Q3FY2019 Result Update | Banking

Jan 22, 2019

HDFC Bank

BUY

CMP

`2,145

Performance Highlights

Target Price

`2,500

Particulars (` cr)

Q3FY19

Q2FY19

% chg (qoq)

Q3FY18

% chg (yoy)

Investment Period

12 Months

NII

12,577

11,763

6.9

10,314

21.9

Pre-prov. profit

10,779

9,480

13.7

8,450

27.6

Stock Info

PAT

5,586

5,006

11.6

4,641

20.3

Source: Company, Angel Research

Sector

Banking

Market Cap (` cr)

5,79,332

HDFC Bank delivered steady performance for Q3FY2019, with PAT growth of

Beta

1.2

20.3% yoy. Pre-provision profit grew at healthy rate largely owing to strong other

52 Week High / Low

2,219/1,830

income growth (up 27.2% yoy) and contained cost (up mere 17.2% yoy). NIM was

Avg. Daily Volume

3,70,042

stable at 4.3%, as increase in COF was offset by increase in yield. However,

Face Value (`)

provisions went up primarily owing to stress in agri portfolio and slippages. The

BSE Sensex

36,578

slippages for Q3FY2019 were at 2% though ex-agri at 1.7%. The bank managed

Nifty

10,961

to reduce its expenses and brought down the cost/income ratio from 40.4% in

Reuters Code

HDBK.NS

Q3FY2018 to 38.4 % in Q3FY2019.

Bloomberg Code

HDFCB:IN

Healthy operating profit growth; NIM stable

During Q3FY2019, the bank’s advances grew by 23.7% yoy, with retail and

Shareholding Pattern (%)

wholesale (including overseas) growing at 23% yoy and 26% yoy respectively. The

net interest income during this period grew by 21.9% yoy, led by advances growth

Promoters

0.0

and stable NIM. Core fees income grew by 27% yoy to `3,650cr supported by

MF / Banks / Indian Fls

14.5

healthy payment/cash management fees. Total other income also grew at healthy

FII / NRIs / OCBs

74.9

rate of 27.2% with Treasury gain of ₹474cr vs. loss of ₹33cr in 2QFY2019.

Indian Public / Others

10.6

Total deposits surged by 22% yoy and 2.3% qoq in Q3FY19. CASA deposits

accounted for 40.7% of the total deposits.

On the asset quality front, provision cost went up primarily owing to management

Abs. (%)

1yr

3yr

decision to take contingent provision of ₹320cr in anticipation of higher stress on

Sensex

6.1

1.6

48.9

recently announced farm loan waiver. Annualised fresh slippages for Q3FY2019

HDFC Bank

7.4

9.3

108.3

were at elevated level of 2% (ex-agri 1.7%), which led to an increase in GNPA

/NPA by 8%/9% qoq to 1.38%/0.42%.

3-year price chart

Outlook & Valuation: Credit growth beat the industry growth rate, driven by strong

retail business. The strong liability franchise and healthy capitalisation provides

2,200

2,000

earnings visibility. We value HDFC Bank using SOTP method valuing standalone

1,800

banking business at 3.3x of FY21 ABV and its two subsidiaries at `146/share. We

1,600

1,400

recommend a Buy on the stock, with a target price of `2,500.

1,200

1,000

Key financials (Standalone)

Y/E March (` cr)

FY17

FY18

FY19E

FY20E

FY21E

NII

33,139

40,092

47,942

58,609

70,301

% chg

20.1

21.0

19.6

22.3

19.9

Source: Company, Angel Research

Net profit

14,549

17,486

20,990

25,798

31,106

% chg

18.3

20.2

20.0

22.9

20.6

NIM (%)

4.5

4.4

4.5

4.4

EPS ( Rs)

56.8

67.5

78.5

96.5

116.3

Jaikishan Parmar

P/E (x)

37.8

31.8

27.3

22.2

18.4

P/ABV (x)

6.4

5.3

4.0

3.5

3.0

Research Analyst

RoA (%)

1.9

1.8

1.9

022 - 39357600 Ext: 6810

RoE (%)

18.3

18.2

16.7

16.6

17.4

[email protected]

Note: CMP as of January 21, 2019

Please refer to important disclosures at the end of this report

HDFC Bank | Q3FY2019 Result Update

Exhibit 1: Quarterly Result

Particulars (` cr)

