Investors can consider accumulating the HDFC Bank stock with a two-year perspective, given the bank's resilience in a challenging environment and scope for strong growth in earnings.
At the current price of Rs 1,026, HDFC Bank is trading at 19 times its estimated earnings per share for 2008-09 and 3.2 times historic book value. Best-in-industry Net Interest Margins (NIMs) which provide a cushion against rising costs, a high proportion of low-cost deposits and an extensive branch network that can drive advances growth, make the stock a preferred exposure in the banking space.
After including the effect of the Centurion Bank of Punjab (CBoP) merger, HDFC Bank posted a profit growth of 44 per cent, backed by net interest income growth of 66 per cent in the September quarter. NIMs at 4.2 per cent increased due to a hike in lending rates effected this quarter; the impact of this will be sustained over the next few quarters. Deposit growth was strong at 46.7 per cent, with the proportion of Current Account Savings Account at 44 per cent. The recent CRR cut will also release around Rs 3,300 crore to fund growth plans.
Over the past two quarters, strong topline growth for the bank has not translated into equivalent profit growth. The CBoP merger has increased operating costs and reduced asset quality, and added a higher proportion of retail loans. However, as the integration of CBoP takes shape over the next one year, the expansion in the branch network and asset portfolio may help ramp up the bank's growth.
HDFC Bank's successful integration of Times Bank in the past induces confidence on this score. The bank's branch network has expanded 85 per cent post-merger, with a presence in 200 cities added over a year. With this, HDFC Bank's branch network rivals its peer ICICI Bank, but its advances are less than half its rival's levels, suggesting untapped potential.
A high proportion of retail advances (54.7 per cent) is a matter of concern, making the bank more vulnerable to asset quality slippages in a high interest rate scenario. However, macro indications suggesting a peaking of rates and the bank's ability to limit slippages over the past two quarters are the positives. The net NPA to advances ratio remains at a comfortable 0.57 per cent, with the provision coverage on NPAs at 65 per cent. HDFC Bank's capital adequacy ratio at 11.4 per cent is relatively low. But conversion of warrants issued to the promoter, which expire in December 2009, may infuse Rs 3,600 crore and may improve this ratio.
via BL
At the current price of Rs 1,026, HDFC Bank is trading at 19 times its estimated earnings per share for 2008-09 and 3.2 times historic book value. Best-in-industry Net Interest Margins (NIMs) which provide a cushion against rising costs, a high proportion of low-cost deposits and an extensive branch network that can drive advances growth, make the stock a preferred exposure in the banking space.
After including the effect of the Centurion Bank of Punjab (CBoP) merger, HDFC Bank posted a profit growth of 44 per cent, backed by net interest income growth of 66 per cent in the September quarter. NIMs at 4.2 per cent increased due to a hike in lending rates effected this quarter; the impact of this will be sustained over the next few quarters. Deposit growth was strong at 46.7 per cent, with the proportion of Current Account Savings Account at 44 per cent. The recent CRR cut will also release around Rs 3,300 crore to fund growth plans.
Over the past two quarters, strong topline growth for the bank has not translated into equivalent profit growth. The CBoP merger has increased operating costs and reduced asset quality, and added a higher proportion of retail loans. However, as the integration of CBoP takes shape over the next one year, the expansion in the branch network and asset portfolio may help ramp up the bank's growth.
HDFC Bank's successful integration of Times Bank in the past induces confidence on this score. The bank's branch network has expanded 85 per cent post-merger, with a presence in 200 cities added over a year. With this, HDFC Bank's branch network rivals its peer ICICI Bank, but its advances are less than half its rival's levels, suggesting untapped potential.
A high proportion of retail advances (54.7 per cent) is a matter of concern, making the bank more vulnerable to asset quality slippages in a high interest rate scenario. However, macro indications suggesting a peaking of rates and the bank's ability to limit slippages over the past two quarters are the positives. The net NPA to advances ratio remains at a comfortable 0.57 per cent, with the provision coverage on NPAs at 65 per cent. HDFC Bank's capital adequacy ratio at 11.4 per cent is relatively low. But conversion of warrants issued to the promoter, which expire in December 2009, may infuse Rs 3,600 crore and may improve this ratio.
via BL
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