BUY SUHANI ADILABADKAR RESEARCH REPORT
Q4 FY17
HDFC BANK LTD QUARTERLY OUTLOOK & RECOMMENDATION HDFC Bank Ltd reported stable fourth quarter results FY17 with both PAT & NII growing in double digits. PAT or Net Profit for the quarter stood at Rs. 39901 Mn compared to Rs. 33742 Mn same period previous year, rising 18% YOY & with quarterly growth of 3%, slowest over the previous three quarters. Net Interest Income, difference between interest earned and expended was at Rs. 90551 Mn in the current quarter against Rs. 74533 Mn corresponding quarter previous year. Net Interest Margin indicating core profitability of bank’s operations stood at 4.30% for the current March quarter. Gross NPAs as a percentage of Gross Advances edged up 11 basis points YOY at 1.05%, Net NPAs as a percentage of Net advances also rose 5 basis points at 0.33% in the current Q4 FY17. One basis point is 0.01%. On sequential basis, NPA ratios were almost constant. Provisions & contingencies spiked 1.9 times YOY and stood at Rs. 12618 Mn rising 76% QOQ. Double digit growth is visible in all business segments, the highest in Other Banking Business segment at 21%, followed by Treasury & corporate at 19% & 14% YOY respectively. Retail segment contributes 50% of total revenue and reported 9% yearly growth at Rs. 168306 Mn in the current quarter. CASA ratio galloped 500 BP and stood at 48% in the current quarter. Other income or non interest revenue accounting 16% of the total income of the bank rose 20% YOY and stood at Rs. 34463 Mn in current Q4 FY17 with a sequential jump of 10%. Advances outpaced deposits moving at 19% yearly and 12% QOQ. Deposits on the other hand grew 1.41% QOQ and 18% YOY in the current March quarter. Advances & Deposits stood at Rs. 5545680 Mn and Rs. 6436397 Mn in the Q4 FY17. Cost income ratio of bank stood at 42.40% in the current March FY17 against 44.90% corresponding quarter previous year. HDFC Bank, second largest private sector with market cap of Rs. 4258958 Mn, is an epitome of stability & profitability in the midst of global volatility and domestic uncertainty. With stable asset quality & CASA, rising NII & NIM, growing profitability and CAR of 14.60% (Tier I12.80%), HDFC bank is one of the most desirable long term bets for retail investors. Thus we recommend BUY for the stock for medium and long term investment with a target price of Rs. 1920.
CMP
Rs. 1662.00
TARGET
Rs.1920.00
INDUSTRY
BANKING
SCRIP CODE
500180
FACE VALUE
Rs. 2.00
MARKET Rs. 4258958.10 Mn CAP 52 WEEK Rs. 1691.90 /Rs.1146.60 HIGH/LOW SHAREHOLDING PATTERN (%) PROMOTER
26.00
PUBLIC
74.00
OTHERS TOTAL
100.00 Q4 FY16 CHN
In Mn
Q4 FY17
NII
90551
74533
21%
PAT
39901
33742
18%
NIM
4.30%
4.30%
-
EPS
15.57
13.35
16.67%
FY17A
FY18E
FY19E
NII
331392
381404
433629
PAT
145497
168424
189111
PBT
221391
257220
291227
EPS
56.78
65.73
73.80
PE
29.27
25.29
22.52
In Mn
HDFC BANK LTD V/S S&P BSE SENSEX
PERFORMANCE METRICS (March Quarter FY17) Profitability Analysis PROFIT AFTER TAX (Rs. In Mn) 38653
40000
35000
33742
32389
39901
NET INTEREST MARGIN
4.45% 4.40%
4.40%
34553
4.35%
30000
4.30%
25000
4.25%
4.30%
4.30% 4.20%
4.20%
20000
4.10%
4.15%
15000
4.10%
10000
4.05%
5000
4.00%
0 Q4 FY16
Q1 FY17
Q2 FY17
Q3 FY17
Q4 FY17
HDFC Bank reported strong & stable fourth quarter FY17 with PAT jumping 18% YOY and stood at Rs. 39901 Mn but grew at slower rate of 3% sequentially in the current March quarter. Net Interest Income grew at a stronger note both yearly and quarterly and stood at Rs.90551 Mn compared to Rs. 74533 Mn corresponding quarter previous year. NII grew 9% sequentially and 21% YOY. Net Interest Income jumped on the back of average asset growth of 19% in Q4 FY17. Net Interest Margin stood at 4.30% in the current March quarter. Net Interest Margin jumped 20 basis points QOQ and maintained its status quo yearly. Operating expenditure jumped QOQ by 8% where as on yearly basis rise was about 14% in the current quarter. Operating expenditure stood at Rs. 52220 Mn in the current quarter compared to Rs. 45843 Mn in the corresponding quarter previous year. Other income constituted 16% of total income of Rs 215607 Mn. Fees & commission, major component of other income rose 16% YOY, contributing 73% of total Other Income. Forex Derivatives & Revaluation on sale of assets grew 26% & 56% YOY whereas Misc Income jumped 31%.
