August 12, 2019 1
Rating: BUY | CMP: Rs2,285 | TP: Rs2,732
Best placed despite challenging environment
Quick Pointers
Higher stress noticeable from Agri, Unsecured & Vehicle loans (Auto/CV).
Yields on retail remain stable, while cost of funds has been beneficial.
Analysis of HDFCB’s 20F filings show (i) Quality retail franchise built-up in
both liabilities and assets (ii) Early stress levels & delinquencies have risen
in retail with increased credit costs & write-offs and (iii) bank remarkably
maintains its track record of low concentration to single group Top 10
accounts. We slightly increase our credit cost estimates and lower other
income for FY20/FY21. We reduce our target multiple to 3.7x from 3.95x given
the uncertain environment and roll forward of our target to Sep-21 ABV.
Retain BUY with revised TP of Rs2,732 (from Rs2700).
Rising stress in parts of retail quite visible: Retail NPLs scaled up to 1.6%
with 24bps YoY increase in GNPL. This contributed to headline NPAs.
Auto/Unsecured/CV+CE/Others (mainly Agri) witnessed increase in NPLs by
45bps/34bps/17bps/34bps to 1.4%/1.5%/1.0%/2.9% in FY19. Even the early
stress indicators (31-90dpd) have seen steady increase with similar ratios in
unsecured & CV/CE, while Auto was stable. Positive trend is observed in
business banking with NPLs stabilizing at around 2.0% with early stress
coming off.
Retailing in many ways: Bank’s position on liabilities remains strong with 77%
deposits being retail. For a stable and long-term deposit base, Bank has opted
to grow its Retail TDs faster improving its mix in retail to 54%, as seen back in
FY14, although CASA as well is largely retail but has grown slower. Other
liability constituents like salary account franchise, which remains steady at 28%
of Savings, its association with Govt as interface for collections of taxes
generates it a float of 134% of CASA and stable NR franchise at 11% of
deposits. On assets side, bank just runs a 3% (Rs300bn) credit substitute
book coming off from 6.5% in FY17 & 4.2% in FY18. In addition, its
concentration to Top10 exposures has come down to 64% of capital funds from
100% in FY15, while single group exposure is now at 26% down from mid-30s.
Retail mix (consolidated internal) is maintained at 65-70% over the years, with
63% of book in the 1-5Yrs duration. Although, reduction in fixed rate book by
~200bps over FY17-19 to 59% is likely to be NIM negative in current benign
rate scenario.
Bank remains in much better position than its peers: Bank has been
emphasizing on stress in Agri for last few quarters and putting caution on the
unsecured portfolio, evident from 20F filing. Hence, we increase our estimate
on credit cost by 5bps to 90bps for FY20 (apart from contingent provisions).
Although there could be near term headwinds, we believe impairment ratios
remains one of the lowest in industry. Better pricing power and high risk
adjusted NIMs (despite coming down) will help balance sheet to be resilient
with ROEs of 16-17%, which is commendable in this environment.
HDFC Bank (HDFCB IN)
August 12, 2019
Company Update
☑ Change in Estimates | ☑ Target | Reco
Change in Estimates
Current Previous
FY20E FY21E FY20E FY21E
Rating BUY BUY
Target Price 2,732 2,700
NII (Rs. m) 583,183 696,624 583,294 696,952
% Chng. - -
Op. Profit (Rs. m)482,315 576,445 482,426 578,800
% Chng. - (0.4)
EPS (Rs.) 92.5 111.4 93.6 112.5
% Chng. (1.2) (1.0)
Key Financials - Standalone
Y/e Mar FY18 FY19 FY20E FY21E
NII (Rs bn) 401 482 583 697
Op. Profit (Rs bn) 326 397 482 576
PAT (Rs bn) 175 211 252 304
EPS (Rs.) 67.8 79.3 92.5 111.4
Gr. (%) 18.6 16.9 16.8 20.4
DPS (Rs.) 10.9 12.4 19.0 18.0
Yield (%) 0.5 0.5 0.8 0.8
NIM (%) 4.4 4.4 4.5 4.6
RoAE (%) 17.9 16.5 15.9 16.8
RoAA (%) 1.8 1.8 1.9 1.9
P/BV (x) 5.6 4.2 3.7 3.2
P/ABV (x) 5.9 4.3 3.9 3.4
PE (x) 33.7 28.8 24.7 20.5
CAR (%) 14.8 17.1 16.6 15.8
Key Data HDBK.BO | HDFCB IN
52-W High / Low Rs.2,498 / Rs.1,880
Sensex / Nifty 37,582 / 11,110
Market Cap Rs.6,248bn/ $ 88,302m
Shares Outstanding 2,734m
3M Avg. Daily Value Rs.15372.88m
Shareholding Pattern (%)
Promoter’s 26.25
Foreign 38.64
Domestic Institution 18.18
Public & Others 16.93
Promoter Pledge (Rs bn) -
Stock Performance (%)
1M 6M 12M
Absolute (3.7) 7.9 8.1
Relative (0.8) 4.9 9.4
Pritesh Bumb
[email protected] | 91-22-66322232
Prabal Gandhi
[email protected] | 91-22-66322258
HDFC Bank
August 12, 2019 2
Asset Quality – Stress visible in parts of Retail
HDFCB maintains lowest stress & NPA ratios compared to peers but the Bank has
witnessed strong growth in its retail portfolio over last few years and hence on the
margin has seen deterioration in its asset quality. Bank has been able to reduce its
wholesale NPAs but retail has seen increase in both early stress & delinquencies
(reported under US-GAAP that could be different from I-GAAP).
