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HDFC Bank: Business momentum pick-up continues; focused on getting ready for future growth

ICICIdirect Research 17 Jan 2022 DISCLAIMER

What’s buzzing: HDFC Bank reported a steady operational performance in Q3FY22 led by 16.5% YoY growth in advances. Lower credit cost at ~95 bps aided earnings growth at ~18% YoY. Demand resolution is back to pre-Covid level with optimistic commentary on MSME and retail segment.

 Context: NII lagged advances trajectory at ~13% YoY, led by stable NIMs at 4.1% and ~16.5% YoY growth in advance. Core fee income remained modest primarily due to a decline in payment products fee. C/I remained steady while it could slightly inch up with increased tech spends. Despite Rs 900 crore of contingent provision, credit cost came in at ~95 bps, lower than normal trajectory of 100-130 bps, aiding earnings growth at 18% YoY surpassing Rs 10,000 crore mark. GNPA came off 9 bps QoQ to 1.26%, restructured book was at ~1.4% while additional provision buffer is at ~80 bps.

 Our Perspective: HDFC Bank has delivered a healthy performance in terms of growth and asset quality. Demand resolution getting back to pre-Covid level and strategic partnerships with fintechs is seen aiding business growth. Focus on new segments (MSME & unsecured retail products), geographies (urban & rural region) and building up physical and digital capabilities to aid competitive strength, thus capturing future opportunities. Focus on high yielding loans and improvement in CD ratio should lead to uptick in margins ahead. Thus, with improvement in growth momentum, strong liabilities franchise (CASA at ~47.1%) and contingent provision buffer (~80 bps), we expect dominance of HDFC Bank in the banking space to continue with profit growth at 17% CAGR in FY22-24 and superior return ratios (~2% RoA, ~17-8% RoE). Thus, we remain positive on the stock.

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