3.95% Q4 FY16
Q1 FY17
Q2 FY17
Q3 FY17
Q4 FY17
NET INTEREST INCOME (Rs In Mn)
100000
90551
90000 80000
74533
77814
79936
Q1 FY17
Q2 FY17
83091
70000 60000 50000 40000 30000 20000 10000 0 Q4 FY16
Q3 FY17
Q4 FY17
OTHER INCOME (Rs In Mn)
OTHER INCOME COMPOSITION
Q4 FY17
34463
Q3 FY17
Misc Income 11%
31427
Q2 FY17
Revaluation & sale on Investments 5%
29010
Q1 FY17
28066
Q4 FY16
28659 0
10000
20000
30000
Foreign ex & Derivatives 11%
Fees & Commision 73%
40000
Segment Revenue Analysis Segment Revenue (Rs. In Mn)
Q4 FY17
Q4 FY16
YOY CHG%
Treasury
59130.10
49794.50
18.75%
Retail
168306.30
154409.80
9.00%
Wholesale Banking
79798.90
70255.30
13.58%
Other Banking Business
26397.50
21842.70
20.85%
SEGMENT REVENUE COMPOSITION
Other Banking Business 8% Treasury 18% Wholesale Banking 24%
Retail 50%
All revenue segments except Retail rose in double digits YOY with treasury jumping 19% YOY at Rs. 59130 Mn against Rs. 49795 Mn in the corresponding quarter previous year FY16. Retail segment representing half of revenues reported relatively slow growth of 9% YOY and almost stagnant QOQ growth in the current March quarter. Wholesale segment increased 14% yearly and grew 2% QOQ contributing 24% of the total revenues. Other banking business segment contributing just 8% of total revenues reported highest growth of 21% YOY and 13% sequentially in the current Q4 FY17.
Asset Quality Analysis
ASSET QUALITY
Q4 FY17
Q4 FY16
YOY
Provisions & Contengencies (Rs. In Mn) 14000
12618
12000
Gross NPAs
1.05%
0.94%
11 BP
10000 8000
Net NPAs
0.33%
0.28%
5 BP
8667 7490
7158
Q2 FY17
Q3 FY17
6625
6000 4000 2000
Provisions & Contingencies
12618.00
6624.50
90.47%
0 Q4 FY16
Q1 FY17
Q4 FY17
Second largest private sector bank in asset base, HDFC Bank has reported stable asset quality sequentially though mild stress was evident on yearly basis. NPA ratios seem manageable as Gross & Net NPA ratios have increased 11 & 5 basis points YOY. On quarterly basis, NPA ratios both Gross & Net are almost constant. Gross NPAs as a percentage of Gross Advances stood at 1.05% in the current quarter where as Net NPAs as percentage Net Advances rose 1 basis points at 0.33% sequentially. One basis point is 100th of percentage. On absolute terms, Gross NPAs have increased by Rs.14928 Mn, jump of about 34% YOY. On the other hand, Net NPAs increased by Rs. 5236 Mn, rising 40% YOY. After June quarter, provisions have spiked up again in current March quarter with a quarterly growth of 76% and 1.9 times YOY. On absolute terms, YOY rise has been Rs. 5994 Mn whereas quarterly jump was at Rs. 5460 Mn for Provisions in the current March quarter. Provisions & Contingencies jumped 90% YOY at Rs. 12618 Mn against Rs 6625 Mn same period previous year. Provisions and contingencies for the quarter ended 31st December 2016 consisted of Specific loan loss provisions at Rs. 9779 Mn against Rs.4903 Mn same period previous year. General provisions stood at Rs. 2803 Mn against Rs. 1611 Mn and other provisions at Rs. 36 Mn against Rs.111 Mn corresponding period previous year.