In its interactions for last few quarters, the Bank has been emphasizing on Agri
stress, while in last two quarters had cautioned on retail growth especially the
unsecured loans where the bank witnessed a strong growth of 30-35% in last two
years. Stress is becoming quite evident from the early level stress (31-90dpd)
disclosures in the 20F filings, screening an inch up in Agri, unsecured & CV/CE but
stable in Auto loans, which has been seeing slower growth.
Retail NPLs have steadily increased from ~0.9% in FY15 to 1.6% in FY19. Sharp
jump has come from Agri (in other retail), Auto & CV/CE loans and up trending in
unsecured loans as well (Exhibit 5).
Areas where stress has reduced is in retail business banking where bank had faced
higher delinquencies in the past has now stabilized and early stress as well has
reduced from 1.1% in FY16 to 0.6% in FY19. Also, Wholesale NPAs have seen
improvement over last two years from 51bps of loans to 42bps of loans.
Higher stress and delinquency has led to higher credit cost of 100bps in retail
portfolio with PCR maintained in range of 65-66%, but in the last few years’ bank
has resorted to higher write offs in most retail segments (except housing). Despite
write-offs bank has also been able to maintain 40-50% recovery from written-off
accounts (on base of previous year).
Retail NPAs share in overall NPAs have been
increasing
0.7
%
0.6
%
0.6
%
0.6
%
0.7
%
0.7
%
0.9
%
1.0
%
1.1
%
0.6
%
0.4
%
0.3
%
0.3
%
0.3
%
0.3
% 0.5
% 0.4
%
0.4
%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1.8%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
HDFCB Retail NPLs HDFCB Non-retail NPLs
Source: Company, PL
NPL ratio in retail also has inched up quite
significantly
1.1%
0.8% 0.8%1.0% 0.9%
1.1%
1.3%
1.5%
1.6%
0.30%
0.50%
0.70%
0.90%
1.10%
1.30%
1.50%
1.70%
1.90%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
HDFCB Retail NPL Ratio
Source: Company, PL
HDFC Bank
August 12, 2019 3
Both early delinquency and impairment has
increased
0.8%0.7%
0.9% 0.9%0.8% 0.7%
0.9%1.0%
1.2%
1.1%
0.8% 0.8%1.0% 0.9%
1.1%
1.3%1.5%
1.6%
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
Retail loans in 31-90 dpd Retail loans +91 dpd
Source: Company, PL
Intensity of unsecured NPA has reduced in overall
NPA & even within unsecured loans
14%
15%
16%
14%
11%
31%
28%
26%
0%
5%
10%
15%
20%
25%
30%
35%
0.0%0.2%0.4%0.6%0.8%1.0%1.2%1.4%1.6%1.8%
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Unsecured GNPAs % of Unsecured Loans
Unsecured GNPAs % of NPAs
Source: Company, PL
+91dpd loan trends – Other retail shows significant rise largely in Agri followed by unsecured & CV/CE
0.4% 0.3% 0.3% 0.5% 0.6% 0.8% 0.8% 1.0% 1.4%0.8% 0.5% 0.5% 0.6% 0.6%0.7% 0.8% 0.9%
1.0%2.5%
1.8% 1.4% 1.4% 1.5%2.0%
2.3% 2.0%
2.0%0.5%
0.7% 1.3%2.2% 1.8%
1.4%1.3% 1.2%
1.5%
0.4%
0.3%0.2%
0.1% 0.1%0.3%
0.4% 0.5%
0.4%2.6%
1.4% 0.9%
0.8% 0.8%
0.9%
1.6%2.6%
2.9%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Auto PL/CC Biz bkng CV/CE Housing Other retail
Source: Company, PL
31-90dpd loan trends – Stress lowering in Biz banking, while steadily up in unsecured loans
0.4% 0.3% 0.4% 0.6% 0.5% 0.6% 0.5% 0.5% 0.5%
1.0%0.6% 0.8% 0.6% 0.5% 0.7% 0.6% 0.7% 0.8%
0.7%
0.6%0.9% 0.7% 0.8%
1.1%0.9% 0.8% 0.6%
0.6%0.9%
2.4% 2.7%
1.8%1.4%
1.3% 1.2% 1.3%0.1%
0.1%
0.0% 0.0%
0.0% 0.0%
0.0% 0.0% 0.0%
2.5%
1.6%
1.0% 0.9%
