Anand Rathi's research report on HDFC Bank
Net interest income for the quarter at Rs. 210 billion grew by 18.9% over prior year and 7.9% over prior quarter. The core net interest margin for the quarter was at 4.1% prior year was also at 4.1% and prior quarter was at 4%. Based on interest earning assets, the core net interest margin was at 4.3%. Other income for the quarter, which included Fees and commission income constituting 3/4th of other income was at Rs.58 billion and grew by 17% over prior year and 8% over prior quarter. Retail constitutes approximately 93% of the fees. The fixed and derivatives income at Rs.9.5 billion was higher by 9.3% compared to prior year. During the quarter operating expenses, which were at Rs.112.3 billion, an increase of 21% over prior year and an increase of 6.9% over prior quarter. HDFC bank added 1,813 branches and 2,226 ATMs since last year, 121 branches and 248 ATMs last quarter taking the total network strength to 6,499 branches, 18,868 ATMs and 15,691 business correspondence. Cost to income ratio for the quarter was at 39.2%. On the advances side, which were at 14.79 trillion grew by 6.1% sequentially and 23.4% over prior year. The retail advances growth was robust. Domestic retail grew by 21.4% YoY and 4.9% QoQ. Card spends have grown 9% over the prior quarter. Total deposits amounted to Rs. 16.73 trillion an increase of 4.3% over prior quarter and up 19% over prior year. In retail deposits, the bank added Rs. 710 billion during the quarter and Rs. 2,350 billion since September. Retail constitutes about 83% of total deposits, retail deposits have been the anchor of their deposit growth.
Outlook
HDFC Bank already had a huge opportunity with the under-penetration of banking services in the country. The proposed merger adds an entirely different dimension to the future. We believe that the runway is huge. HDFC Bank’s earnings trajectory remains on track with continued growth in retail. The ongoing expansion of branch network and cards business, coupled with the merger, is expected to aid long-term growth. Nevertheless, the bank’s long-term outlook remains positive. We thereby retain our BUY rating on the stock, with a revised target price of Rs. 1,908.
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