HDFC Bank (HDFBAN)
HDFC Bank (HDFBAN)
CMP: | 1521 Target: | 1800 (18%) Target Period: 12 months BUY
July 19, 2021 Pandemic hits quarter; geared to push recovery ahead
About the stock: HDFC Bank is a leading private sector bank with consistent growth
and operational performance over various cycles. The bank has maintained superior
return ratios compared to its peers resulting in premium valuations. Particulars
Largest private sector bank with loan book of over | 11 lakh crore Particulars Amount Consistent performance with +4% NIM and +15% RoE in past many years Market Capitalisation | 841000 crore GNPA (Q1FY22) | 17098 crore
NNPA (Q1FY22) | 5485 crore Update Result NIM % (Q1FY22) 4.1 52 week H/L 1650/994 Q1FY22 Results: HDFC Bank’s performance was below expectations considering Networth | 203721 crore the tough environment. Face value | 1 DII holding (%) 21.5 Loans were up 14.4% YoY at | 11.4 lakh crore with deposits up 13.2% YoY FII holding (%) 39.4
NII up 8.6% YoY, NIM down 10 bps QoQ at 4.1%, C/I down QoQ to 35% Shareholding pattern GNPA accretion higher at 15 bps QoQ to 1.47%, r/s book at 80 bps (in %) Jun-20 Sept-20 Dec-20 Mar-21 Jun-21 GNPA doubled in HDB at 7.75%; further trend remains in focus Promoter 26.1 26.0 26.0 26.0 25.9 FII 37.0 37.4 39.4 39.8 39.4 DII 21.9 22.7 21.5 21.0 21.5
Others 15.0 13.9 13.2 13.3 13.3 What should investors do? HDFC Bank’s share price has grown by ~2.5x over the past five years. Price Chart 2000 20000 We remain positive and retain our BUY rating on the stock 1500 15000 1000 10000 Target Price and Valuation: We value HDFC Bank at ~3.7x FY23E ABV and | 50 500 5000 0 0
for subsidiaries to arrive at a revised target price of | 1800.
Jul-18 Jul-19 Jul-20 Jul-21
Jan-19 Jan-20 Jan-21
HDFC Bank Nifty Index
Key triggers for future price performance:
Recent Event & Key risks Research Equity Retail
Strategy to expand segments, geography & digital focus to aid future growth – Total provisions at 146% of reported Stressed accretion elevated; higher specific provision and contingency GNPA levels. buffer of 70 bps provides comfort Key Risk: Delay in lifting of credit card Encouraging demand resolution & superior franchise to aid earnings revival ban; continued elevated accretion of stress, especially in HDB
Research Analyst Securities ICICI Alternate Stock Idea: Apart from HDFC Bank, we also like Axis Bank. Kajal Gandhi Strong liabilities franchise, adequate capitalisation and healthy provision [email protected] buffer to aid business growth as well as earnings trajectory BUY with target price of | 900 Vishal Narnolia [email protected]
Sameer Sawant Key Financial Summary [email protected]
3 year CAGR 2 year CAGR | Crore FY18 FY19 FY20 FY21 FY22E FY23E (FY18-21) (FY21-23E) NII 40,095 48,243 56,186 64,880 17% 73,652 84,797 14% PPP 32,625 39,750 48,750 57,362 21% 63,811 73,437 13% PAT 17,487 21,078 26,257 31,117 21% 36,095 42,782 17% ABV (|) 199.8 268.0 305.4 361.3 412.1 475.0 P/E 45.1 39.3 31.8 26.9 23.2 19.6 P/ABV 7.6 5.7 5.0 4.2 3.7 3.2 RoA 1.8 1.8 1.9 1.9 1.9 1.9 RoE 17.9 16.5 16.4 16.6 16.5 17.1
ss Source: Company, ICICI Direct Research Result Update | HDFC Bank ICICI Direct Research
