Buy HDFC Bank
HDFC Bank
Research: Edelweiss
Rating: Buy
CMP: Rs 1,601
Edelweiss maintains ‘buy’ rating on HDFC Bank. The bank’s Q3 FY08 profit was up 45% y-o-y, ahead of consensus estimates. Net interest income (NII) grew 55% y-o-y to Rs 1,430 crore. The bank’s business momentum increased on strong contribution from SME and corporate segments. Provisions rose q-o-q with higher specific provisioning. The bank booked one-off gains of Rs 100 crore on sale of its stake in CAMS during the quarter. It also made one-off provisions on indirect taxes of Rs 73 crore. Adjusting for these extraordinary incomes, net profit grew 36% y-o-y. Pre-provisioning operating profit grew 30% y-o-y to Rs 930 crore. Key highlights of the quarter were: (1) Net interest margins improved q-o-q to 4.3%, with decline in cost of funds and increase in yields on investment; (2) Core fee income grew 38% y-o-y; (3) The proportion of low-cost deposit declined slightly to 51%; (4) Operating expenses increased 78% y-o-y due to higher other operating expenses; (5) Overall provisioning increased 59%; and (6) Balance sheet grew 47% y-o-y. Edelweiss is revising its earnings estimates upwards for FY08E and FY09E by 2% and 6%, respectively, and expects the bank to post EPS of Rs 45 for FY08E and Rs 59.6 for FY09E, respectively. The stock is trading at 3.6x FY09E book and 24x FY09 earnings.