0.9% 0.5% 1.6%1.0% 1.0%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Auto PL/CC Biz bkng CV/CE Housing Other retail
Source: Company, PL
HDFC Bank
August 12, 2019 4
Retail credit cost inched up in Auto & other retail
(Agri KCC)
1.1%
0.6%
0.7% 0.8% 0.7% 0.7%
0.9%1.0%
1.1%
0.5%
0.2%
0.0%
0.2%0.3%
0.1%
0.3%
0.2% 0.2%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
Retail CC Wholesale CC
Source: Company, PL
Bank has done higher write-offs in unsecured,
other retail (Agri) & Auto
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
Retail W.offs Auto PL/CC Other retail
Source: Company, PL
Strong build-up in PCR in other retail (largely Agri)
PCR FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Retail PCR 79% 73% 64% 64% 63% 65% 62% 64%
Auto 48% 45% 43% 45% 47% 46% 43% 45%
PL/CC 70% 69% 64% 62% 59% 62% 61% 61%
Biz bkng 91% 87% 79% 71% 69% 73% 73% 72%
CV/CE 62% 57% 56% 65% 75% 72% 69% 58%
Housing 67% 69% 57% 52% 38% 44% 51% 51%
Other retail 83% 84% 58% 62% 58% 60% 57% 69%
Source: Company, PL
Bank has been able to maintain lower delinquencies & credit cost due to its ability
on strong pricing power and lower cost of funds aiding risk-adjusted margins.
Though the yields have come off in retail, bank has been able to maintain high NIMs
through mix change and create contingency provisions for stress scenarios.
Yields have been coming off especially in retail
as fixed book continued to contract
8.0%9.2%
9.9% 9.8% 9.9%9.3% 8.9%
8.1% 8.5%
12.2%12.8% 12.6% 12.4% 12.1% 11.7% 11.5% 11.1%11.1%
3.0%
5.0%
7.0%
9.0%
11.0%
13.0%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Wholesale Yields Retail Yields
Source: Company, PL
Strong & diversified build-up in deposits has led
to lower funding cost
6.4%
8.6%9.0%
8.2% 8.0%7.7%
7.1%6.5% 6.7%
4.0%
4.9%5.2% 5.1% 5.0% 4.9%
4.6% 4.4% 4.5%
3.5%4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 3.8% 3.6%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Cost of Savings Cost of TDs Cost of Funds
Source: Company, PL
HDFC Bank
August 12, 2019 5
Liabilities franchise unequivocally best in class
On an analysis of HDFCBs 20F filings disclosures, it reinforces our view why
HDFCB ranks as the best in deposit liability franchise. Retail deposit mix has
improved from 67% in FY11 to 77% in FY19, displaying CAGR of 22.5% over same
period with same continuing at 20% CAGR over FY15-FY19. The bank has been
consciously growing higher retail TDs (27% CAGR over FY11-19) than retail CASA
(18.5% CAGR over FY11-19) to make its business model much stable and robust.
It was also a function of reduction in SA rate by 50bps to current 3.5%. As a result
of this strategy, Retail TDs improved from 40% in FY11 to 54% in FY19, while retail
CASA reduced to 54% in FY19 from 60% in FY11.
Despite the above strategy of raising higher TD in retail, bank has been able bring
down its cost of TDs from 8.5-9.0% in FY12/13 to 6.5-7.0% in FY19 and also cost
of SA came off to 3.6% in FY19 from 3.8% in FY18 (which implies SA balances are
granular).
Strong move towards retail deposits
67%
72%
75%
78%
79%
80%
79%
74%
77%
33%
28%
25%
22%
21%
20%
21%
26%
23%
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
Retail Deposit Mix Wholesale Deposit Mix
Source: Company, PL
Strategy has been to increase retail TDs 60%
54%
52%
47%
46%
45%
51%
50%
46%
40%
46%
48%
53%
54%
55%
49%
50%
54%
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
Retail CASA % Retail Dep. Retail TDs % Retail Dep.
