HDFC Bank Q3 Results Review - Deposit Growth To Decide The Pace Of Credit Growth: Axis Securities

NDTV Profit’s special research section collates quality and in-depth equity and economy research reports from across India’s top brokerages, asset managers and research agencies. These reports offer NDTV Profit’s subscribers an opportunity to expand their understanding of companies, sectors and the economy..Axis Securities Report.HDFC Bank Ltd. reported healthy advances growth of 62/5% YoY/QoQ. The retail book grew by 106/3% YoY/QoQ, the CRB segment (including agri) by 35/7% YoY/QoQ and the corporate book by 11/2% YoY/QoQ. Housing Development Finance Corporation Ltd.’s wholesale book de-grew by ~4% QoQ. Net interest income grew by 24/4% YoY/QoQ. Core NIMs stood at 3.4%, flat QoQ. Non-interest income grew by 31/4% YoY/QoQ, led by a treasury gain of Rs 14.7 billion and recoveries, dividends and other income of Rs 15.2 billion. Fee income remained flat QoQ. (fee income is ~1.2% of loans). Opex grew by 37/10% YoY/QoQ. Opex grew by 28/4% YoY/QoQ. The cost-to-income ratio remained steady at 40.3% QoQ. Pre provision operating profit grew by 24/4% YoY/QoQ. Provisions came in higher than expected. Pursuant to the RBI Circular, the bank has made a contingent provision of Rs 12.2 billion for investment in AIFs. Profit after tax grew by 34/2% YoY/QoQ. Gross non-performing asset improved to 1.26% from 1.34% QoQ. Slippages during the quarter stood at ~Rs 70 billion, while healthy recovery and upgrades of ~Rs 76 billion drove asset quality improvement..OutlookStrong deposit growth remains a critical factor in enabling the bank to sustain its higher credit growth. We believe current valuations are attractive given HDFC Bank's ability to deliver a healthy ~21% compound annual growth rate earnings growth over FY24-26E. We expect the bank to deliver return of assets /return of equity of 1.8-1.9%/15- 17% over FY25-26E..Valuation and RecommendationWe value the core book at 2.75 times September 25E adjusted book value versus its current valuation of 2.6 times September25E ABV and assign a value of Rs 192/share to subsidiaries of the merged entity, thereby arriving at a target price of Rs 1,975/share, implying an 18% from the cash management product.Key risks to our estimates and target priceThe key risk to our estimates remains a slowdown in overall credit momentum owing to the bank’s inability to ensure deposit mobilisation which could potentially derail earnings momentum for the bank.Slower substitution of higher-cost debt with lower cost deposits could continue to hurt margins.Click on the attachment to read the full report:.Davos 2024: Interest Rates May Not Come Down As Expected, Says EY's Rajiv Memani.DISCLAIMERThis report is authored by an external party. NDTV Profit does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of NDTV Profit..Users have no license to copy, modify, or distribute the content without permission of the Original Owner.

HDFC Bank Q3 Results Review - Deposit Growth To Decide The Pace Of Credit Growth: Axis Securities

Margin pressures continue, improvement levers identified

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