Key takeaways of recent quarter & conference call highlights Q1FY22 Results: Decent overall performance Marred by lockdown, loan growth sequentially saw moderation at 1.3% QoQ and 14.4% YoY. Growth was primarily driven by wholesale loans (up 18.1% YoY) while retail loans showed uptick of 10.2% YoY NIM was negatively impacted due to lower yield product mix, lower revolver share in credit cards, interest reversals due to NPA. NII growth would have been higher by 6% YoY, if NIM was not negatively impacted Provisions stayed elevated at | 4830 crore, including | 600 crore as contingent provisions. This led to moderation in earnings at 16.1% YoY to | 7729 crore GNPA ratio was up 15 bps sequentially to 1.47%, mainly due to higher slippages at 2.54% vs. 1.66% QoQ. Recoveries came in at 14 bps of gross loans vs. 26 bps QoQ. Of total slippages at ~| 1700 crore, agri slippages were at | 900 crore. Write-offs for Q1FY22 were at | 3100 crore
Q1FY22 Earnings Conference Call highlights
Business growth is seeing uptick since June. Wholesale credit book is largely coming from PSUs. Commercial banking lending has picked up in June Disbursements have been near pre-Covid levels in July. Retail demand in June- July has revived to 80% of January-March levels. SME customers have utilised only 70-75% of limits, which leaves scope for pick up in credit offtake The bank has gained market share in tractor segment to over 5% Total 80% of corporate book is rated AAA and AA Deposit franchisee is further gaining granularity as 88% of CASA is retail Bounce rates have recovered in June and July compared to April and May. Collections have also seen improvement and are near March 2021 levels
Restructured book is at ~70 bps. We expect some restructuring approval to follow in Q2FY22. Slippage from ECLGS book remains immaterial No restructuring was done in HDB Financial during the quarter. As on March 2021, the restructured book was at | 3650 crore Contribution of card business at 25-33% of fee based income The bank is awaiting communication from RBI regarding its IT audit and release of ban but is geared up to boost growth once restrictions on digital initiatives are lifted
Peer comparison
Exhibit 1: Peer Comparison CMP M Cap EPS (|) P/E (x) P/ABV (x) RoA (%) RoE (%) Sector / Company (|) TP(|) Rating (| Bn) FY21 FY22E FY23E FY21 FY22E FY23E FY21 FY22E FY23E FY21 FY22E FY23E FY21 FY22E FY23E Axis Bank (AXIBAN) 771 900 Buy 2364 25.2 47.7 58.7 30.6 16.2 13.1 2.7 2.3 2.0 0.8 1.3 1.4 8.1 13.8 15.2 City Union (CITUNI) 162 200 Buy 120 8.4 10.0 12.0 19.4 16.1 13.5 2.4 2.1 1.8 1.2 1.3 1.4 11.2 11.9 12.6 DCB Bank (DCB) 108 110 Buy 34 10.8 12.3 15.6 10.0 8.8 6.9 1.1 1.0 0.8 0.9 0.9 1.1 10.2 10.5 11.8 Federal Bank (FEDBAN) 88 95 Buy 175 8.0 11.2 13.7 11.0 7.9 6.4 1.2 1.1 1.0 0.8 1.0 1.1 10.4 13.2 14.7 HDFC Bank (HDFBAN) 1,521 1,800 Buy 8410 56.4 66.4 77.8 26.9 22.9 19.6 4.2 3.8 3.4 1.9 1.9 2.0 16.6 17.0 17.9 IndusInd Bank (INDBA) 1,045 1,100 Buy 808 36.7 63.6 76.3 28.5 16.4 13.7 1.9 1.7 1.5 0.8 1.3 1.4 7.3 10.6 11.3 Kotak Bank (KOTMAH) 1,750 2,040 Buy 3470 35.1 43.2 51.4 49.8 40.6 34.0 5.7 5.0 4.3 1.8 1.9 2.0 12.4 12.0 13.1 IDFC First (IDFBAN) 54 65 Buy 335 0.8 1.6 2.9 67.8 34.2 18.8 1.9 1.5 1.4 0.3 0.6 0.9 2.7 4.6 7.1
Source: Company, ICICI Direct Research
We believe HDFC Bank trades at a premium to its peers owing to superior return ratios and consistency over long time frame, which is expected to continue ahead.
