HDFC Bank: Healthy balance-sheet

Net interest income rose by 67% due to strong asset growth

HDFC Bank had yet another strong quarter. The third quarter net interest income increased by an impressive 67 per cent on the back of an asset growth of 44 per cent and higher margins.

Net interest margins at 4.3 per cent were up 30 basis points over the September 2007 quarter and 40 basis points over Q3 FY07. The net profit grew 45.2 per cent y-o-y to Rs 429.4 crore.

The bank's other income grew at 82 per cent in the quarter. This was due to a 39 per cent increase in fees and commissions, treasury gains and profits on investments. Retail loans rose by 45 per cent y-o-y, whereas overall advances were up 48.7 per cent.

Deposits also grew at 48.9 per cent. The bank has a better deposits profile than other banks and this ensures higher net interest margins.

The low cost deposits (current and savings accounts), however, declined 300 basis points q-o-q to 50.9 per cent. But the employee costs went up 65 per cent and other operating expenses rose by 78 per cent.

The bank maintained gross NPAs at 1.2 per cent and net NPAs at 0.4 per cent, which is reasonably good considering that its balance sheet has expanded by 47 per cent.

As the bank expands its branch network to improve the deposit base, operating costs are likely to remain high. The bank trades at 3.8 times and 3.3 times adjusted FY09 and FY10 book value.

Varun Shipping: On a strong footing

Varun Shipping improved its performance in the December 2007 quarter due to strong growth in its offshore division, higher freight rates in the key tanker segment and its ability to offset the 12 per cent y-o-y rupee appreciation.

As a result, its core operating profit rose 65.8 per cent y-o-y to Rs 147.7 crore in Q3 FY08, while its freight and charter hire income increased 40.6 per cent to Rs 229.9 crore.

Operating profit margin went up by 970 basis points y-o-y to 64.2 per cent in the last quarter. In the September 2007 quarter too, its operating margin had expanded 550 basis points y-o-y to 53.3 per cent.

The offshore vessels contributed 19.2 per cent to Varun's total freight and charter income in Q3 FY08 compared with 1.9 per cent in the previous corresponding period. This was possible due to the four anchor handling, towing and supply vessels deployed with upstream oil players.

With the oil exploration sector experiencing strong growth, Varun Shipping was able to leverage strong day hire rates in this segment. The spot rates exceeded $100,000 a day in the December 2007 quarter compared with $30,000-$40,000, a year earlier.

In the tanker segment, Varun leveraged on the improved average spot freight rates of $58,450 a day in Q3 FY08 compared with $33,185 a day in Q3 FY07.

Varun Shipping has planned a capex of Rs 1,600 crore for acquiring additional ships in CY08. The shares of the shipping company surged 15.1 per cent to Rs 76.5 on Wednesday. The stock trades at a reasonable 7.3 times its trailing 12-month earnings.