Q1FY2020 Result Update | Banking

July 23, 2019

HDFC Bank

BUY

CMP

`2,264

Stable Q1; Higher Provisions mar performance

Target Price

`2,620

Particulars (` cr)

Q1FY20

Q4FY19

% chg (qoq)

Q1FY19

% chg (yoy)

Investment Period

12 Months

NII

13,294

13,089

1.6

10,814

22.9

Pre-prov. profit

11,147

10,844

2.8

8,648

28.9

PAT

5,568

5,885

(5.4)

4,601

21.0

Stock Info

Source: Company

Sector

Banking

For Q1FY2020, HDFC Bank has reported a very strong set of operating numbers

Market Cap (` cr)

6,27,741

yet again coupled with stable GNPA/NPA. However, provision for unsecured

Beta

0.8

credit and agri loan spiked, which led to jump in credit cost by 34bps/33.8bps on

52 Week High / Low

2,503/1,885

yoy/qoq basis. Loan growth moderated to 17.1% yoy (~24% in past three

Avg. Daily Volume

1,91,345

quarters) led by moderating auto loans and base effect in the unsecured segment.

Advances growth moderated: Softening of auto loan segment (contributes 28% of

Face Value (`)

retail loans), which grew 9% yoy (flat qoq) led to moderate growth in advances.

BSE Sensex

38,031

Personal and credit card loan have reported very healthy growth of 25% and

Nifty

11,345

28% yoy respectively. However, it is slower than historical growth rate of 35% yoy.

Reuters Code

HDBK.BO

Deposits grew at 18.5% yoy (3.4% qoq) owing to 22.5% yoy growth in term

deposit. CASA mix declined 270bps qoq to 39.7% (42.4% in 4QFY2019).

Bloomberg Code

HDFCB IN

Core income under pressure, cost/income declines: Total other income grew at

healthy rate of 30% yoy led by treasury gains. However, core fees barely grew at

12% primarily owing to plunge in mutual fund distribution fees and decline in

Shareholding Pattern (%)

disbursement in the unsecured book. Opex grew at

18.9% yoy (flat qoq),

Promoters

21.3

primarily led by higher employee expenses (+22.5% yoy). Further, the cost-to-

core income ratio declined by

192bps/70bps on yoy/qoq basis to

39%.

MF / Banks / Indian Fls

13.9

Management has guided 300bps declined in C/I over the next 3-5 years.

Provisions spiked: During the quarter, the key monitorable was spike in provision

FII / NRIs / OCBs

31.4

expenses i.e. 60%/38% on yoy/qoq basis. This was largely led by (a) agri

portfolio, (b) step-up provision towards unsecured loan, (earlier the bank used to

Indian Public / Others

14.7

take write-off between 150-180 dpd, now provides 100% within 150dpd, (c)

contingent provision worth of `165cr, and (d) growth in balance sheet size.

Ongoing slowdown in auto segment and subdued environment in real estate has

Abs. (%)

1yr

3yr

impacted the HDB financials. GNPA/NNPA was at

2.3%/1.7% (jump of

Sensex

(2.6)

3.6

36.8

50bps/40bps qoq), largely NPA increased in construction finance segment. HDFC

Securities' PAT declined by 8% qoq.

HDFC Bank

0.8

6.5

86.5

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 3.5x of FY21 ABV and its two subsidiaries at `147/share. We

recommend a Buy on the stock, with a target price of `2,620/ share.

3-Year Price Chart

Key Performance

2,500

Y/E March (` cr)

FY17

FY18

FY19

FY20E

FY21E

2,000

NII

33,139

40,092

48,243

57,795

68,500

1,500

% chg

20.1

21.0

20.3

19.8

18.5

1,000

Net profit

14,549

17,486

21,078

24,915

30,149

% chg

18.3

20.2

20.5

18.2

21.0

NIM (%)

4.5

4.4

EPS ( Rs)

56.8

67.5

77.4

91.2

110.3

Source: Company

P/E (x)

39.9

33.6

29.3

24.9

20.5

P/ABV (x)

6.8

5.6

4.3

3.7

3.2

Jaikishan Parmar

RoA (%)

1.9

1.8

1.9

Research Analyst

RoE (%)

18.3

18.2

16.8

15.8

16.5

022 - 39357600 Ext: 6810

Source: Company, Angel Research; Note: CMP as of July 23, 2019

[email protected]

Please refer to important disclosures at the end of this report

HDFC Bank| Q1FY2020 Result Update

Exhibit 1: Quarterly Performance

Particulars (` cr)

Q3FY18

Q4FY18

Q1FY19

Q2FY19

Q3FY19

Q4FY19

Q1FY20

% YoY

% QoQ

Interest earned

20,581

21,319

22,549

24,200

25,890

26,333

27,392

21.5

4.0

- on Advances / Bills

16,157

16,663

17,391

18,828

20,306

21,019

21,805

25.4

3.7

- on investments

4,100

4,222

4,589

5,042

5,319

5,047

5,248

14.3

4.0

- on bal with RBI

112

196

332

112

175

(47.3)

