HDFC BANK LTD - Q2 FY18

Banking Bell-weather HDFC Bank Ltd reported strong  second quarter FY18 with both PAT, NII, other income, deposits and advances all growing in double digits. PAT or Net Profit for the quarter stood at Rs. 41510 Mn compared to Rs. 34553 Mn same period previous year, rising 20% YOY & with quarterly growth of 7%, strongest over the previous two quarters.  Net Interest Income, difference between interest earned and expended was at Rs. 97521 Mn in the current quarter against Rs. 79936 Mn corresponding quarter previous year rising 22% YOY & 4% sequentially. Net Interest Margin indicating core profitability of bank’s operations stood at 4.30% for the current September quarter. Gross NPAs as a percentage of Gross Advances edged up 24 basis points YOY at 1.26%, Net NPAs as a percentage of Net advances also rose 13 basis points at 0.43% in the current Q2 FY18.  One basis point is 0.01%. On sequential basis, GNPA ratio jumped 2 basis points whereas Net NPA ratio declined one basis point. Provisions & contingencies have doubled YOY and stood at Rs. 14762 Mn with sequential decline of 5%. Double digit growth was visible in wholesale and other banking business segment at 27% & 31% respectively YOY. Retail contributing 50% of revenues followed at 9% whereas by Treasury reported 4% growth YOY. CASA ratio galloped 300 BP and stood at 43% in the current quarter. Other income or non interest revenue accounting 15% of the total income of the bank rose 24% YOY and stood at Rs. 36059 Mn in current Q2 FY18 with a sequential jump of 3%. Advances outpaced deposits moving at 22% yearly where as Deposits grew 17%.  Advances & Deposits stood at Rs. 6048669 Mn and Rs. 6893459 Mn in the Q2 FY18. Cost income ratio of bank stood at 42.60% in the current September FY18 against 45.90% corresponding quarter previous year. HDFC Bank, second largest private sector with market cap of Rs. 4720064 Mn, is an epitome of stability & profitability in the midst of global volatility and domestic uncertainty. With stable asset quality & CASA, rising NII & NIM, growing profitability and CAR of 15.10% (Tier I-13.30%), HDFC bank is one of the most desirable long term bets for retail investors.  Thus we recommend BUY for the stock for medium and long term investment with a target price of Rs. 2225.

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