Source: Company, PL
HDFCB has been able to lower its cost of funds led by its strong advantage of
raising significant floats from different avenues for being a primary banker for
individuals, corporate and other entities. Bank runs one of the biggest corporate
salary franchise with ~29% share in SA share being from corporate salary accounts
which has been commendably stable for last few years’ despite other bank also
offering similar salary account proposition.
In addition to above, HDFCB is one of the few banks which has strong share in tax
collection of both central & state governments for direct and GST collections. In
FY19, it collected Rs5.2trn of total taxes with 21% YoY growth that is equivalent to
134% of CASA float (Exhibit 18), its direct tax collection is 28% of central Govt’s
total direct taxes.
HDFCB also has strong NRI franchise helping it garner decent NRI deposits which
is 11% of total deposits and has ~11% market share in domestic NRI deposits.
HDFC Bank
August 12, 2019 6
Share of salary a/c in SA has been maintained
27%
34%
34%
38%
34%
32%
31%
31%
29%
29%
28%
29%
29%
29%
29%
43%
48%47%50%
45%48%
53%53%
44%44%
20%
25%
30%
35%
40%
45%
50%
55%
FY
05
FY
06
FY
07
FY
08
FY
09
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
HDFCB Salary A/c Share to SA
By Value By Accounts
Source: Company, PL
NRI deposits have been steady source of funds
Source: Company, PL
Strong tax collection trends
70
0
800
98
9
1,1
45
1,2
25
11
45
12
25
1394
1690
26
13
31
56
160 200300 370
583 722 870
1246
1522
1874
2076
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Direct tax collections (Rs bn) Indirect tax collections (Rs bn)
Source: Company, PL
Significant share in Govt’s direct tax collections
21.0%
21.2%
22.2%
23.2%
22.1%
22.0%
24.6%
25.7%
26.1%
26.7%28.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%F
Y09
FY
10
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
HDFCB Direct Tax Collection Share to Govt's DirectTaxes
Source: Company, PL
Tax collection float is equivalent +130% of total CASA
136%
115% 117%
127% 129% 129% 129% 132%
119%
131% 134%
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Tax collection float to CASA
Source: Company, PL
5.4%
7.0%
9.8%
15.7% 15.4% 15.5%
11.3%
10.4% 11.1%
5.0%
7.0%
9.0%
11.0%
13.0%
15.0%
17.0%
0
200
400
600
800
1000
1200
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
NR deposits (Rs bn) % of deposits
HDFC Bank
August 12, 2019 7
Retailization to the core; reducing concentration
HDFCB has steadily increased retail’s share in overall mix (consolidated USGAAP
with internal classification) and further analysis shows it has steadily increased its
retail book in mid-duration for 1-5 years and remains a major share, while one-third
book is lower than a year. In the wholesale book, duration of book is largely at 1-
year but with a small mix of loans has steadily increased in the above 5-years
duration. In addition, it has reduced its credit substitute portfolio to half from peak
6.5% of customer assets in FY17 to 3.2% in FY19.
Although, bank has seen decrease in its fixed rate loans to 60% (Exhibit 23 & 24)
which should be negative in this benign interest rate environment. Further, 50% of
its fixed loan book will mature within 1-year. The bank will have to manage its loan
spreads through lower cost of funds & variable loan book that has 57% of loans in
1-5 year bucket.
Bank has been achieving overall PSL and its sub-targets barring direct Agri,
although in last few years has closed the gap with regulatory target helping in lower
RIDF calls. Higher PSL push in Agri despite deterioration in asset quality has helped
NIMs to certain extent considering yields are higher than RIDF, although looking at
deterioration and early stress risk adjusted margins could be under pressure.
