HDFC Bank Q1 preview: Analysts see up to 30% rise in profit; slippages eyed

Amid the muted economic activity, analysts across the board, expect the lender's bottomline to shrink during the quarter on a sequential basis even as they see up to 30 per cent year-on-year growth

HDFC Bank Q1 Preview: Amid the muted economic activity, analysts across the board, expect HDFC Bank's bottomline to shrink during the June quarter of FY22 (Q1Fy22) on a sequential basis even as they see up to 30 per cent year-on-year growth on a low base. However, suspension of business activity for the second straight year, due to the second wave of Covid-19, makes them watchful of its SME, unsecured, and agri books.

The Mumbai-based lender's near washed-out business operation during the quarter is reflected in its stock price. The scrip added just 0.3 per cent in three months to June as against a 7 per cent rally in the benchmark Nifty50 index and 4.4 per cent gain in the Nifty Bank index, ACE Equity data show.

"While Q1FY22 was impacted by the Covid-19 second wave, the economic impact was relatively less than that seen during the first wave. Hence, while we will see a QoQ impact, on a YoY basis, the banks will report reasonable growth in operational performance," said an earnings preview report by global brokerage HSBC.

Net Profit

All but one analyst are penciling in up to 6 per cent QoQ decline in HDFC Bank's net profit at Rs 7,702 crore for Q1FY22 due to muted interest income and a minor dip in other income. However, at the upper end of the spectrum, Nomura forecasts PAT (profit after tax) at Rs 8,637.4 crore, up 5.5 per cent sequentially and 30 per cent YoY, lifted by a 14 per cent YoY rise in net interest income (NII) and 20..8 per cent YoY growth in operating profit.  

Net profit stood at Rs 6,658.6 crore in the previous year period (Q1FY21) and at Rs 8,186.5 crore in the March quarter of FY21 (Q4FY21).

Loans and NII

In a quarterly update in early July, the bank informed the exchanges that its loan book stood at Rs 11.4 trillion at the end of the quarter ended June 2021 compared with Rs 10 trillion at the end of Q1FY21 -- an increase of 14.4 per cent. The growth, however, was only 1 per cent over Q4FY21.  As regards deposits, they grew 13.2 per cent on year to Rs 13.5 trillion from Rs 11.9 trillion.

Factoring this, analysts at Prabhudas Lilladher peg the lender's NII -- the difference between interest earned on loans extended and interest paid on deposits received -- at Rs 17,663.8 crore, up 13 per cent YoY from Rs 15,665.4 crore. This would mean an expansion of 3.2 per cent QoQ from Rs 17,120 crore earned in Q4FY21. Net interest margins (NIMs) are seen at around 4 per cent.

Asset quality and slippages

Analysts at Motilal Oswal Financial Services remain watchful of the impact of the second wave on total asset quality, particularly on the SME, unsecured, and agri books. Effectively, it sees the gross non-performing asset (GNPA) ratio at 1.4 per cent in Q1FY22, up from 1.3 per cent in Q4FY21 and flat YoY. The NNPA is seen unchanged at 0.4 per cent QoQ and up 10 bps YoY. The provision coverage ratio, the brokerage expects, may rise from 69.8 per cent to 70.5 per cent QoQ.

In absolute terms, Prabhudas Lilladher projects provisions at Rs 4,728.8 crore, up 21.5 per cenr YoY (Rs 3,891.5 crore) but down 0.7 per cent QoQ (Rs 4,693.7 crore). Those at Nomura remain bullish and expect provisions to decline over 13 per cent QoQ to Rs 4,063.9 crore.

"The management's commentary around collections, restructuring pool, behaviour of ECLGS loans and credit demand will be key monitorable," Nomura said in a result preview report.

Axis Securities, meanwhile, will track slippages from rural, commercial vehicle (CV), and SME book, along with comments on growth outlook on each segment and likely timeline of the lifting of credit card ban.