Net Interest margin (NIM) of 4.5% is the highest recorded by the bank in the last three years, according a Nomura Equity Research’s Quick Note on HDFC Bank
HDFC Bank delivered another 30% PAT growth quarter (at Rs18.9 billion), in line with Nomura’s estimate and consensus at Rs19 billion and Rs18.9 billion, respectively. Profit after tax (PAT) growth was supported by a healthy 20 basis points (bps) q-o-q improvement in NIM and stable asset quality. Loans grew 22.7% y-o-y supported by strong traction in retail loans. GNPLs (gross non-performing loans) declined 4% sequentially with GNPL ratio of 0.97%. These observations were made by Nomura Equity Research in its Quick Note on the private lender’s performance.
The bank restated some line items (with no impact on the overall PAT) as explained below. The restatement (on RBI's instructions) was driven by the following: the origination cost associated with garnering retail assets which was earlier adjusted from the loan yield is now taken in the opex line and recovery from written-off loans will now flow into non-interest income as against the earlier practice of being adjusted against provisions.
Margins at the upper end of three-year range: Net Interest margin (NIM) of 4.5% is the highest recorded by the bank in the last three years. The 20 bps sequential improvement in NIM is driven by a sharp 205bps q-o-q improvement in CASA (current account saving account) ratio and increase in the loan mix towards retail loans at 56.9% compared to 53.8% in 3Q13.
Retail loans continue to drive loan growth: Robust loan growth (up 22.7% y-o-y against Nomura’s estimate of 24.8% y-o-y) was supported by strong retail loan growth (up 27.3% y-o-y), taking the retail loans’ share up by 308 bps q-o-q. Retail loans growth was supported by personal loans (up 26% y-o-y), credit cards (up 45% y-o-y) and gold loans (up 64.5% y-o-y). LAS portfolio also registered a sharp uptick in 4Q, up 13.8% q-o-q. CV loan growth was understandably sluggish, given asset quality pressure in that segment.
For FY14, the bank looks to grow 5%-6% above the system average, with retail loans growing faster than corporate loans. Within corporate loans, the bank expects a relatively higher growth in FY14 than in FY13, partly from management's strategy of focusing on project loan refinancing market.
CASA improves, helped by both savings and current deposits: CASA growth picked up in 4Q with savings deposits growing 7.7% q-o-q (19.2% y-o-y) and current deposits growing 11.3% q-o-q (15.2% y-o-y). This led to a 205 bps sequential improvement in CASA ratio to 47.4%. The bank added 193 branches of the total 518 added in FY13 in deeper geographies. These are micro-branches with two to three employees per branch. Over the medium term, the operating leverage should kick in from these branches. The bank is now present across 1,845 cities in India, with 53% of its 3,062 branches in semi-urban & rural areas.
Asset quality remains rock steady: GNPLs declined 4% q-o-q with a GNPL ratio of 0.97% (1% in 3Q). Provision cover is at 79.9% and in addition to that the bank has a floating provision book of Rs18.4 billion (of which roughly Rs500 million of floating provision is added in the current quarter). CAR stands at a healthy 16.8% (Tier-1 at 11.1%).
At Nomura’s TP, HDFC Bank trades at 3.9x FY14F ABV of Rs175.5 and 20.1x FY14F EPS of Rs34.3 for an ROA of 1.8% and ROE of 21% for FY14F.