57.1

- on others

212

238

237

236

167

155

164

(30.7)

5.5

Interest Expended

10,267

10,663

11,735

12,436

13,314

13,244

14,097

20.1

6.4

Net Interest Income

10,314

10,656

10,814

11,763

12,577

13,089

13,294

22.9

1.6

Other income

3,868

4,229

3,818

4,016

4,921

4,871

4,970

30.2

2.0

- Fee & comm

2,872

3,330

3,171

3,296

3,647

3,692

3,552

12.0

(3.8)

- Treasury income

259

(22)

(283)

(33)

474

229

212

(174.9)

(7.4)

- Forex & derivative

426

416

500

420

398

403

577

15.4

42.9

Others

311

505

431

333

403

547

630

46.3

15.2

C/I%

40.4

40.6

39.9

38.4

39.6

39.0

(192.9)bp

(65.8)bp

Operating income

14,182

14,885

14,632

15,779

17,498

17,961

18,264

24.8

1.7

Operating exp

5,732

6,050

5,984

6,299

6,719

7,117

18.9

0.0

- Employee exp

1,691

1,741

1,811

1,909

1,968

2,074

2,217

22.5

6.9

- Other Opex

4,041

4,309

4,173

4,390

4,752

5,043

4,900

17.4

(2.8)

Pre-provision Profit

8,450

8,835

8,648

9,480

10,779

10,844

11,147

28.9

2.8

Provisions & Cont

1,351

1,541

1,629

1,820

2,212

1,889

2,614

60.4

38.3

PBT

7,099

7,294

7,018

7,660

8,567

8,954

8,533

21.6

(4.7)

Provision for Tax

2,457

2,495

2,417

2,654

2,981

3,069

2,965

22.7

(3.4)

PAT

4,641

4,799

4,601

5,006

5,586

5,885

5,568

21.0

(5.4)

Effective Tax Rate (%)

31.4bp

47.4bp

Balance sheet

Advance

6,31,215

6,58,333

7,08,649

7,50,838

7,80,951

8,19,401

8,29,730

17.1

1.3

Borrowing

1,03,867

1,23,105

1,21,024

1,42,719

1,23,460

1,17,085

1,00,894

(16.6)

(13.8)

Deposit

6,99,026

7,88,770

8,05,785

8,33,364

8,52,502

9,23,141

9,54,554

18.5

3.4

1,01,286

1,19,283

1,09,297

1,15,131

1,11,905

1,42,498

1,25,663

15.0

(11.8)

2,05,833

2,23,810

2,26,656

2,34,568

2,35,179

2,48,700

2,53,338

11.8

1.9

CASA

3,07,119

3,43,093

3,35,953

3,49,699

3,47,084

3,91,198

3,79,001

12.8

(3.1)

CASA%

43.9

43.5

41.7

42.0

40.7

42.4

39.7

(198.8)bp

(267.2)bp

CA%

14.5

15.1

13.6

13.8

13.1

15.4

13.2

(39.9)bp

(227.2)bp

SA%

29.4

28.4

28.1

27.6

26.9

26.5

(158.9)bp

(40.1)bp

NIM (Reported)%

4.3

4.2

4.3

4.4

4.3

10bp

(10)bp

Source: Company

July 23, 2019

HDFC Bank| Q1FY2020 Result Update

Exhibit 2: Profitability

Particulars (%)

Q3FY18

Q4FY18

Q1FY19

Q2FY19

Q3FY19

Q4FY19

Q1FY20

% YoY

% QoQ

Advance Yield

10.5

10.3

10.18

10.32

10.61

10.51

10.58

40bp

7bp

Investment Yield

6.9

7.1

7.0

7.3

7.1

3.7bp

4.7bp

NIM

4.60

4.42

4.20

4.37

4.51

4.54

4.42

22.4bp

(11.1)bp

COF

5.2

5.0

5.11

5.23

5.46

5.25

5.38

27.5bp

12.7bp

Spread

5.3

5.4

5.1

5.3

5.2

12.4bp

(5.6)bp

RoA

1.97

1.9

1.7

1.8

1.9

1.95

1.79

7.6bp

(15.8)bp

RoE

17.9

18.1

17.2

16.4

15.9

16.1

14.6

(259.3)bp

(150.2)bp

Source: Company

Exhibit 3: Advance detail as per internal classification

Particular (` Cr)

