HDFC Bank’s (HDB) fiscal second quarter 2012 (ended September 30, 2011) net profit of INR11.99 billion (US$0.26 billion) saw an impressive 31.5% increase over the prior-year quarter. Results improved primarily on strong growth in net revenue and a decline in provisions and contingencies (primarily comprising loan loss provisions), partially offset by higher operating expenses.
Net revenue for the quarter shot up 19.2% year over year to INR41.56 billion (US$0.91 billion).
Quarter in Detail
Net interest income increased 16.6% year over year to INR29.45 billion (US$0.64 billion). The increase was primarily driven by growth in average assets and net interest margin.
Non-interest revenues of INR12.12 billion (US$0.26 billion), were up 26.1% from the prior-year quarter. This was primarily led by a 15.3% increase in fees and commissions and a 43.1% increase in foreign exchange/derivative revenues. However, the company suffered a small loss on revaluation/sale of investments from higher bond yields.
HDFC Bank’s operating expenses totaled INR20.30 billion (US$0.44 billion), up 20.9% from the year-ago quarter. The increase was due primarily to higher investments in the bank’s branch distribution network and other business verticals.The cost-to-income ratio came in at 48.9%. With stable asset quality, provisions and contingencies decreased 19.5% year over year to INR3.66 billion (US$0.08 billion).
HDFC Bank’s total deposits saw a sharp 18.1% rise from the prior-year quarter to INR2.3 trillion (US$0.05 trillion). Gross advances grew 25.6% over September 30, 2010 to INR1.9 trillion (US$0.04 trillion).
Asset Quality
Asset quality improved, with gross non-performing assets (NPAs) to gross advances at 1.0%, down 20 basis points (bps) year over year. Net NPAs also remained healthy at 0.2% of net advances, down 10 bps from the year-ago quarter.
Capital Ratios
HDFC Bank’s total capital adequacy ratio (CAR) as of September 30, 2011 (computed as per Basel II guidelines) remained strong at 16.5%, higher than the regulatory minimum of 9.0%. Tier-I CAR was 11.4% at quarter end.
HDFC Bank has a wide-spread reach, with a distribution network of 2,150 branches and 6,520 ATMs in 1,141 cities at September 30, 2011. By comparison, the company had 1,765 branches and 4,721 ATMs as of September 30, 2010.
Our Viewpoint
We expect continued synergies from the company’s exposure to the fast-growing Indian retail credit sector. Also, the continuation of branch expansion will drive growth in deposits. However, the company is still exposed to the threat related to higher cost of funds. Growing competition in the retail space with the re-entry of peers is an added future concern.
HDFC Bank currently retains a Zacks #4 Rank, which translates into a short-term ‘Sell’ rating. HDFC Bank’s close competitor –– ICICI Bank Limited (IBN) also retains a Zacks #4 Rank.
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