India's largest private sector lender, HDFC Bank Ltd.'s fourth-quarter net profits marginally missed analyst estimates but were indicative of a healthy quarter overall.
The bank's credit growth moderated over the fourth quarter, which saw higher core income and lower provisions drive up HDFC Bank's profit by 20% year-on-year.
HDFC Bank's fourth-quarter net profit was Rs 12,047 crore, compared with Rs 10,055 crore a year ago. Analysts polled by Bloomberg estimated a net profit of Rs 12,137 crore for the quarter.
The bank's operating expenses jumped 33% year-on-year in Q4 FY23, primarily driven by the cost of branch expansion and spending on technology. HDFC Bank opened 638 new branches in the final quarter of FY23, and analysts expect the bank's operating expenses to stay elevated over the next few quarters.
"As you build the retail or retail deposit franchise and you start to get back into the higher proportion of the retail asset franchise, there will be upfront costs that come," Chief Financial Officer Srinivasan Vaidyanathan told analysts in an April 15 earnings conference call.
HDFC Bank's total advances rose 16.9% year-on-year to slightly over Rs 16 lakh crore as of March 31, 2023, while deposits rose 21% year-on-year to Rs 18.8 lakh crore.
The bank's gross non-performing asset ratio for the quarter was 1.12%, down 11 basis points sequentially. The net NPA ratio also improved six basis points sequentially to 0.27%.
HDFC Bank is also currently undergoing a merger with HDFC Ltd. The bank is awaiting final approvals from the Securities and Exchange Board of India and the Insurance Regulatory and Development Authority, following which it will approach the RBI for the final steps.
"We think from a timing point of view that it is June, July, or possibly July, which is where we think the timeframe is as we speak," Vaidyanathan said during the con-call.
Shares of HDFC Bank closed up by 0.60% to Rs 1,695 apiece at market close on April 13, while the benchmark Nifty 50 rose 1.38%.
Here's what analysts had to say about HDFC Bank's financial performance in the January-March quarter:
Motilal Oswal
HDFC Bank reported an in-line quarter with healthy core income growth.
Bank expects to continue benefiting from re-pricing, which will support margins.
Potential improvement in margins and progress on the merger (with HDFC Limited) would be key monitorables.
Maintain 'buy' with a target price of Rs 1,950 per share.
JP Morgan
HDFC Bank continues to deliver healthy growth momentum.
With return on assets peaking for private banks, loan growth will be the key driver of earnings.
The bank's shift towards retail and commercial and rural banking is also supportive of margins.
Dolat Capital
Benign credit costs of 70 basis points aided profit growth.
The bank's operating expenses are likely to remain higher over the next few quarters before operating leverage kicks in.
HDFC Bank can deliver about 2% return-on-assets on a sustained basis, even after the merger.
Maintain 'buy' with a target price of Rs 1,692 per share.
IDBI Capital
Need to watch for merger's impact on HDFC Bank's regulatory requirements if the RBI does not allow dispensation.
The bank's cost-to-income ratio is expected to remain elevated in the short to medium term.
Remain structurally positive on HDFC Bank.
Maintain 'buy' with a target price of Rs 1,693 per share.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.