HDFC Bank Q3 Review - Margin Expansion, Lower Credit Cost Aid Profitability: Nirmal Bang

Reported NIM expanded by 20 bps to 430 bps, driven by change in asset mix, partially aided by interest on income tax refund.

<div class="paragraphs"><p>Exterior of HDFC Bank Ltd.'s branch in Mumbai. (Photo Vijay Sartape/ BQ Prime).</p></div>
Exterior of HDFC Bank Ltd.'s branch in Mumbai. (Photo Vijay Sartape/ BQ Prime).

BQ Prime’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 BQ Prime’s subscribers an opportunity to expand their understanding of companies, sectors and the economy. 

Nirmal Bang Report

HDFC Bank Ltd.’s Q3 FY23 results were largely inline with our estimates, with net profit increasing by 18.5% YoY, driven by margin expansion and lower provisions.

Reported net interest margin expanded by 20 basis points QoQ and YoY to 430 bps, driven by change in asset mix and partially aided by interest on income tax refund.

As a result, net interest income grew by a strong 24.6% YoY to Rs 229.8 billion. Operating profit growth was lower at 13.4% YoY, impacted by lower treasury income on YoY basis and higher opex.

Aggressive branch expansion is leading to higher opex cost and is likely to remain elevated in the short term as the focus is to expand the branch network.

Moreover, core profitability (excluding treasury income) grew by 6.3% QoQ (19.3% YoY) to Rs 187.6 billion. The bank utilised contingent provision to the tune of Rs 2 billion, resulting in lower provisions.

Credit cost stood at 74 bps versus 94 bps in Q3 FY22 (87 bps in Q2 FY23) and is expected to remain rangebound given that the bank continues to carry excess provisions.

Asset quality remained stable on a sequential basis despite cyclicality in the agri segment, driven by higher recoveries and write-offs.

We expect earnings growth to remain strong and estimate FY25E return on asset/return on equity at 2.0%/17.6%. However, we remain cautious about merger transition, which along with elevated opex and margin trajectory would be key monitorables going forward.

Click on the attachment to read the full report:

Nirmal Bang HDFC Bank- Q3FY23 Result Update.pdf

More Research Reports On HDFC Bank's Q3 FY23 Results Reviews


This report is authored by an external party. BQ Prime 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 BQ Prime.

Users have no license to copy, modify, or distribute the content without permission of the Original Owner.