ICICI Securities | Retail Research 2 Result Update | HDFC Bank ICICI Direct Research
Exhibit 2: Variance Analysis Q1FY22 Q1FY22E Q1FY21 YoY (%) Q4FY21 QoQ (%) Comments NII 17,009.0 17,191.0 15,665.4 8.6 17,120.2 -0.6 Impacted by moderate business growth and fall in Decline due to increased CRR requirement, low NIM (%) 4.1 4.1 4.3 -20 bps 4.2 10 bps yielding asset mix and interest reversals due to Other Income 6,288.5 7,062.7 4,075.3 54.3 7,593.9 -17.2 Boosted by forex income
Net Total Income 23,297.5 24,253.7 19,740.7 18.0 24,714.1 -5.7 Staff cost 2,765.6 2,739.6 2,513.4 10.0 2,678.9 3.2 Other Operating Expenses 5,394.9 6,157.2 4,398.0 22.7 6,502.4 -17.0 Decline due to lower on ground business activiity
PPP 15,137.0 15,356.8 12,829.3 18.0 15,532.8 -2.5 Elevated due to higher slippages and creation of Provision 4,830.8 3,901.5 3,891.5 24.1 4,693.7 2.9 contingency provisions PBT 10,306.2 11,455.3 8,937.8 15.3 10,839.1 -4.9 Tax 2,576.6 2,944.0 2,279.1 13.0 2,652.6 -2.9 PAT 7,729.6 8,511.3 6,658.6 16.1 8,186.5 -5.6 Impacted by higher credit cost
Key Metrics GNPA 17,099 15,586 13,773 24.1 15,086 13.3 Sequential rise led by slippage from agri segment NNPA 5,486 4,805 3,280 67.3 4,555 20.4
Loan growth moderated especially in retail segment Advances 1,147,652 1,147,500 1,003,291 14.4 1,132,837 1.3 due to lockdowns
Deposits 1,345,829 1,346,000 1,189,387 13.2 1,335,060 0.8
Source: Company, ICICI Direct Research
Exhibit 3: Change in estimates FY22E FY23E (| Crore) Old New % Change Old New % Change Net Interest Income 74,383.1 73,652.1 -1.0 85,620.4 84,797.0 -1.0 Pre Provision Profit 64,265.4 63,811.5 -0.7 17,320.1 16,010.7 -7.6 NIM calculated (%) 4.2 4.1 -16 bps 4.3 4.1 -16 bps PAT 36,583.7 36,095.1 -1.3 42,885.8 42,782.3 -0.2 ABV (|) 402.1 412.1 2.5 442.2 475.0 7.4
Source: Company, ICICI Direct Research
Exhibit 4: Assumption Current Earlier FY19 FY20 FY21 FY22E FY23E FY21 FY22E FY23E Credit growth (%) 24.5 21.3 14.0 16.9 17.3 14.0 17.1 17.4 Deposit Growth (%) 17.0 24.3 16.3 18.4 17.6 16.3 16.9 17.3 CASA ratio (%) 42.4 42.2 45.4 44.3 43.2 44.6 44.2 43.0 NIM Calculated (%) 4.4 4.2 4.1 4.1 4.1 4.2 4.2 4.3 Cost to income ratio (%) 39.7 38.6 36.3 37.2 36.7 36.3 37.0 36.4 GNPA (| crore) 11,224 12,650 19,060 22,169 23,993 15,086.0 20,127.5 24,486.8 NNPA (| crore) 3,215 3,542 6,157 6,380 6,977 4,554.8 4,839.2 7,610.1 Slippage ratio (%) 1.8 1.8 1.3 1.3 1.2 1.4 1.1 1.0 Credit cost (%) 0.9 1.0 1.1 1.0 1.0 1.3 1.1 1.1
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 3 Result Update | HDFC Bank ICICI Direct Research
Financial summary
