This second largest private sector bank is the most desirable long-term bet; Buy
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QUARTERLY OUTLOOK & RECOMMENDATION
HDFC Bank Ltd reported stable third quarter results amidst demonetization & FCNR redemption. PAT or Net Profit for the quarter stood at Rs. 38653 Mn compared to Rs. 33568 Mn same period previous year, rising 15% YOY & with quarterly growth of 12%, highest over the previous four quarters. Net Interest Income, difference between interest earned and expended was at Rs. 83091 Mn in the current quarter against Rs. 70685 Mn corresponding quarter previous year. Net Interest Margin indicating core profitability of bank’s operations stood at 4.10% for the current December quarter. Gross NPAs as a percentage of Gross Advances edged up 8 basis points YOY at 1.05%, Net NPAs as a percentage of Net advances also rose 3 basis points at 0.32% in the current Q3 FY17. One basis point is 0.01%. Provisions & contingencies were curtailed at Rs. 7158 Mn declining 4% QOQ. Double digit growth is visible in all business segments, the highest in Treasury at 17%, followed by Other banking business & corporate at 16% & 15% YOY respectively. Retail segment contributes 52% of total revenue and reported 12% yearly growth at Rs. 169511 Mn in the current quarter. CASA ratio at 45% jumped 500 basis points due to demonetization impact. CASA deposits increased from Rs. 2094760 Mn in Q3 FY16 to Rs 2878730 Mn in current December quarter, jump of 37% YOY. Other income or non interest revenue accounting 15% of the total income of the bank rose 9% YOY and stood at Rs. 31427 Mn in current Q3 FY17. Deposits outpaced Advances moving at 21% yearly and 7% QOQ. Advances also exhibited demonetization impact by being constant QOQ whereas on yearly basis rise was 13% in the current December quarter. Cost income ratio of bank stood at 43.80% in the current December FY17 against 43.70% corresponding quarter previous year.
HDFC Bank, second largest private sector with market cap of Rs. 3280047 Mn, is still the hallmark of stability & profitability in the midst of global volatility and domestic uncertainty. With high asset quality & CASA, stable NII & NIM, growing profitability and CAR of 15.90% (Tier I-13.80%), HDFC bank is one of the most desirable long term bets for retail investors. Thus we recommend BUY for the stock for medium and long term investment with a target price of Rs. 1420.
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Suhani Adilabadkar is a Research Analyst registered with SEBI ((INH200003240)) She has done PGDBA (Finance), MS (Finance) and a Fellowship from Insurance Institute of India. She maintains a blog where she publishes research reports across industries - oasisfundamentals.blogspot.in.
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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor IndiaNotes.com accept any liability whatsoever arising from the use of any of the above contents.
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