HDFC bank reported an in-line quarter with increased traction in Core PPoP and NII growth, even as margins remained stable. The loan growth was driven by sustained momentum in the retail segment and robust growth in commercial and rural banking, says Motilal Oswal, the broking firm.
Asset quality ratios remained stable, while the restructured book declined to 42bp of loans. Healthy provisioning coverage ratio (PCR) and a contingent provisioning buffer should support asset quality. The broking firm estimates HDFC Bank to deliver a 19% CAGR in net profit over FY22-25, with RoA/RoE of 2.0%/17.7% in FY25. Motilal Oswal maintained its ‘buy’ rating with a target price of Rs 1,930. It expects the stock to perform gradually as the margin profile revives and the merger related overhang eases (bank aims to complete the merger by Q1/Q2FY24).
The operating expenditure was high at 27% y-o-y and reflected continued investment in branches and employees and the increasing mix of retail assets. The cost-to-income ratio (C/I ratio) stood at 39.6%. PPoP grew 13% y-o-y; however, core PPoP grew by a healthy 19% y-o-y vs 17% y-o-y/12% y-o-y in Q2FY23/Q3FY22.
Loans grew 19.5% y-o-y, led by robust 30% y-o-y growth in commercial and rural loans and 21% y-o-y in retail loans. Wholesale loans grew 20% y-o-y but declined q-o-q. Deposits rose 20% y-o-y, while CASA grew 12%. The CASA ratio moderated to 44%. Mix of retail deposits stood at 84% vs 83% q-o-q. On the asset quality front, GNPA/NNPA ratios remained stable at 1.23%/0.33%, even as slippages were high at Rs 6,600 crore, hit by high agri slippages. PCR was stable at 73%. The restructured book fell to Rs 6,400 crore v/s 53bp in Q2FY23. The bank continues to carry contingent provisions of 62bp of loans and also holds floating provisions of Rs 1,450 crore.
Subsidiary performance: Revenue/PAT for HDFC Securities fell 6%/21% y-o-y to Rs 500 crore/Rs 200 crore in Q3FY23. HDB Financial reported a 3% q-o-q growth in loans to Rs 65,100 crore, while revenue grew 13% y-o-y. PAT stood at Rs 500 crore v/s Rs 300 crore/Rs 470 crore in Q3FY22/ Q2FY23. GS-3 assets stood at 3.73%, while CAR/Tier I stood healthy at 20.5%/16.0%.
The bank focuses on garnering granular deposits – received Rs 67,000 crore in retail deposits in Q3 and `2.58t in past one year. The margin trajectory will depend on the loan mix; however, the bank expects margins to witness a positive bias. The bank added 2.6m new liability relations in Q3. The bank opened 684 branches in Q3 and plans to add 600 branches in the short term.
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