Q3FY18

Q4FY18

Q1FY19

Q2FY19

Q3FY19

Q4FY19

Q1FY20

% YoY

% QoQ

Auto

82,510

85,974

88,320

91,920

93,023

91,383

92,086

4.3

0.8

Two Wheelers

9,220

9,648

10,324

11,290

11,369

11,271

11,334

9.8

0.6

CV/CE

42,548

45,939

47,167

49,548

52,880

55,429

55,200

17.0

(0.4)

Sub-total - Auto Loans

1,34,278

1,41,561

1,45,811

1,52,758

1,57,272

1,58,083

1,58,620

8.8

0.3

Personal Loans

67,490

72,442

78,542

84,145

89,550

93,806

97,986

24.8

4.5

Home Loans

38,130

36,265

44,036

47,875

51,799

51,372

55,781

26.7

8.6

Business Banking

1,00,810

1,09,507

1,09,551

1,17,039

1,20,429

1,25,014

1,26,099

15.1

0.9

Kisan Gold Card

31,307

35,497

33,783

37,068

36,349

40,362

38,556

14.1

(4.5)

Credit Cards

33,622

36,115

38,792

40,535

44,839

46,630

49,523

27.7

6.2

Others

18,061

17,791

20,362

21,023

22,403

22,771

22,310

9.6

(2.0)

Gold Loans

5,299

5,399

5,529

5,701

5,760

5,838

5,924

7.1

1.5

LAS

3,458

3,866

3,552

3,580

3,455

3,598

3,350

(5.7)

(6.9)

Total Retail Advances

4,32,455

4,58,443

4,79,958

5,09,724

5,31,856

5,47,474

5,58,149

16.3

1.9

Corp& International

1,98,760

1,99,890

2,28,691

2,41,114

2,49,095

2,71,927

2,71,581

18.8

(0.1)

Total loans

6,31,215

6,58,333

7,08,649

7,50,838

7,80,951

8,19,401

8,29,730

17.1

1.3

Retail (%)

(46)bp

45.5bp

Corporate (%)

46bp

(45.5)bp

Source: Company

Exhibit 4: GNPA/NPA stable however Provision increased due to unsecured loan

Particular

Q3FY18

Q4FY18

Q1FY19

Q2FY19

Q3FY19

Q4FY19

Q1FY20

% YoY

% QoQ

GNPA

8,235

8,607

9,539

10,098

10,903

11,224

11,769

23.4

4.9

GNPA

2,774

2,601

2,907

3,028

3,302

3,215

3,567

22.7

11.0

GNPA%

1.3

1.33

1.38

1.36

1.40

5.4bp

4bp

NPA%

0.44

0.40

0.41

0.40

0.42

0.39

0.43

2bp

4bp

Slippage (%) Annl

2.9

1.70

2.0

2.3

2.0

1.75

2.04

1.6bp

28.9bp

Slippages

4,588

2,790

3,580

4,333

4,000

3,580

4,225

18.0

Credit Cost (%)

0.86

0.94

0.92

0.97

1.13

0.92

1.26

34bp

33.8bp

Provision Calc

66.15

69.47

69.52

69.92

69.57

71.32

69.29

(23.7)bp

(203.8)bp

Source: Company

July 23, 2019

HDFC Bank| Q1FY2020 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 3.4x of FY21 ABV and its two subsidiaries at `147/share. We

recommend a Buy on the stock, with a target price of `2,620/share.

Exhibit 5: Valuation Summary

Valuation

Value/share

Particulars

Methodology

(`)

Value of HDFC Bank standalone

100

3.5x FY21E ABV

2488

Subsidiaries

HDB Fin

96%

3.5x FY21E ABV

126

HDFC Sec

98% 15x of FY21 PAT

Less: Cost of investments

(14)

Fair value per share

2620

Source: Company

Exhibit 6: One year forward P/BV (x)

4.5

P/BV

Avg. P/BV

+1STD

-1STD

3.85

3.52

3.5

3.19

2.5

Source: Company

July 23, 2019

HDFC Bank| Q1FY2020 Result Update

Income Statement (Standalone)

Y/E March (` cr)

FY17

FY18

FY19

FY20E

FY21E

Net Interest Income

33,139

40,092

48,243

57,795

68,500

- YoY Growth (%)

20.1

21.0

20.3

19.8

18.5

Other Income

12,296

15,221

17,626

20,459

23,793

- YoY Growth (%)

14.4

23.8

15.8

16.1

16.3

Operating Income

45,435

55,313

65,869

78,254

92,293

- YoY Growth (%)

18.5

21.7

19.1

18.8

17.9

Operating Expenses

19,703

22,690

26,119

30,331

35,464

- YoY Growth (%)

16.0

15.2

15.1

16.1

16.9

Pre - Provision Profit

25,732

32,623

39,750

47,923

56,829

- YoY Growth (%)

20.4

26.8

21.8

20.6

18.6

Prov. & Cont.

