HDFC Bank has released its quarterly update highlighting key business numbers for Q2FY20. Below are the main insights.
Business growth picked up in Q2FY20; total advances grew 19.5%/8.1% y-o-y/q-o-q to `8.9 trn: Growth in the quarter was strong after witnessing slight moderation in Q1FY20 (advances grew 17%/1.3% y-o-y/q-o-q).
Deposit base for the bank increased to `10.2 trn, registering robust growth of 22.6% y-o-y/7.0% q-o-q. Deposit growth too picked up v/s 3% q-o-q in Q1FY20.
CASA ratio for the bank, however, declined by 280bp y-o-y/50bp q-o-q to 39.2% (39.7% in Q1FY20), implying ~14% y-o-y (+6% q-o-q) growth in CASA deposits. Term deposits grew higher at ~28% y-o-y (+8% q-o-q), in line with management guidance.
Bank purchased loans aggregating `71.6 bn in Q2 (`72.3 bn in Q1FY20 and `60.6 bn in Q2FY19) through the direct assignment route from HDFC Ltd.
We expect margins to remain stable q-o-q at 4.3%, and thus, estimate NII to grow ~18% y-o-y. Opex growth at 16% y-o-y is expected to trail total income growth of 21% y-o-y, leading to a PPoP growth of ~24% y-o-y. Thus, CI ratio is expected to decline by 145bp y-o-y (-50bp q-o-q) to 38.5%. We estimate PBT to grow ~21% y-o-y to `92.3 bn and estimate PAT at `59.8 bn (`71.4 bn ex-DTA).
Valuation and view
Business growth picked up in Q2FY20 after witnessing some moderation in Q1FY20, despite the overall slowing macro environment. Superior loan profile has enabled HDFCB to consistently gain market share across retail segments while strong capitalisation and liquidity levels should sustain this growth momentum over the next few years. Margin expansion, robust fee income profile and strong control on operating leverage are likely to drive an improvement in return ratios. We maintain Buy with TP of `1,375 (3.7x FY21e ABV).