The second largest private lender in India has once again maintained its 30 per cent plus growth in net profit
Second largest private lender, HDFC bank, matched and exceeded analysts’ estimates on net interest income and net profit respectively though operating profit growth lagged marginally.
Net interest income jumped 27 per cent to Rs 2351 crore, as loan book grew 27 per cent - much higher than the industry growth and improved net interest margins of 4.4 per cent, which have been inching up over past three quarters.
CASA ratio, which has been consistently improved since March 2009 quarter, jumped by 500 basis points to 50 per cent in the quarter - now the largest in the banking system, which led to better cost of funds. A higher growth of 40 per cent in relatively less competitive corporate loans also led to better yield on advances.
Other income slipped 19 per cent to Rs 904 crore, as the bank incurred a loss of Rs 47.3 crore on revaluation or sale of investments given the rising bond yields in the March quarter as against gains of Rs 244 crore in previous corresponding quarter. However, core other income, including fees, commissions, foreign exchange and derivatives rose 9 per cent.
Operating or pre-provisioning profit growth came in at a little lower at 8 per cent to Rs 1695 crore vs 8.5 per cent growth expected by analysts due to higher operational costs followed by addition of new branches and employees.
Net profit growth of about 33 per cent at Rs 837 crore was 200 basis points above analysts’ estimates, thanks to improved asset quality which led to lower provisioning (down by 33 per cent). Gross NPAs (non-performing assets) in absolute terms declined 9 per cent to Rs 1817 crore and thus as a percentage to gross advances was down by 55 basis points at 1.43 per cent. Net NPAs was down by 30 basis points to 0.3 per cent .
For the year ended March 2010, while total net income grew 14 per cent to Rs 12190 crore, net profit jumped 31.3 per cent at Rs 2949 crore. Total balance sheet size increased at 21 per cent to Rs 183271 crore.
Going ahead, the scenario for core bank lending is robust with pick up in the economy. Historically, the bank has grown its business faster than the industry. The management expects the share of 45:55 per cent in corporate and retail loans to total advances to remain more or less the same though the difference in growth of 40 per cent and about 22 per cent in retail (adjusted for Centurion) would narrow as the latter is also picking up.
But expansion of net interest margins in a rising interest rate scenario going ahead looks difficult as 50 per cent CASA ratio does not look sustainable given that the bank will also be vying fixed deposits for fuelling growth.
Growth in treasury profits is unlikely to contribute significantly as bond yields are likely to inch up towards 8.5 per cent in FY11, which could require other segments of other income to grow faster. However with improved asset quality, the banks will be able to maintain its past record of 30 per cent growth in net profit.
The bank has outperformed Sensex in March quarter and trades at 3.7 times price to estimated book value for FY11. Investors should accumulate the stock mainly due to overall volatile market.