NON PERFORMING ASSETS 1.20% 1.00%
1.04%
1.02%
0.94%
1.05%
1.05%
0.80%
GNPAS
0.60% 0.40%
NNPAS 0.28%
0.32%
0.32%
0.30%
0.33%
0.20% 0.00% Q4 FY16
Q1 FY17
Q2 FY17
Q3 FY17
Q4 FY17
Business Growth Analysis CASA ratio has jumped by 500 basis points (BP) yearly and sequentially there was a jump of about 300 basis points. CASA ratio stood at 48% in Q4 FY17 against 43% corresponding quarter previous year. Advances rose at an average of 5% over the previous four quarters whereas deposits moved at lower pace of 4% over the same period. Savings account constitutes 30% of the total deposits and rose 31% YOY at Rs. 1935790 Mn as on March 2017. Current accounts are 16% of the total deposits and increased by 31% YOY to reach Rs. 1155740 Mn in March quarter FY17. Term deposits stood at Rs. 3344870 Mn reporting a rise of 7.9% YOY in the current March quarter. HDFC Bank has 52% of its 4715 branches & 12260 ATMs in rural and semi urban areas leading to high CASA ratio. CAR as per Basel III guideline is at 14.60% as on 31st March 2017 against 15.50% as on 31st March 2016. Tier I CAR was at 12.80% as on 31st March 2017 compared to 13.20% as on 31st March 2016. Risk Weighted Assets were at Rs.6400300 Mn as on 31st March 2017.
CASA RATIO 50%
48% 45%
43%
45%
40%
40%
40% 35% 30% 25% 20% 15% 10% 5% 0% Q4 FY16
Q1 FY17
Q2 FY17
Q3 FY17
Q4 FY17
ADVANCES &DEPOSITS (Rs In mn)
7000000
5464240
5737550
4645940
6436397 5545682
6000000 5000000
6347046
5917310
4706220
4950433
4944180
Advances
4000000
Deposits
3000000 2000000 1000000
0 31/03/16
30/06/16
30/09/16
31/12/16
31/03/17
Though average growth rate for Advances over the previous four quarters is around 5%, sequential growth in current March quarter was a strong 12%. Advances rose 19% on yearly basis and stood at Rs.5545682 Mn as of March 2017. The Bank’s domestic loan portfolio stood at Rs. 5386420 Mn as on 31st March 2017 and grew 24% over March 31st 2016. Both segments of loan portfolio grew faster than the system loan growth. As a result, loan growth was contributed by both segments domestic retail loans and wholesale loans and as per regulatory Basel 2 segment classification, growth was 26.60% and 20.70% respectively. The domestic loan mix as per Basel 2 classification between retail: wholesale was 53:47. Total Deposits grew YOY by 18% and stood at Rs. 6436397 Mn compared to Rs.5464240 Mn in the same quarter previous year but reported a dismal 1.41% sequential growth in the current March quarter.
