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HDFC Bank: Business momentum pick-up continues; focused on getting ready for future growth
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.
Disclaimer – I ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is acting as a distributor to solicit bond related products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.
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