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You are here : IndiaNotes >> Research & Analysis >> Companies >> HDFC Bank Ltd. >> Research

HDFC Bank: Strong Business Growth to Continue; A Trading Opportunity

Reliance Securities | 09 Feb, 2018  | Follow Author | Add to my Favourites 
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Background & Business

HDFC Bank is the second largest private bank in India, with a balance sheet size of Rs9,491bn as of Dec‘17. HDFC Ltd currently holds 21% stake in HDFC Bank. The Bank has 4,734 branches across 2,672 cities/towns and 12,087 ATMs. Out of the total branches, 52% branches are located in semi-urban and rural areas. Notably, the Bank is among the Top-5 players in personal, auto and CV loans.

Investment Rationale

- Strong Business Growth to Continue: The Bank’s loan book grew by 27.5% YoY and 4.4% QoQ to Rs6,312bn in 3QFY18 owing to strong sequential growth in Retail (4.8%) , Business Banking (4.5% ) and Corporate Banking segment (4% ). Its deposits grew by 10.1% YoY and 1.4% QoQ to Rs6,990bn in 3QFY18. We expect its loan book to grow by 15-20% led by the growth in all major segments. The Bank is gaining market share of PSU banks in small-ticket working capital financing and we expect this trend to continue, going forward.

- Capital Raising Plan to Aid Growth: HDFC Bank is in process to raise Rs240bn in equity to support its growth plan over next few years and meet higher capital requirement due to its classification as systematically important bank by the RBI.

- Bottom-line Growth Expected to Remain Robust: Led by strong growth in loan book, best-in-class NIMs of 4.3%, and higher fee-based and forex income, the Bank continued to deliver a healthy performance on operating and bottom line front. Its NII grew by 24.1% YoY and 5.8% QoQ to Rs103.1bn in 3QFY18 aided by higher loan growth and healthy margin. Its net profit grew by 28% YoY and 8% QoQ to Rs84.5bn, which adjusted for provisioning grew by 20.1% YoY (+11.8% QoQ) to Rs46.4bn. We expect the Bank to deliver above industry earnings growth of 18-22% CAGR over FY17-20E and sustain superior return on asset of 2%.

-  Best-in-class Asset Quality: The Bank continues to maintain best-in-class asset quality as it follows stringent credit standards, which manifests in one of the lowest industry-wide GNPA ratios of 1.3% as of Dec’17. A detailed analysis of loan book and credit process clearly indicates that its asset quality will continue to remain the best vs. its peers.

Outlook & Valuation

HDFC Bank continued to deliver strong growth on operating and asset quality front. It is in process of raising Rs240bn of fresh equity in 4QFY18 via QIP and preferential placement to HDFC. As the dilution is expected to be accretive, we expect book value of the Bank to increase by ~12- 14% on QoQ basis. Further, incremental capital will help the Bank to support its growth plan over next 3-4 years.

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About Reliance Securities

Reliance Securities, the broking arm of Reliance Capital, is one of the India’s leading retail broking houses, providing customers with access to equities, derivatives, currency, IPOs, mutual funds, bonds, and corporate FDs amongst others. The large array of financial offerings helps customers fulfilling their investment objectives on one platform. Focus on timely & error-free execution represents its core strength. Their best in class research offerings, high degree of compliance with stock exchange regulations, ethical business standards, & strong risk management capabilities; Reliance Securities positions itself amongst strong & innovative brands in the financial services space.

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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 accept any liability whatsoever arising from the use of any of the above contents.


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