Retail loans (internal) share has improved
59%
66%
68%
68%
69%
69%
68%
71%
68%
41%
34%
32%
32%
31%
31%
32%
29%
32%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Retail Loans Mix Wholesale Loans Mix
Source: Company, PL
Bank has lowered its reliance in credit subs
0.9% 0.6%
1.8% 2.0%
4.7%
5.6%
6.5%
4.2%
3.2%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
-
50
100
150
200
250
300
350
400
450
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
(Rs
bn
)
CPs NCDs Credit Subs to Customer assets
Source: Company, PL
Retail loans share has improved in 1-5yr bucket
34% 33% 31% 29% 29% 33% 29% 30% 31%
56% 58% 59% 62% 62% 59% 62% 63% 63%
10% 9% 9% 9% 9% 8% 9% 6% 7%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Retail Loans Duration Mix
Loans <1Yr Loans from 1Yrs to 5Yrs Loans above 5Yrs
Source: Company, PL
Wholesale have been steady in <1Yr bucket
59% 53% 57% 56% 56% 54% 55% 52% 54%
35%40% 37% 37% 36% 38% 36%
34% 31%
6% 7% 7% 7% 8% 8% 10% 15% 15%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Wholesale Loans Duration Mix
Loans <1Yr Loans from 1Yrs to 5Yrs Loans above 5Yrs
Source: Company, PL
HDFC Bank
August 12, 2019 8
Fixed rate share has been coming down steadily
74
.0%
73.0
%
66.1
%
64.2
%
59.5
%
59.2
%
61.1
%
60
.9%
58.9
%
26
.0%
27.0
%
33.9
%
35.8
%
40.5
%
40.8
%
38.9
%
39
.1%
41.1
%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Sensitivity of interest rate on total gross loans
Fixed Portfolio Variable Portfolio
Source: Company, PL
Credit Subs help marginally on fixed loans
74
.2%
73.2
%
66.8
%
64.9
%
61.4
%
61.5
%
63.6
%
62
.5%
60.1
%
25
.8%
26.8
%
33.2
%
35.1
%
38.6
%
38.5
%
36.4
%
37
.5%
39.9
%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Sensitivity of interest rate on total customer assets
Fixed Portfolio Variable Portfolio
Source: Company, PL
Bank has been able to achieve its PSL target but seeing shortfall in direct agri but better in FY19
Priority Sector Lending FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Agri 247 292 324 392 529 632 735 743
MSME 248 296 363 455 683 786 814 1,168
Others 148 185 215 222 217 224 205 296
Total PSL Lending 643 773 902 1,069 1,429 1,641 1,754 2,207
PSL as % of ANBC 40.0% 40.0% 46.1% 44.1% 47.9% 43.0% 41.2% 41.9%
RIDF Deposits (Rs bn) 127.6 142.7 151.2 148.2 137.2 118.8 133.6 108.3
PSL Mix
Agri 15.3% 15.1% 16.5% 16.2% 17.7% 16.6% 17.3% 14.1%
MSME 15.5% 15.3% 18.6% 18.8% 22.9% 20.6% 19.1% 22.2%
Others 9.2% 9.6% 11.0% 9.2% 7.3% 5.9% 4.8% 5.6%
Direct Agriculture lending 11.6% 12.6% 12.2% 13.3% 13.2% 14.6%
Small & Marginal Farmers 5.75% 5.53% 7.30%
Weaker sections 4.40% 6.00% 6.25% 6.57% 9.09% 8.59% 10.20%
Source: Company, PL
HDFCB is bringing down its concentration of advances by reducing both Top 10
largest exposures & single group exposures. Top 10 wholesale exposures of the
bank came down to 64% of capital from +100% in FY15 and 70% in FY18 (also due
to capital raise). In addition, exposures to single group (with same management)
have been bought down and significantly lower than the 40% cap.
Significantly lowering share to large exposures
326.5
394.7
455.2
496.7
558.5
607.7
568.0
651.4
918.7
113%104%100% 97% 101%
86%
69% 70%64%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
0
200
400
600
800
1000
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
Top10 Large Exposures (Rs bn) % of capital funds
Source: Company, PL
De-risking from concentration to single group
29.4% 28.0%
34.6%38.3% 39.6%
34.9%29.6%
32.9%
26.3%
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
Grp Exposure with same mgmt control as % of capitalfunds
Source: Company, PL
HDFC Bank
August 12, 2019 9
Steady build in franchise prime focus
HDFCB has been able to build strong franchise over the years with currently 5,103
branches in 2,748 cities and over 49mn customer base rising at 13% CAGR over
last FY11-FY19. Bank added 5.6mn customer in FY19 up from average 3.9mn
annual customer addition over FY16 to FY18. Bank has improved its credit card
penetration towards existing customers from 18% in FY14 to 25% in FY19 and is
steady from FY18.
HDFCB is focused to improve its reach even in the remote of areas (13% of
branches opened in unbanked areas) and is continuously improvising its
technology network thereby creating a strong brand awareness.
Debit card growth has been slower than
customer growth, while credit card penetration increasing
10%
20%
30%
40%
50%
60%
70%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Debit Card Base/Total Customers
Credit Card Base/Total Customers
Source: Company, PL
Customer base accretion has been at steady
pace and close to 50mn
0%
5%
10%
15%
20%
25%
30%
35%
0.0
10.0
20.0
30.0
40.0
50.0
60.0F
Y11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
Customer Base (mn) Growth in customers (RHS)
Source: Company, PL
Bank has doubled its unbanked areas in last five
years with share at 13% of total branches
319 468 496 481 516 669
9.4%
11.7%11.0%
10.2%10.8%
13.1%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
0
100
200
300
400
500
600
700
800
FY14 FY15 FY16 FY17 FY18 FY19
Branches in unbanked areas Unbanked % to total
Source: Company, PL
Share between SU-RU & ME-UR branches has
been steady
55%47% 46% 45% 45% 46% 47% 47%
45%53% 54% 55% 55% 54% 53% 53%
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Metro/Urban Semi-Urban/Rural
Source: Company, PL
HDFC Bank
August 12, 2019 10
Bank incurred capex of Rs16.1bn in FY19 v/s Rs9.2bn in FY18 & Rs12.6bn in FY17
towards building branch presence and technology – digital, data center & hardware.