Exhibit 5: Profit and loss statement | crore Exhibit 6: Key Ratios (Year-end March) FY20 FY21 FY22E FY23E (Year-end March) FY20 FY21 FY22E FY23E Interest Earned 114813 120858 140911 164316 Valuation Interest Expended 58626 55979 67259 79519 No. of Equity Shares 548.3 551.3 551.3 551.3 NII 56186 64880 73652 84797 EPS (|) 47.9 56.4 65.5 77.6 Growth (%) 16.5 15.5 13.5 15.1 BV (|) 311.8 369.5 423.3 486.6 Non Interest Income 23261 25205 28033 31304 ABV (|) 305.4 361.3 412.1 475.0 Fees and advisory 16334 16169 19080 22514 P/E 31.8 26.9 23.2 19.6 Treasury Income 2636 5352 3747 3372 P/BV 4.9 4.1 3.6 3.1 Other income 4291 3683 5206 5418 Total Income 79447 90084 101685 116101 P/ABV 5.0 4.2 3.7 3.2 Employee cost 9526 10365 12104 13813 Yields & Margins (%) Net Interest Margins 4.2 4.1 4.1 4.1 Other operating Exp. 21172 22358 25769 28852 Yield on avg earning assets 8.7 7.7 7.8 8.0 Gross Profit 48750 57362 63811 73437 Avg. cost on funds 5.0 4.1 4.2 4.2 Provisions 12142 15703 15362 16011 Avg. cost of deposits 4.9 4.0 4.1 4.1 PBT 36607 41659 48450 57426 Yield on average advances 10.1 8.9 9.0 9.2 Taxes 10350 10542 12355 14644 Quality and Efficiency (%) Net Profit 26257 31117 36095 42782 Growth (%) 24.6 18.5 16.0 18.5 Cost / Total net income 38.6 36.3 37.2 36.7 EPS 47.9 56.4 65.5 77.6 Credit/Deposit ratio 86.6 84.9 83.8 83.6
Source: Company, ICICI Direct Research GNPA 1.3 1.3 1.4 1.4 NNPA 0.4 0.4 0.5 0.4
ROE 16.4 16.6 16.5 17.1 ROA 1.9 1.9 1.9 1.9
Source: Company, ICICI Direct Research
Exhibit 7: Balance sheet | crore Exhibit 8: Key ratio (%) (Year-end March) FY20 FY21 FY22E FY23E (Year-end March) FY20 FY21 FY22E FY23E Sources of Funds Total assets 23.0 14.1 16.7 16.2 Advances 21.3 14.0 16.9 17.3 Capital 548 551 551 551 Deposits 24.3 16.3 18.4 17.6 Reserves and Surplus 170438 203170 232795 267696 Total Income 18.4 5.8 15.7 15.8 Networth 170986 203721 233346 268247 Net interest income 16.5 15.5 13.5 15.1 Deposits 1147502 1335060 1581000 1858560 Operating expenses 17.5 6.6 15.7 12.7 Borrowings 144629 135487 145754 157136 Operating profit 22.6 30.9 15.1 16.1 Other Liabilities & Provisions 67394 72602 78766 85797 Net profit 24.6 18.5 16.0 18.5 Total 1530511 1746871 2038866 2369741 Net worth 14.6 19.1 14.5 15.0 EPS 23.7 17.9 16.0 18.5
Applications of Funds Source: Company, ICICI Direct Research Fixed Assets 4432 4909 5548 5998
Investments 391827 443728 483003 528783 Advances 993703 1132837 1324803 1554284 Other Assets 53931 45926 99333 146990 Cash with RBI & call money 86619 119470 126179 133685 Total 1530511 1746871 2038866 2369741
Source: Company, ICICI Direct Research
ICICI Securities | Retail Research 4 Result Update | HDFC Bank ICICI Direct Research
RATING RATIONALE ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold, Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock Buy: >15% Hold: -5% to 15%; Reduce: -15% to -5%; Sell: <-15%
Pankaj Pandey Head – Research [email protected]
ICICI Direct Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093 [email protected]
ICICI Securities | Retail Research 5 Result Update | HDFC Bank ICICI Direct Research
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I/We, Kajal Gandhi, CA, Vishal Narnolia, MBA and Sameer Sawant, MBA Research Analysts Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.
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ICICI Securities | Retail Research 6