HDFC Bank gains 6% on stable operational performance in March quarter

In Q4, the bank's profit before tax up 2.5 per cent year-on-year at Rs 9,174 crore, due to higher provisioning in the light of the Covid-19 crisis

Shares of HDFC Bank rose 6 per cent to Rs 961 on the BSE on Monday after the bank’s net interest income (NII) grew 16.2 per cent year-on-year (YoY) at Rs 15,204 crore in the January-March quarter (Q4FY20), exceeding Street expectations.

The bank's profit before tax (PBT) was up 2.5 per cent at Rs 9,174 crore YoY, due to higher provisioning in the light of the Covid-19 crisis.  The bank’s net interest margin (NIM), a measure of profitability, stood at 4.3 per cent in Q4FY20. In comparison, the private lender's NIM stood at 4.2 per cent in Q3FY20. Operating performance stood flat as margin expansion was offset by lower fee income due to the COVID-19 impact.

Overall, the bank reported a 15.4 per cent rise in consolidated net profit at Rs 7,280.22 crore for the fourth quarter of 2019-20. The bank had posted a net profit of Rs 6,300.81 crore during the corresponding January-March period of 2018-19.

Asset quality improved sequentially as gross non-performing assets (GNPA) declined by 16bps quarter-on-quarter (QoQ), of which 10bps improvement was due to moratorium benefit.

With moderation in loan growth, some pressure on earnings and higher credit cost, analysts at ICICI Securities anticipate the bank's earnings CAGR of 9 per cent over FY20- FY22E.

Undoubtedly, HDFC Bank is better positioned to weather the storm; however, in times of economic dislocation, it is sensible to remain conservative assessing the multiplier adverse effect of Covid-19, the brokerage firm said. Analysts at the brokerage anticipate the bank’s loan growth to moderate to 12 per cent, NIMs to contract by 9bps (due to focus on quality) and credit cost to be elevated at 1.7 per cent in FY21E.

“HDFC Bank is better placed to weather the storm with relatively less damage given its) best-in-class business franchise – witnessing strong deposit flows (24 per cent YoY growth) with lower cost (at 5.3 per cent); superior quality portfolio built over the years using robust risk mitigants, analytical tools and high quality filters;  balance sheet strength – true residual capital value (CET-I of 16.4 per cent), contingency buffer and liquidity coverage ratio (LCR) of 138 per cent,” the brokerage firm said in results update.

“HDFC Bank'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,” Motilal Oswal Securities said in results update.

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 liquidity levels would enable the bank to ride the current crisis and gain further market share. Management succession remains a big event to watch for, the brokerage firm said.

In the past three trading days, HDFC Bank's stock has gained 11 per cent. Prior to that, in the past three months, it had underperformed the market by falling 33 per cent, as compared to 27 per cent decline in the S&P BSE Sensex.

At 10:11 am, HDFC Bank was trading 4 per cent higher at Rs 943 on the BSE, against 0.24 per cent rise in the benchmark index. A combined around 12 million shares have changed hands on the counter on the NSE and BSE so far.