Though bank’s capex has been lower than budgeted (which may be in view of
control of operating expenses & a significant build-in base), it now stands at 9-10%
of other operating expenses.
Actual capex has been lower than budgeted from
last few years…
5.9
15.1
13.7
5.8
8.1
12.1
12.0
16.1
20.2
21.9
5.8
7.9
10.0
9.7
8.9
10.0
12.6
9.2
16.1
2.04.06.08.0
10.012.014.016.018.020.022.024.0
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20E
Capex Budgeted (Rs bn) Capex Actual (Rs bn)
Source: Company, PL
…although capex as % of opex is inching up
again
13% 13% 14%
12%
10%9%
10%
6%
9%
10%
5%
7%
9%
11%
13%
15%
FY
11
FY
12
FY
13
FY
14
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20E
Capex to Other Opex (%)
Source: Company, PL
Strong operating profitability but slower accretion to RoE on
higher provisions
RoA decomposition FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E
Interest income 8.96 9.27 8.64 8.32 8.57 8.91 9.04 9.11
Interest expenses 4.82 5.02 4.51 4.17 4.40 4.57 4.60 4.60
Net interest income 4.14 4.25 4.13 4.16 4.18 4.34 4.44 4.51
Treasury income 0.29 0.30 0.30 0.25 0.18 0.16 0.14 0.14
Other Inc. from operations 1.38 1.35 1.23 1.33 1.34 1.35 1.33 1.29
Total income 5.80 5.90 5.66 5.74 5.71 5.85 5.91 5.94
Employee expenses 0.88 0.88 0.81 0.71 0.67 0.66 0.65 0.63
Other operating expenses 1.71 1.74 1.65 1.65 1.59 1.59 1.59 1.57
Operating profit 3.22 3.29 3.21 3.38 3.44 3.59 3.67 3.74
Tax 0.94 0.98 0.95 0.96 0.96 0.99 1.02 1.04
Loan loss provisions 0.38 0.42 0.45 0.61 0.65 0.73 0.72 0.72
RoAA 1.89 1.89 1.81 1.81 1.83 1.88 1.93 1.98
RoAE 19.37 18.26 17.95 17.87 16.50 15.88 16.82 17.57
Source: Company Data, PL Research
HDFC Bank
August 12, 2019 11
We increase credit cost estimates marginally to 90bps of loans
and slightly reduce other income
Rs (mn) Old estimates Revised estimates % change
FY20E FY21E FY20E FY21E FY20E FY21E
Net interest income 583,294 696,952 583,183 696,624 (0.0) (0.0)
Operating profit 482,426 578,800 482,315 576,445 (0.0) (0.4)
Net profit 255,035 306,458 252,024 303,511 (1.2) (1.0)
EPS, Rs. 93.6 112.5 92.5 111.4 (1.2) (1.0)
ABVPS, Rs. 592.5 681.6 591.8 679.5 (0.1) (0.3)
Price target, Rs. 2,700 2,732 1.2
Recommendation BUY BUY
Source: Company, PL
We revise our TP to Rs2,732 (from Rs2,700) based on 3.7x Sep
FY22 ABV (rolled over from Mar-21 ABV)
PT calculation and upside
Market risk premium 6.5%
Risk-free rate 7.0%
Adjusted beta 1.04
Terminal Growth 5.0%
Cost of equity 13.8%
Fair price - P/ABV 2,732
Target P/ABV 3.7
Target P/E 22.3
Current price, Rs 2282
Upside (%) 19.7%
Dividend yield (%) 0.9%
Total return (%) 20.6%
Source: Company Data, PL Research
HDFCB one year forward P/ABV trend
2.7
2.9
3.1
3.3
3.5
3.7
3.9
4.1
4.3
4.5
4.7
Aug-1
3
Nov-1
3
Feb-1
4
May-1
4
Aug-1
4
Nov-1
4
Feb-1
5
May-1
5
Aug-1
5
Nov-1
5
Feb-1
6
May-1
6
Aug-1
6
Nov-1
6
Feb-1
7
May-1
7
Aug-1
7
Nov-1
7
Feb-1
8
May-1
8
Aug-1
8
Nov-1
8
Feb-1
9
May-1
9
Aug-1
9P/ABV 3 yr avg. avg. + 1 SD avg. - 1 SD
Source: Company Data, PL Research
HDFC Bank
August 12, 2019 12
Income Statement (Rs. m)
