19 April 2020
4QFY20 Results Update | Sector: Financials
HDFC Bank
Estimate change
TP change
Rating change
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
HDFCB IN
5,477
4992 / 63.2
1304 / 739
-10/-6/-1
10009
CMP: INR910
TP: INR1,200 (+32%)
High contingent provisions drive flat PBT; 3 candidates
finalized for CEO
Prudential provisioning to enable steady earnings trajectory
Buy
Financials & Valuations (INR b)
Y/E MARCH
FY20 FY21E
NII
561.9 668.9
OP
487.5 576.1
NP
262.6 302.7
NIM (%)
4.2
4.3
EPS (INR)
48.0
55.2
EPS Gr. (%)
21.2
14.9
BV/Sh. (INR)
311.8 357.4
ABV/Sh. (INR)
297.9 338.5
Ratios
RoE (%)
16.4
16.5
RoA (%)
1.9
1.9
Payout (%)
25.0
17.4
Valuations
P/E(X)
18.9
16.5
P/BV (X)
2.9
2.5
P/ABV (X)
3.1
2.7
Div. Yield (%)
1.3
1.1
Shareholding pattern (%)
As On
Mar-20 Dec-19
Promoter
21.2
21.3
DII
17.9
17.1
FII
48.6
49.6
Others
12.4
12.0
FII Includes depository receipts
FY22E
772.9
660.1
360.6
4.3
65.8
19.2
412.9
392.9
17.1
1.9
15.6
13.8
2.2
2.3
1.1
HDFC Bank (HDFCB) reported healthy business growth in 4QFY20, led by
continued strength in its corporate portfolio while retail growth was soft.
Operating performance stood flat as margin expansion was offset by lower
fee income due to the COVID-19 impact. Further, the bank has made
contingent provisions of INR15.5b, which affected earnings.
We have fine-tuned our other income estimates factoring in the current
trends, which has resulted in ~2% cut each in our FY21E/FY22E earnings.
Maintain
Buy.
HDFCB reported a steady quarter with PAT growth of ~18% YoY (-7% QoQ),
supported by NII growth of 16% YoY (7% QoQ) as margins increased 10bp
QoQ to 4.3%. However, provisions spiked to INR37.8b (+24% QoQ) as the
bank made contingent provision of INR15.5b toward COVID-19.
For FY20:
NII/ PPoP/PAT grew 16%/23%/25% YoY to INR562b/INR487b/INR263b.
Core fee income growth moderated to ~15% YoY to INR42b affected by the
lockdown, which resulted in loss of fees/other income of INR4.5b. Opex
grew ~16% YoY led by employee expenses (+20% YoY). C/I ratio increased to
39% (+110bp QoQ) while PPoP stood flat QoQ at INR129.6b (+20% YoY).
Loans grew 21% YoY, led by corporate loans (+29% YoY) while retail loan
growth was soft at 14.6% YoY. Within retail, credit cards were flat QoQ
while personal loans grew 5.5% QoQ. Deposits increased 24% YoY while
CASA mix soared to 42.2% (+270bp QoQ). LCR ratio stood at 132%.
Slippages stood at INR31.5b (1.3% annualized) while some of the overdue
accounts availed moratorium, which otherwise would have slipped during the
quarter, resulting in ~6%/21% QoQ decline in GNPA/NNPA. Thus, GNPA /
NNPA ratios declined by 16bp YoY/12bp QoQ (10bp/6bp benefit due to the
moratorium). As a result, PCR improved by ~530bp QoQ to 72%. HDFCB
carries a floating provision of INR14.5b and contingent provision of INR29.9b.
COVID-19 impact:
Under the stress case, we expect ~9% of the SME portfolio
to be vulnerable and see maximum potential GNPA impact of ~50bp.
Of the retail customers who are applying for moratorium, ~95-98% are not
in default (0 dpd) as on 29
th
Feb’20, and are availing moratorium mainly
from a caution perspective rather than from stress building up.
CEO change:
Mr. Aditya Puri is set to retire on 26
th
Oct’20; the bank has
finalized three candidates and would be applying to the RBI for approval.
Stable earnings performance; provision coverage improves to 72%
Mar-19
21.4
13.4
50.5
14.7
Highlights from management commentary
Valuations and view
HDFCB's business growth remains robust despite economic activity getting
impacted due to the COVID-19 outbreak. Corporate loan growth remains strong
and is driving overall loan growth while retail loan growth remains soft.
Although the RBI moratorium supports asset quality, credit cost is expected to
stay elevated while provisioning buffers should limit the overall impact on
earnings. A strong liability franchise would support margins while higher
Research Analyst: Nitin Aggarwal
(Nitin.Aggarwal@MotilalOswal.com); +91 22 6129 1542 |
Himanshu Taluja
(Himanshu.Taluja@motilaloswal.com)
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com);
Yash Agarwal
(Yash.Agarwal@motilaloswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal
2020
14 January
research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
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