HDFC Bank: Change in asset mix boosts NIMs

Positives are priced in and there is little upside going forward, say analysts

In the third quarter, HDFC Bank’s net profit grew 31 per cent to Rs 1,430 crore. It has achieved this despite pressure on margins in a tough macroeconomic environment. Its net interest income grew 12 per cent annually and six per cent sequentially, to Rs 3,120 crore. Analysts say the bank’s profitability has been driven by higher foreign exchange income and lower provisions.

According to Spark Capital, forex and derivative income grew by an astounding 68 per cent, both year-on-year and quarter-on-quarter, while core fee income grew 20 per cent annually and 14 per cent sequentially.

This quarter, the bank tweaked its asset mix to remain profitable. No wonder, net interest margins (NIMs) stayed at 4.1 per cent. Retail loans now account for 51.3 per cent of the bank’s total loan book, higher than the usual asset mix. Its strategy of slowing down on low-yielding, short-term corporate lending, coupled with stable yields, helped it maintain NIMs at 4.1 per cent. Analysts expect the sector to face issues like slowing loan growth and high cost of funds, if large banks also join the savings-rate war.

 

Analysts say, on the deposits side, the current account and savings account (Casa) share declined 280 basis points annually to 47.7 per cent as Casa deposits grew only 14.3 per cent annually, compared to 28 per cent annual growth in term deposits. Loan growth moderated to 22.1 per cent, compared with 25.6 per cent in the September quarter, in line with slower systemic loan growth. Slower loan growth in the wholesale segment (15 per cent) also contributed to it. Analysts will look for some road map for the coming quarters.

Analysts believe all the good news seem to be largely factored in the stock price. The stock, which spiked immediately after result announcement, gave up some gains to close up one per cent. HDFC Bank currently trades at an estimated price/book value of 3.8 times for FY12 and 3.3 times for FY13, versus the historical range of 3.5 times. Analysts think its valuations are on the higher side.

That is likely to further cap upsides. Angel Broking’s Vaibhav Agarwal says: “HDFC Bank’s results are in line with our estimates. We have a neutral view on the stock and believe the upsides are capped from here.” Analysts expect the bank to clock close to 30 per cent earnings growth in FY13.”