HDFC Bank Q3 Results: Brokerages Maintain Positive Outlook Despite Asset Quality Letdown

Most brokerage maintained their positive rating on HDFC Bank Ltd. despite a mixed earnings performance in the December quarter.

India’s largest private lender posted a third-quarter profit that met analysts’ expectations on a robust growth in advances and higher other income. Its slippages, however, jumped more than 40 percent sequentially to Rs 5,340 crore.

The lender’s net interest income also grew 12.7 percent to Rs 14,173 crore but at the slowest pace in at least seven quarters.

Bad loan and other provisions rose to Rs 3,044 crore from Rs 2,210 crore a year earlier. The bank’s gross bad loan ratio as a share of total loans was 1.42 percent compared with 1.38 percent a year ago.

Here’s what brokerages made of HDFC Bank’s Q3 performance:

Investec

• Earnings were beat on profit and loss with strong core performance.
• Adjusted for the two income one-offs (recoveries and trading profits), the core operating profit growth was around 17 percent versus expectations of 12 percent growth.
• Bank has utilised all of the one-off gains to make additional provisions on the corporate accounts.
• Slippages during the quarter were elevated at 2.3 percent versus 1.7 percent quarter-on-quarter and 2.1 percent year-on-year.
• Maintain Buy with a target Rs 1400 per share.

Kotak Institutional Equities

• Would see this result as a less-than-positive one
• Loan growth was strong, but the internals show that growth is dependent on corporate (26 percent YoY) and unsecured book (25 percent YoY).
• Advertisements made during the festive season appear to have a less than-bearing impact on the loan growth with retail growth slowing down further to 14 percent YoY.
• Revenue growth contribution was from several line items that have volatile trends.
• Asset quality print has been weak with gross slippages of 2.4 percent of loans, up 60 basis points QoQ.
• Commentary remains positive on retail asset quality in most segments.
• Maintain Add, target price Rs 1,350 per share.

Edelweiss

• Slippages disappoint amidst otherwise strong earnings.
• Softness in retail was due to slower vehicle growth, meanwhile, unsecured segment sustained steady growth.
• While Q3 was soft, we believe best-in-class franchise, marginal stress and strong capital place HDFC Bank in sweet spot to capitalise on emerging opportunities.
• Maintain Buy with target price of Rs 1,520 a share

IDBI Capital

• Overall stable credit growth with retail growth being weak
• Headline asset quality remains stable, slippage ratio higher
• Subsidiary HDB Financials performance remains stable
• Maintain Buy, target Rs 1,490 a share

Prabhudas Lilladher

• Slow net income interest growth of 13 percent YoY on maintaining high liquidity & low yielding assets.
• Overall retail loan growth continues to slow with growth at 14 percent as auto/CVs/two-wheelers have been slow and smaller segments like gold loans, agri loans and loan against securities have been also slow.
• Overall PCR was down but bank holds strong Rs 1,450 crore each floating and contingency provisions, leading to strong balance sheet position.
• Retain Buy with target Rs 1,406 a share.