SAVINGS & CURRENT ACCOUNTS (Rs. In Mn)
1354320
31/12/15
740440
31/03/16
1478860
884250
30/06/16
1527010
760820
30/09/16
SA CA
1599500
791540 1866340
31/12/16
1012390
31/03/17
1935790
1155740 0
500000
1000000
1500000
2000000
Corporate Profile The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of RBI's liberalization of the Indian Banking Industry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank in January 1995. HDFC Bank caters to a wide range of banking services covering commercial and investment banking on the wholesale side and transactional / branch banking on the retail side. HDFC Bank is headquartered in Mumbai. As of March 31st, 2017, the Bank’s distribution network was at 4715 branches and 12260 ATMs. 52% of the branches are in semi urban and rural areas. All branches are linked on an online real-time basis. Customers across India are also serviced through multiple delivery channels such as Phone Banking, Net Banking, Mobile Banking and SMS based banking. The Bank’s expansion plans take into account the need to have a presence in all major industrial and commercial centers, where its corporate customers are located, as well as the need to build a strong retail customer base for both deposits and loan products. Being a clearing / settlement bank to various leading stock exchanges, the Bank has branches in centers where the NSE / BSE have a strong and active member base.
Financial Analysis QUARTERLY PROFIT & LOSS STATEMENT OF HDFC BANK LTD FROM 30th Sep 2016 TO 30th June 2017E VALUE
30-Sep-16
31-Dec-16
31-Mar-17
30-June-17E
Rs. In Million
3 months
3 months
3 months
3 months
INTEREST EARNED
170699.40
176056.00
181144.00
188389.76
OTHER INCOME
29009.50
31426.70
34462.60
36185.73
TOTAL INCOME
199708.90
207482.70
215606.60
224575.49
INTEREST EXPENDED
-90763.50
-92965.10
-90593.00
-94216.72
PROFIT BEFORE OP EXP & PROVISIONS
108945.40
114517.60
125013.60
130358.77
OPERATING EXPENSES
-48699.90
-48425.10
-52219.60
-53786.19
OPERATING PROFIT
60245.50
66092.50
72794.00
76572.58
PROVISIONS
-7489.90
-7157.80
-12618.00
-13248.90
PROFIT BEFORE TAX
52755.60
58934.70
60176.00
63323.68
TAX
-18202.30
-20281.40
-20275.10
-21288.86
PROFIT AFTER TAX
34553.30
38653.30
39900.90
42034.83
EQUITY CAPITAL
5091.30
5110.70
5125.10
5125.10
FACE VALUE
2.00
2.00
2.00
2.00
EPS
13.57
15.13
15.57
16.40
ANNUAL PROFIT & LOSS STATEMENT OF HDFC BANK LTD FROM 2016 TO 2019E 31- Mar-16
31- Mar-17
31- Mar-18E
31-Mar-19E
12 months
12 months
12 months
12 months
INTEREST EARNED
602214.50
693059.60
790087.94
887268.76
OTHER INCOME
107517.20
122964.90
141409.64
155550.60
TOTAL INCOME
709731.70
816024.50
931497.58
1042819.36
INTEREST EXPENDED
-326299.30
-361667.40
-408684.16
-453639.42
PROFIT BEFORE OP EXP & PROVISIONS
383432.40
454357.10
522813.42
589179.94
OPERATING EXPENSES
-169796.90
-197033.20
-220677.18
-244951.67
OPERATING PROFIT
213635.50
257323.90
302136.23
344228.27
PROVISIONS
-27256.10
-35933.00
-44916.25
-53001.18
PROFIT BEFORE TAX
186379.40
221390.90
257219.98
291227.09
TAX
-63417.10
-75894.30
-88796.33
-102115.78
PROFIT AFTER TAX
122962.30
145496.60
168423.65
189111.31
5056.40
5125.10
5125.10
5125.10
721721.30
889498.70
1057922.35
1247033.66
FACE VALUE
2.00
2.00
2.00
2.00
EPS
48.64
56.78
65.73
73.80
VALUE Rs. In Million
EQUITY CAPITAL RESERVES
BALANCE SHEET FROM 2016 TO 2019E CAPITAL & LIABILITIES (Rs. In Mn)
2016
2017
2018E
2019E
5056.40
5125.10
5125.10
5125.10
RESERVES & SURPLUS
721721.30