Q2FY18

Q3FY18

Q4FY18

Q1FY19

Q2FY19

Q3FY19

% QoQ

% YoY

Interest earned

19,670

20,581

21,319

22,549

24,200

25,890

7.0

25.8

- on Advances / Bills

15,356

16,157

16,663

17,391

18,828

20,306

7.9

25.7

- on investments

4,006

4,100

4,222

4,589

5,042

5,319

5.5

29.7

- on balance with RBI & others

106

112

196

332

5.0

-12.6

- on others

202

212

238

237

236

167

-29.4

-21.4

Interest Expended

9,918

10,267

10,663

11,735

12,436

13,314

7.1

29.7

Net Interest Income

9,752

10,314

10,656

10,814

11,763

12,577

6.9

21.9

Other income

3,606

3,868

4,229

3,818

4,016

4,921

22.5

27.2

- Fee & commission income

2,614

2,872

3,330

3,171

3,296

3,647

10.7

27.0

- Treasury income

356

259

(22)

(283)

(33)

474

-1545.1

83.0

- Forex & derivative income

384

426

416

500

420

398

-5.3

-6.6

Others

252

311

505

431

333

403

20.9

29.5

C/I%

41.5

40.4

39.9

38.4

-152bp

-202bp

Operating income

13,358

14,182

14,885

14,632

15,779

17,498

10.9

23.4

Operating expenses

5,540

5,732

6,050

5,984

6,299

6,719

6.7

17.2

- Employee expenses

1,716

1,691

1,741

1,811

1,909

1,968

3.1

16.3

- Other Opex

3,824

4,041

4,309

4,173

4,390

4,752

8.2

17.6

Pre-provision Profit

7,818

8,450

8,835

8,648

9,480

10,779

13.7

27.6

Provisions & Contingencies

1,476

1,351

1,541

1,629

1,820

2,212

21.5

63.7

PBT

6,342

7,099

7,294

7,018

7,660

8,567

11.8

20.7

Provision for Tax

2,191

2,457

2,495

2,417

2,654

2,981

12.3

21.3

PAT

4,151

4,641

4,799

4,601

5,006

5,586

11.6

20.3

Liability Profile

Borrowing

1,01,531

1,03,867

1,23,105

1,21,024

1,42,719

1,23,460

-13.5

18.9

Deposit

6,89,346

6,99,026

7,88,770

8,05,785

8,33,364

8,52,502

2.3

22.0

97,825

1,01,286

1,19,283

1,09,297

1,15,131

1,11,905

-2.8

10.5

1,97,655

2,05,833

2,23,810

2,26,656

2,34,568

2,35,179

0.3

14.3

CASA

2,95,480

3,07,119

3,43,093

3,35,953

3,49,699

3,47,084

-0.7

13.0

CASA%

42.9

43.9

43.5

41.7

42.0

40.7

-125bp

-322bp

CA%

14.2

14.5

15.1

13.6

13.8

13.1

-69bp

-136bp

SA%

28.7

29.4

28.4

28.1

27.6

-56bp

-186bp

NIM (Repoted)%

4.3

4.2

4.3

0bp

Branches

4,729

4,734

4,787

4,804

4,825

4,963

2.9

4.8

Profitability Ratios

Advance Yield

10.4

10.5

10.3

10.18

10.32

10.61

29bp

15bp

Investemnt Yield

7.0

6.9

7.1

7.0

7.3

33bp

40bp

NIM

4.47

4.60

4.42

4.20

4.37

4.51

13bp

-9bp

COF

5.1

5.2

5.0

5.11

5.23

5.46

23bp

30bp

Spread

5.2

5.3

5.4

5.1

6bp

-15bp

RoA

1.8

2.0

1.9

1.7

1.8

1.9

13bp

-6bp

RoE

16.9

17.9

18.1

17.2

16.4

15.9

-40bp

-196bp

Source: Company

Jan 22, 2019

HDFC Bank | Q3FY2019 Result Update

Exhibit 2: Advance growth & Mix (As per internal business classification)

Particulars (` cr)