Y/e Mar FY18 FY19 FY20E FY21E
Int. Earned from Adv. 626,618 775,441 955,565 1,145,533
Int. Earned from invt. 162,224 199,975 228,390 259,327
Others 13,572 14,304 12,915 12,685
Total Interest Income 802,414 989,720 1,196,870 1,417,544
Interest Expenses 401,465 507,288 613,686 720,920
Net Interest Income 400,949 482,432 583,183 696,624
Growth(%) 21.7 19.1 19.3 18.0
Non Interest Income 152,203 176,259 202,698 231,075
Net Total Income 553,152 658,690 785,881 927,699
Growth(%) 17.0 22.1 20.0 17.8
Employee Expenses 68,057 77,618 89,260 102,203
Other Expenses 149,783 172,175 200,584 234,282
Operating Expenses 226,904 261,194 303,566 351,254
Operating Profit 326,248 397,497 482,315 576,445
Growth(%) 26.8 21.8 21.3 19.5
NPA Provision 49,104 63,941 80,752 93,316
Total Provisions 59,275 75,501 97,546 113,070
PBT 266,973 321,996 384,769 463,375
Tax Provision 92,106 111,215 132,745 159,864
Effective tax rate (%) 34.5 34.5 34.5 34.5
PAT 174,867 210,781 252,024 303,511
Growth(%) 20.2 20.5 19.6 20.4
Balance Sheet (Rs. m)
Y/e Mar FY18 FY19 FY20E FY21E
Face value 2 2 2 2
No. of equity shares 2,595 2,723 2,723 2,723
Equity 5,190 5,447 5,447 5,447
Networth 1,062,950 1,492,064 1,682,127 1,926,939
Growth(%) 18.8 40.4 12.7 14.6
Adj. Networth to NNPAs 26,010 32,145 38,599 37,826
Deposits 7,887,706 9,231,409 10,893,063 12,962,745
Growth(%) 22.5 17.0 18.0 19.0
CASA Deposits 3,430,928 3,911,981 4,422,584 5,314,725
% of total deposits 43.5 42.4 40.6 41.0
Total Liabilities 10,639,343 12,445,407 14,434,315 16,942,191
Net Advances 6,583,331 8,194,012 9,750,874 11,701,049
Growth(%) 18.7 24.5 19.0 20.0
Investments 2,422,002 2,905,879 3,296,158 3,793,418
Total Assets 10,639,343 12,445,407 14,434,315 16,942,191
Growth (%) 23.2 17.0 16.0 17.4
Asset Quality
Y/e Mar FY18 FY19 FY20E FY21E
Gross NPAs (Rs m) 86,070 112,242 134,569 134,075
Net NPAs (Rs m) 26,010 32,145 38,599 37,826
Gr. NPAs to Gross Adv.(%) 1.3 1.4 1.4 1.1
Net NPAs to Net Adv. (%) 0.4 0.4 0.4 0.3
NPA Coverage % 69.8 71.4 71.3 71.8
Profitability (%)
Y/e Mar FY18 FY19 FY20E FY21E
NIM 4.4 4.4 4.5 4.6
RoAA 1.8 1.8 1.9 1.9
RoAE 17.9 16.5 15.9 16.8
Tier I 13.3 15.8 14.9 14.4
CRAR 14.8 17.1 16.6 15.8
Source: Company Data, PL Research
Quarterly Financials (Rs. m)
Y/e Mar Q2FY19 Q3FY19 Q4FY19 Q1FY20
Interest Income 241,995 258,903 263,333 273,916
Interest Expenses 124,362 133,135 132,438 140,973
Net Interest Income 117,634 125,768 130,895 132,943
YoY growth (%) 25.4 29.7 24.2 20.1
CEB 32,956 36,468 36,921 35,516
Treasury - - - -
Non Interest Income 40,156 49,210 48,712 49,703
Total Income 282,151 308,113 312,045 323,618
Employee Expenses 19,092 19,676 20,744 22,174
Other expenses 43,898 47,517 50,427 48,999
Operating Expenses 62,991 67,193 71,171 71,173
Operating Profit 94,799 107,784 108,436 111,472
YoY growth (%) 21.3 27.5 22.1 28.9
Core Operating Profits 95,127 103,044 106,147 109,352
NPA Provision 15,725 17,346 14,312 24,135
Others Provisions 18,200 22,115 18,892 26,137
Total Provisions 18,200 22,115 18,892 26,137
Profit Before Tax 76,599 85,669 89,544 85,336
Tax 26,543 29,810 30,693 29,654
