Disclosures on RBI resolution book and portfolio high quality recommend a steady asset high quality outlook.
In Q3FY21, HDFC Bank (HDFCB) reported net profit development of 18% y-o-y to `87.6 bn (20% ahead of our estimate). Led by steady loan development (16% y-o-y) and NIMs (up 10bp q-o-q at 4.2%), enhancing charge revenue profile (up 10% y-o-y), and low expense-to-revenue (36% vs 39% in FY20), operating profit grew by 17% y-o-y. Gross NPA (on a pro forma basis) remained steady q-o-q at 138bp, net NPA was up marginally (at 40bp) with robust provision cover of 86%. Disclosures on RBI resolution book and portfolio high quality recommend a steady asset high quality outlook.
Outlook on asset high quality steady: In Q3FY21, pro forma GNPA remained steady at 138bp (vs 137bp in Q2). There was a marginal improve in pro forma Net NPA (40bp in Q3 vs 35bp in Q2). Annualised slippage ratio, on a pro forma basis, was at 1.86% vs 2.3% in Q2. The bank disclosed that restructuring beneath RBI resolution framework for COVID-19 was c50bp of total advances. Demand resolution enhanced from 95% in Q2 to 97% in Q3. Commentary on portfolio high quality indicates steady asset high quality efficiency. The bank is carrying added floating and contingent provisions at c93bp of loans.
Operating efficiency resilient: In Q3FY21, wholesale loans (up 26% y-o-y) continued to help loan development (15% y-o-y). Retail loans had been up 5% y-o-y, with development in individual loans (up 5% y-o-y) and credit cards (up 11% y-o-y) slowing down. CASA deposits (up 30% y-o-y) outpaced deposits development (19% y-o-y). NII grew by 15% y-o-y.
Buy – Accelerated marketplace share acquire with controlled high quality and fees: Our FY21-23 estimates are revised marginally on back of decrease credit fees assumptions. HDFCB is advantaged by its investment in distribution, decrease expense of operations and funds, and clean underwriting track record. With falling RWA intensity along with enhancing operating profitability, HDFCB is a leader by some distance amongst its peers on RoE. Our TP of Rs 1,680 (vs Rs 1,660 earlier) implies 22x 1-yr fwd EPS for forecast typical FY22-23e RoE of 18%. On a P/E basis, HDFCB is nonetheless trading under its historical premium/ discount to NIFTY valuations.