Q2FY18

Q3FY18

Q4FY18

Q1FY19

Q2FY19

Q3FY19

% QoQ

% YoY

Auto

78,999

82,510

85,974

88,320

91,920

93,023

1.2

12.7

Two Wheelers

8,535

9,220

9,648

10,324

11,290

11,369

0.7

23.3

CV/CE

40,361

42,548

45,939

47,167

49,548

52,880

6.7

24.3

Sub-total - Auto Loans

1,27,895

1,34,278

1,41,561

1,45,811

1,52,758

1,57,272

Personal Loans

61,313

67,490

72,442

78,542

84,145

89,550

6.4

32.7

Home Loans

40,029

38,130

36,265

44,036

47,875

51,799

8.2

35.8

Business Banking

96,485

1,00,810

1,09,507

1,09,551

1,17,039

1,20,429

2.9

19.5

Kisan Gold Card

31,729

31,307

35,497

33,783

37,068

36,349

-1.9

16.1

Credit Cards

30,831

33,622

36,115

38,792

40,535

44,839

10.6

33.4

Others

16,493

18,061

17,791

20,362

21,023

22,403

6.6

24.0

Gold Loans

5,251

5,299

5,399

5,529

5,701

5,760

1.0

8.7

Loans against securities

3,219

3,458

3,866

3,552

3,580

3,455

-3.5

-0.1

Total Retail Advances

4,13,245

4,32,455

4,58,443

4,79,958

5,09,724

5,31,856

4.3

23.0

Corporate & International

1,91,622

1,98,760

1,99,890

2,28,691

2,41,114

2,49,095

3.3

25.3

Total loans

6,04,867

6,31,215

6,58,333

7,08,649

7,50,838

7,80,951

4.0

23.7

Retail

22bp

-41bp

Corporate

-22bp

41bp

Loan Mix (%)

Auto

13.1

12.5

12.2

11.9

-33bp

-116bp

Two Wheelers

1.4

1.5

-5bp

0bp

CV/CE

6.7

7.0

6.7

6.6

6.8

17bp

3bp

Sub-total - Auto Loans

21.1

21.3

21.5

20.6

20.3

20.1

-21bp

-113bp

Personal Loans

10.1

10.7

11.0

11.1

11.2

11.5

26bp

77bp

Home Loans

6.6

6.0

5.5

6.2

6.4

6.6

26bp

59bp

Business Banking

16.0

16.6

15.5

15.6

15.4

-17bp

-55bp

Kisan Gold Card

5.2

5.0

5.4

4.8

4.9

4.7

-28bp

-31bp

Credit Cards

5.1

5.3

5.5

5.4

5.7

34bp

42bp

Others

2.7

2.9

2.7

2.9

2.8

2.9

7bp

1bp

Gold Loans

0.9

0.8

0.7

-2bp

-10bp

Loans against securities

0.5

0.6

0.5

0.4

-3bp

-11bp

Total Retail Advances

68.3

68.5

69.6

67.7

67.9

68.1

22bp

-41bp

Corporate & International

31.7

31.5

30.4

32.3

32.1

31.9

-22bp

41bp

Total loans

100.0

0bp

Asset Quality

GNPA

7,703

8,235

8,607

9,539

10,098

10,903

8.0

32.4

GNPA

2,599

2,774

2,601

2,907

3,028

3,302

9.0

19.0

GNPA%

1.3

1.33

1.38

5bp

8bp

NPA%

0.43

0.44

0.40

0.41

0.400

0.420

2bp

-2bp

Slippage (%)

1.6

2.9

1.7

2.0

2.3

2.0

-26bp

-86bp

Slippages

2,473

4,588

2,790

3,580

4,333

4,000

-7.7

-12.8

Credit Cost (%)

1.0

0.9

1.0

1.1

16bp

28bp

Source: Company

Jan 22, 2019

HDFC Bank | Q3FY2019 Result Update

Outlook & Valuation: Credit growth beat the industry growth rate, driven by strong

retail business. The strong liability franchise and healthy capitalisation provides

earnings visibility. We value HDFC Bank using SOTP method valuing standalone

banking business at 3.3x of FY21 ABV and its two subsidiaries at `146/share. We

recommend a Buy on the stock, with a target price of `2,500.

Exhibit 3: Valuation Summary

Valuation

Particulars

Value/share (`)

Methodology

Value of HDFC Bank standalone

100

3.3x FY21E ABV

2354

Subsidiaries

HDB Fin

96%

3.5x FY21E ABV

123

HDFC Sec

98%

20x of FY21 PAT

Less: Cost of investments

(14)

Fair value per share

2500

Source: Company Valuation done on closing price of 21/1/19

Exhibit 4: One year forward P/BV (x)

P/BV

Avg. P/BV

+1STD

-1STD

4.5

3.9

3.6

3.5

3.4

3.0

2.5

Source: Company

Jan 22, 2019

HDFC Bank | Q3FY2019 Result Update

Income Statement

Y/E March (` cr)

FY17

FY18

FY19E

FY20E

FY21E

Net Interest Income

33,139

40,092

47,942

58,609

70,301

- YoY Growth (%)

20.1

21.0

19.6

22.3

19.9

Other Income

12,296

15,221

17,460

20,361

24,715

- YoY Growth (%)

14.4

23.8

14.7

16.6

21.4

Operating Income

45,435

55,313

65,402

78,970

95,016

- YoY Growth (%)

18.5

21.7

18.2

20.7

20.3

Operating Expenses

19,703

22,690

25,897

31,094

37,608

- YoY Growth (%)

16.0

15.2

14.1

20.1

20.9

Pre - Provision Profit

25,732

32,623

39,506

47,876

57,408

- YoY Growth (%)

20.4

26.8

21.1

21.2

19.9

Prov. & Cont.