889498.70
1057922.35
1247033.66
DEPOSITS
5464241.90
6436396.60
7466220.06
8586153.06
BORROWINGS
849689.90
740288.70
777303.14
808395.26
OTHER LIABILITIES & PROVISIONS
367251.30
567093.00
737220.90
884665.08
7407960.80
8638402.10
10043791.54
11531372.17
CASH & BALANCES WITH RBI
300583.10
378968.70
469921.19
554507.00
BALANCES WITH BANKS AND MONEY AT CALL AND SHORT NOTICE
88605.30
110552.30
132662.76
155215.43
INVESTMENTS
1958362.90
2144633.40
2337650.41
2618168.45
ADVANCES
4645939.60
5545682.00
6604808.60
7680179.70
FIXED ASSETS
33431.50
36267.50
38443.55
39981.29
OTHER ASSETS
381038.40
422298.20
460305.04
483320.29
7407960.80
8638402.10
10043791.54
11531372.17
CAPITAL
TOTAL LIABILITIES ASSETS (Rs. In Mn)
TOTAL ASSETS
Ratio Analysis YEAR
FY 16A
FY 17E
FY18E
FY19E
48.64
56.78
65.73
73.80
NPM
20.42%
20.99%
21.32%
21.31%
ROE
16.92%
16.26%
15.84%
15.10%
BOOK VALUE
287.47
349.11
414.84
488.64
P/BV
5.78
4.76
4.01
3.40
PE
34.17
29.27
25.29
22.52
EPS
Comparative Analysis (Standalone)
Q4 FY17
EPS
CAR
PAT (Rs. In Mn)
GNPA RATIO
MKT CAP (Rs. In Mn)
NIM
CASA RATIO
INDUSIND BANK
12.57
15.31%
7516
0.93%
864296.84
4%
36.85%
YES BANK
20.02
17%
9141
1.52%
744689.00
3.50%
36.30%
HDFC BANK
15.57
14.60%
39901
1.05%
4258958.10
4.30%
48%
KOTAK MAHINDRA BANK
5.31
16.77%
9765
2.59%
1832616.20
4.60%
44%
ICICI BANK
3.48
17.39%
20246
7.89%
1854182.30
3.57%
50.40%
Industry- Current Scenario Indian Banking Sector has been the bedrock of resilience against global volatility. With fiscal deficit & CAD in control and low inflation, India is poised for high sustainable growth. Indian banking system on its part has gone through various highs and lows over the last 10-12 years. Third & fourth quarters of FY16 for Indian banks especially PSU were marred by high provisions and losses due to cleaning up process directed by Reserve Bank Of India. PSU banks might be under stress for the next 3 -4 quarters whereas Private sector banks with low exposure to power & infrastructure sectors have fared well during financial crises since 2008. Though they have performed well during tough times buttressing banking services in urban and semi urban India, they have not remained unscathed by slowing Indian economy as witnessed by rising nonperforming assets. Over the last one and a half years, domestic scenario has changed with more autonomy given to banks through Indradanush initiative undertaken by the government. In addition to that proactive policies have been undertaken by the central bank such as introduction of MCLR, addressing liquidity needs of the banking sector, tighter norms for willful defaulters and licenses given to small & payment banks. New MCLR base rate methodology adopted since 1 st April 2016 is expected to lower lending rates buttressing the loan book of the banks leading to improved bottom-line and lower provisions. With the economy gaining momentum, banking system needs to become agile to fulfill the requirements of both corporate and households. On the global front, US Fed tantrums, European sluggish economy, China’s decelerating growth have given enough challenges for our banking industry. But even in this uncertain volatile world economy, both public and private sector banks have worked together to strengthen our financial system and made India the only Brick left in the famed BRICS ellipsis.
SUHANI ADILABADKAR
[email protected] 9701063320
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