PAT 50,057 55,859 58,851 55,682
YoY growth (%) 20.6 20.3 21.5 21.0
Deposits 8,333,641 8,525,019 9,231,409 9,545,537
YoY growth (%) 20.9 22.0 17.0 18.5
Advances 7,508,381 7,809,512 8,194,012 8,297,298
YoY growth (%) 24.1 23.7 24.5 17.1
Key Ratios
Y/e Mar FY18 FY19 FY20E FY21E
CMP (Rs) 2,285 2,285 2,285 2,285
EPS (Rs) 67.8 79.3 92.5 111.4
Book Value (Rs) 410 548 618 708
Adj. BV (70%)(Rs) 388 526 592 680
P/E (x) 33.7 28.8 24.7 20.5
P/BV (x) 5.6 4.2 3.7 3.2
P/ABV (x) 5.9 4.3 3.9 3.4
DPS (Rs) 10.9 12.4 19.0 18.0
Dividend Payout Ratio (%) 19.4 19.2 24.6 19.3
Dividend Yield (%) 0.5 0.5 0.8 0.8
Efficiency
Y/e Mar FY18 FY19 FY20E FY21E
Cost-Income Ratio (%) 41.0 39.7 38.6 37.9
C-D Ratio (%) 83.5 88.8 89.5 90.3
Business per Emp. (Rs m) 164 178 206 242
Profit per Emp. (Rs lacs) 20 21 25 30
Business per Branch (Rs m) 3,023 3,415 3,781 4,221
Profit per Branch (Rs m) 37 41 46 52
Du-Pont
Y/e Mar FY18 FY19 FY20E FY21E
NII 4.16 4.18 4.34 4.44
Total Income 5.74 5.71 5.85 5.91
Operating Expenses 2.35 2.26 2.26 2.24
PPoP 3.38 3.44 3.59 3.67
Total provisions 0.61 0.65 0.73 0.72
RoAA 1.81 1.83 1.88 1.93
RoAE 17.87 16.50 15.88 16.82
Source: Company Data, PL Research
HDFC Bank
August 12, 2019 13
Price Chart Recommendation History
No. Date Rating TP (Rs.) Share Price (Rs.)
1 4-Jul-19 BUY 2,700 2,484
2 21-Apr-19 BUY 2,700 2,293
3 5-Apr-19 BUY 2,371 2,306
4 19-Jan-19 BUY 2,371 2,130
5 7-Jan-19 BUY 2,310 2,121
6 21-Oct-18 BUY 2,310 1,968
7 5-Oct-18 BUY 2,492 1,958
Analyst Coverage Universe
Sr. No. Company Name Rating TP (Rs) Share Price (Rs)
1 Axis Bank Accumulate 766 708
2 Bank of Baroda BUY 146 110
3 Bank of India Reduce 90 95
4 Federal Bank BUY 121 105
5 HDFC BUY 2,700 2,376
6 HDFC Bank BUY 2,700 2,484
7 HDFC Standard Life Insurance Company BUY 585 509
8 ICICI Bank BUY 484 416
9 ICICI Prudential Life Insurance Company BUY 511 383
10 IDFC First Bank BUY 55 45
11 IndusInd Bank BUY 1,800 1,510
12 Jammu & Kashmir Bank BUY 80 41
13 Kotak Mahindra Bank Hold 1,385 1,454
14 Max Financial Services BUY 695 413
15 Punjab National Bank Reduce 75 82
16 SBI Life Insurance Company BUY 906 776
17 South Indian Bank BUY 18 13
18 State Bank of India BUY 369 308
19 Union Bank of India Reduce 71 85
20 YES Bank Hold 101 98
PL’s Recommendation Nomenclature (Absolute Performance)
Buy : > 15%
Accumulate : 5% to 15%
Hold : +5% to -5%
Reduce : -5% to -15%
Sell : < -15%
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly
1166
1499
1833
2166
2500
Au
g -
16
Feb
- 1
7
Au
g -
17
Feb
- 1
8
Au
g -
18
Feb
- 1
9
Au
g -
19
(Rs)
HDFC Bank
August 12, 2019 14
ANALYST CERTIFICATION
(Indian Clients)
We/I, Ms. Pritesh Bumb- MBA, M.com, Mr. Prabal Gandhi- BTech, CFA Level II Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
(US Clients)
The research analysts, with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is or will be directly related to the specific recommendation or views expressed in this research report.
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Indian Clients
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