3,593

5,927

7,608

9,372

10,981

- YoY Growth (%)

31.8

65.0

28.3

23.2

17.2

Profit Before Tax

22,139

26,696

31,898

38,504

46,428

- YoY Growth (%)

18.8

20.6

19.5

20.7

20.6

Prov. for Taxation

7,589

9,210

10,908

12,706

15,321

- as a % of PBT

34.3

34.5

34.2

33.0

PAT

14,549

17,486

20,990

25,798

31,106

- YoY Growth (%)

18.3

20.2

20.0

22.9

20.6

Balance Sheet

Y/E March (` cr)

FY17

FY18

FY19E

FY20E

FY21E

Share Capital

513

518

535

Reserves & Surplus

85,502

1,05,776

1,43,997

1,65,257

1,91,670

Net Worth

86,014

1,06,294

1,44,532

1,65,792

1,92,205

Deposits

6,43,640

7,88,770

9,30,749

11,16,898

13,40,278

- Growth (%)

17.8

22.5

18.0

20.0

Borrowings

74,029

1,23,105

1,23,790

1,56,366

1,87,639

Other Liab & Prov.

56,709

45,764

74,460

89,352

1,07,222

Total Liabilities

8,60,392

10,63,933

12,73,530

15,28,408

18,27,344

Cash balances

37,897

1,04,670

51,191

61,429

73,715

Bank balances

11,055

18,244

14,892

17,870

21,444

Investments

2,14,463

2,42,200

3,07,147

3,68,576

4,42,292

Advances

5,54,568

6,58,333

8,03,166

9,79,863

11,95,433

- Growth (%)

19.4

18.7

22.0

Fixed Assets

3,627

3,607

5,771

6,925

8,310

Other Assets

38,782

36,879

91,363

93,744

86,150

Total Assets

8,60,392

10,63,933

12,73,530

15,28,408

18,27,344

- Growth (%)

21.4

23.7

19.7

20.0

19.6

Jan 22, 2019

HDFC Bank | Q3FY2019 Result Update

Key Ratio

Y/E March

FY17

FY18

FY19E

FY20E

FY21E

Profitability Ratios (%)

NIMs

4.5

4.4

4.5

4.4

Cost to Income Ratio

43.4

41.0

39.6

39.4

39.6

RoA

1.9

1.8

1.9

RoE

18.3

18.2

16.7

16.6

17.4

B/S ratios (%)

CASA Ratio

48.0

43.5

45.0

Credit/Deposit Ratio

86.2

83.5

86.3

87.7

89.2

Asset Quality (%)

Gross NPAs

1.1

1.3

Net NPAs

0.3

0.4

Slippages

1.5

2.2

2.0

Loan Loss Prov./Avg. Assets

0.6

0.9

1.0

0.9

Provision Coverage

Per Share Data (`)

EPS

56.8

67.5

78.5

96.5

116.3

BVPS

336

410

540

620

719

ABVPS

334

407

537

616

713

DPS

11.5

13.5

14.5

15.0

Valuation Ratios

PER (x)

37.8

31.8

27.3

22.2

18.4

P/BVPS (x)

6.4

5.2

4.0

3.5

3.0

P/ABVPS (x)

6.4

5.3

4.0

3.5

3.0

Dividend Yield

0.5

0.6

0.7

DuPont Analysis (%)

Interest Income

8.83

8.34

8.54

8.81

8.91

Interest Expenses

4.61

4.17

4.44

4.62

4.72

NII

4.22

4.17

4.10

4.18

4.19

Non Interest Income

1.57

1.58

1.49

1.45

1.47

Total Revenues

5.79

5.75

5.60

5.64

5.66

Operating Cost

2.51

2.36

2.22

2.24

PPP

3.28

3.39

3.38

3.42

Total Provisions

0.46

0.62

0.65

0.67

0.65

Pre-Tax Profit

2.82

2.77

2.73

2.75

2.77

Tax

0.97

0.96

0.93

0.91

ROA

1.85

1.82

1.80

1.84

1.85

Leverage

9.89

10.01

9.32

9.03

9.37

RoE (%)

18.34

18.19

16.74

16.63

17.38

Jan 22, 2019

HDFC Bank | Q3FY2019 Result Update

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

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Disclosure of Interest Statement

HDFC Bank

1. Financial interest of research analyst or Angel or his Associate or his relative

2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives

3. Served as an officer, director or employee of the company covered under Research

4. Broking relationship with company covered under Research

Ratings (Based on expected returns

Buy (> 15%)

Accumulate (5% to 15%)

Neutral (-5 to 5%)

over 12 months investment period):

Reduce (-5% to -15%)

Sell (< -15)

Jan 22, 2019