HDFC Bank Q2: Analysts see sub-20% profit growth despite lower provisions

Private lender HDFC Bank will kick start the July-September quarter earnings season for large-cap banks when it will report its Q2FY21 results on Saturday, October 17. Hit by Covid-19 pandemic, the lender is expected to report a sub-20 per cent YoY growth in net profit for the third consecutive quarter.

Above-industry loan growth, flattish net interest margin (NIM), stable asset quality, and fewer provisions are the other elements that may mark the quarter under review.

Earlier this month, HDFC Bank said its loan book had expanded 16 per cent on a yearly basis to Rs 10.37 trillion as on September 30, 2020, compared to Rs 8.97 trillion in the year-ago period. Deposits, meanwhile, stood at Rs 12.29 trillion at the end of September, 2020 as against Rs 10.21 trillion in the year-ago period, it said.

During the quarter under review, the stock has underperformed the benchmark Nifty50, ACE Equity data show. While the lender's stock gained just 1.2 per cent at the bourses, the benchmark 50-share index advanced 9 per cent in three months to September. Nifty Bank index, on the other hand, was up just 0.4 per cent.  

Here’s what leading brokerages expect from the Q2FY21 numbers on Saturday:

Nomura

Analysts expect net interest income (NII) growth of 17 per cent year-on-year (YoY) to Rs 15,777 crore from Rs 13,515 crore reported in Q2FY20 and Rs 15,665.4 crore in the June 2020 quarter. NIM, meanwhile, may dip from 4.34 per cent in the year-ago quarter to 4.28 per cent in Q2FY21. On a QoQ basis, it would be a 5 bps improvement. Pre-provision operating profit (PPOP) is likely to grow 15 per cent YoY to Rs 13,432.9 crore. Sequentially, it would be a 5 per cent growth from Rs 12,829.3 crore.

Emkay Global Financial Services

Credit growth, analysts an Emkay say, remains strong on the back of healthy pick-up in retail book and continued strong working capital demand leading to possible NIM of 4.3 per cent. The brokerage expects the bank to make some additional provisions, which could keep profit under check. They peg the net profit at Rs 7,314.7 crore, up 15 per cent YoY from Rs 6,344.9 crore.

“We believe slippages could be higher sequentially as the bank may recognize some pain upfront in the non-morat book for Q2,” they said in their preview report.

ICICI Securities

Analysts peg the bank’s total revenue growth on YoY basis at 6 per cent at Rs 20,195.9 crore, and 2 per cent sequentially. Operating profit, on the other hand, is expected to remain nearly flat on QoQ basis from Rs 12,829.3 crore in Q1FY21 to Rs 12,832 crore in Q2FY21.

Notably, the brokerage has the most conservative estimate for net profit, which is seen growing a modest 3 per cent YoY to Rs 6,536.4 crore from Rs 6,345 crore in Q2FY20. Sequentially, the profit may decline 2 per cent from Rs 6,658.6 crore clocked in Q1FY21.

“The bank sounds more confident and resilient and flow from morat 2.0 pool into restructuring is expected to be much contained. Also, it would prefer recognising stress upfront if servicing ability is in question. We are, therefore, building in stable credit cost,” the analysts noted.

Prabhudas Lilladher

PAT growth, the brokerage says, could be supported by NII and lower provisions during the quarter under review. It foresees the provisions sliding 16.5 per cent sequentially to Rs 3,249.4 crore from Rs 3,891.5 crore set aside in Q1FY21. On a YoY basis, provisions would be 20.3 per cent higher from Rs 2,700.7 crore earmarked in Q2FY20. Gross non-performing asset (GNPA) ratio is seen at 1.4 per cent, up from 1.36 per cent in Q1FY21 and 1.36 per cent in Q2FY20. Net profit is pegged at Rs 7,587.3 crore, improving 19.6 per cent YoY and 13.9 per cent QoQ.

Elara Capital

Analysts at the brokerage see the treasury gains plummeting 49.4 per cent QoQ to Rs 550 crore from Rs 1,086.7 crore reported in Q1FY21. On a YoY basis, gains could grow 14.4 per cent from Rs 480.7 crore. That apart, they expect the provision to slip 19 per cent QoQ to Rs 3,150 crore, while slippages  are seen sliding 6.7 per cent sequentially to Rs 2,800 crore.