HDFC Bank: Strong show

The bank has maintained over 30 per cent growth in net profit.

HDFC Bank exceeded analysts’ estimates of net interest income and net profit, though operating profit growth lagged marginally. Net interest income in the fourth quarter of 2009-10 jumped 27 per cent to Rs 2,351 crore, as the loan book grew 27 per cent and net interest margins (NIMs) improved 4.4 per cent.

The current and saving account (Casa) ratio jumped 500 basis points to 50 per cent in the March quarter, leading to better cost of funds. A higher growth of 40 per cent in relatively less competitive corporate loans led to better yield on advances. Operating or pre-provisioning profit growth came in at 8 per cent (Rs 1,695 crore), as against analysts’ expectations of 8.5 per cent, due to higher operational costs.

Net profit growth of about 33 per cent at Rs 837 crore was 200 basis points above estimates, courtesy improved asset quality, which resulted in 33 per cent lower provisioning. Net non-performing assets (NPAs) dipped 30 basis points to 0.3 per cent. For 2009-10, total net income grew 14 per cent to Rs 12,190 crore, while net profit jumped 31.3 per cent to Rs 2,949 crore.

Going ahead, the scenario for core bank lending is robust with the economy picking up. The management expects the ratio of 45:55 in loans to total advances to remain almost the same, though the difference in growth of 40 per cent in corporate and about 22 per cent in retail (adjusted for Centurion) will narrow, as the latter is also picking up. NIM expansion in a rising interest rate scenario also looks difficult. A 50 per cent Casa ratio may not sustain, as the bank will also be vying for fixed deposits to fuel growth. Growth in treasury profits is unlikely to contribute significantly, as bond yields are likely to inch up.

The stock ended at Rs 1,980, down 0.5 per cent over its previous close on Tuesday. Investors can accumulate it at current valuations (3.7x price to estimated book value for FY11) for the long term, according to analysts.

With contributions from Priya Kansara Pandya & Sunaina Vasudev