,095	3,905	4.9	3,255	25.8
Operating expenses	1,998	1,832	9.1	1,561	28.1
Pre-prov. profit	2,097	2,073	1.2	1,694	23.8
Provisions & contingencies	431	466	(7.4)	440	(1.9)
PBT	1,666	1,607	3.7	1,254	32.8
Prov. for taxes	551	519	6.1	418	31.8
PAT	1,115	1,088	2.5	837	33.2
EPS (Rs)	24.0	23.4	2.3	18.3	31.1
Cost-to-income ratio (%)	48.8	46.9		47.9
Effective tax rate (%)	33.1	32.3		33.3
Net NPA (%)	0.2	0.2		0.3

Source: Company, Angel Research

Exhibit 3: Trends in NPAs

Particulars	4QFY11	3QFY11	2QFY11	1QFY11	4QFY10	3QFY10	2QFY10	1QFY10
Gross NPAs (Rs cr)	1,694	1,782	1,841	1,791	1,817	1,974	2,027	2,163
Net NPAs (Rs cr)	296	331	409	413	392	544	602	656
Gross NPAs (%)	1.1	1.1	1.2	1.2	1.4	1.6	1.8	2.1
Net NPAs (%)	0.2	0.2	0.3	0.3	0.3	0.5	0.5	0.6
NPA coverage (%)	82.5	81.4	77.8	77.0	78.4	72.4	70.3	69.7

Source: Company, Angel Research; Note: NPA coverage excluding technical write-offs