HDFC Bank share price today: Earnings momentum strong; uptick in stress says Nirmal Bang

HDFC Bank share price today: Nirmal Bank highlights that HDFC Bank reported healthy growth in net earnings (+18.1% YoY, +16.6% QoQ), driven by above industry loan book growth, steady margins and better cost ratios. Overall, the result was ahead of our estimate with 10% beat on the PAT. Advances grew by 15.6% YoY and 4.2% QoQ. Wholesale advances were up 25.5% YoY. While retail asset growth was subdued, the incremental growth trends, especially on the secured portfolio, are highly encouraging. Deposits growth remained strong, up 19.1% YoY and 3.4% QoQ. CASA growth was higher at 29.6% YoY, resulting in better CASA ratios and a favourable funding mix. HDFC Bank share price closed at Rs 1576 down Rs 6 or 0.4% yesterday.

HDFC Bank’s NII grew by 15.1% YoY and 3.4% QoQ while NIM (reported) was at 4.2%, up 10bps QoQ (flat YoY). Treasury profit was healthy (at >Rs11bn) for the third consecutive quarter, in line with the bank’s ALCO strategy to monetise gains. Overall opex growth was slower at 8.6% YoY and 6.5% QoQ. Cost/income ratio improved by 180bps YoY and 75bps QoQ to 36.1%. While the medium to long term goal is to bring down the cost/income ratio, it is expected to increase to 38-39% in the interim as spending increases.

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HDFC Bank’s Provisioning run-rate was marginally down QoQ at Rs 34bn, broadly in line with our credit cost estimate. The overall provisioning remains prudent given the visibility on stress formation and >70% PCR (pro forma basis). Pro-forma GNPA stood at 1.38%, up 1bp QoQ. Additionally, the bank has reported a potential restructuring book of 0.5% (with some overlap with the pro-forma GNPA). Internal data suggests that the credit quality on the incremental business generated across segments is topnotch. Demand resolution rates have improved from 95% in Sept’20 to 97% in Dec’20 and are inching towards >98% shortly.

Overall, HDFC bank sounded comfortable on the asset quality aspect of the business. However, GNPA for HDB Financial at 5.9% (pro-forma basis) seems to be a cause for concern. HDFC Bank’s commentary on the RBI order (halting Digital strategy, credit card issuances, data centre outage) was limited to that it is progressing on the same. Various indicators across business segments imply a strong growth outlook for the bank. Given the potential stress as of Q3 FY21, Nirmal Bang have kept our asset quality/NPA assumptions unchanged, but we would continue to monitor incoming/incremental data to reassess the same. Nirmal Bang maintains BUY rating on HDFC Bank with a target price of Rs 1740 based on 3.5x FY23E ABV.