3,593

5,927

7,550

10,514

11,830

- YoY Growth (%)

31.8

65.0

27.4

39.3

12.5

Profit Before Tax

22,139

26,696

32,200

37,409

44,999

- YoY Growth (%)

18.8

20.6

16.2

20.3

Prov. for Taxation

7,589

9,210

11,122

12,494

14,850

- as a % of PBT

34.3

34.5

33.4

33.0

PAT

14,549

17,486

21,078

24,915

30,149

- YoY Growth (%)

18.3

20.2

20.5

18.2

21.0

Balance sheet (Standalone)

Y/E March (` cr)

FY17

FY18

FY19

FY20E

FY21E

Share Capital

513

518

545

547

Reserves & Surplus

85,502

1,05,776

1,44,360

1,69,802

1,95,155

Net Worth

86,014

1,06,294

1,44,905

1,70,348

1,95,702

Deposits

6,43,640

7,88,770

9,23,141

11,07,769

13,29,323

- Growth (%)

17.8

22.5

17.0

20.0

Borrowings

74,029

1,23,105

1,17,085

1,10,777

1,32,932

Other Liab & Prov.

56,709

45,764

55,108

66,466

79,759

Total Liabilities

8,60,392

10,63,933

12,40,239

14,55,361

17,37,716

Cash balances

37,897

1,04,670

46,764

60,927

73,113

Bank balances

11,055

18,244

34,584

17,724

21,269

Investments

2,14,463

2,42,200

2,90,588

3,65,564

4,38,677

Advances

5,54,568

6,58,333

8,19,401

9,83,281

11,79,938

- Growth (%)

19.4

18.7

24.5

20.0

Fixed Assets

3,627

3,607

4,030

6,868

8,242

Other Assets

38,782

36,879

44,873

20,995

16,478

Total Assets

8,60,392

10,63,933

12,40,239

14,55,361

17,37,716

- Growth (%)

21.4

23.7

16.6

17.3

19.4

July 23, 2019

HDFC Bank| Q1FY2020 Result Update

Ratio analysis (Standalone)

Y/E March

FY17

FY18

FY19

FY20E

FY21E

Profitability Ratios (%)

NIMs

4.46

4.35

4.36

4.41

4.36

Cost to Income Ratio

43.4

41.0

39.7

38.8

38.4

RoA

1.9

1.8

1.9

RoE

18.3

18.2

16.8

15.8

16.5

B/S ratios (%)

CASA Ratio

48.0

43.5

42.4

45.0

Credit/Deposit Ratio

86.2

83.5

88.8

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

1.1

1.0

Provision Coverage

Per Share Data (`)

EPS

56.8

67.5

77.4

91.2

110.3

BVPS

336

410

532

623

716

ABVPS

334

407

528

619

711

DPS

11.5

13.5

14.5

15.0

Valuation Ratios

PER (x)

39.9

33.6

29.3

24.9

20.5

P/BVPS (x)

6.8

5.5

4.3

3.6

3.2

P/ABVPS (x)

6.8

5.6

4.3

3.7

3.2

Dividend Yield

0.5

0.6

0.7

DuPont Analysis (%)

FY17

FY18

FY19E

FY20E

FY21E

Interest Income

8.83

8.34

8.59

8.88

9.05

Interest Expenses

4.61

4.17

4.40

4.60

4.76

NII

4.22

4.17

4.19

4.29

Non Interest Income

1.57

1.58

1.53

1.52

1.49

Total Revenues

5.79

5.75

5.72

5.81

5.78

Operating Cost

2.51

2.36

2.27

2.25

2.22

PPP

3.28

3.39

3.45

3.56

Total Provisions

0.46

0.62

0.66

0.78

0.74

PreTax Profit

2.82

2.77

2.79

2.78

2.82

Tax

0.97

0.96

0.97

0.93

ROA

1.85

1.82

1.83

1.85

1.89

Leverage

9.89

10.01

9.17

8.55

8.72

RoE (%)

18.34

18.19

16.78

15.81

16.47

Valuation done on closing price of 23/7/2019

July 23, 2019

HDFC Bank| Q1FY2020 Result Update

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

Angel Broking Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited, Bombay

Stock Exchange Limited, Metropolitan Stock Exchange Limited, Multi Commodity Exchange of India Ltd and National Commodity &

Derivatives Exchange Ltd It is also registered as a Depository Participant with CDSL and Portfolio Manager and Investment Adviser with

SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Limited is a registered entity with SEBI for Research

Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration number INH000000164. Angel or its associates has not

been debarred/ suspended by SEBI or any other regulatory authority for accessing /dealing in securities Market. Angel or its

associates/analyst has not received any compensation / managed or co-managed public offering of securities of the company covered

by Analyst during the past twelve months.

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment

decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should

make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the

companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine

the merits and risks of such an investment.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

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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

July 23, 2019