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Yes Securities sees 25% rise in HDFC Bank, retains ‘Buy’ rating




Yes Securities retained its Buy rating on private sector lender HDFC Bank with a target price of 1,500 in a year. The bank’s share price rose 2.92% in a single day to close at a price of 1,203 Friday at NSE. Yes Securities slightly raised its price target against a backdrop of performance above the bank’s expectations in the second quarter of the current fiscal year. “HDFC Bank, on a stand-alone basis, put on a remarkable show with a base PPOP rate of 6% according to our estimates, in large part thanks to a strong recovery in base fee income.) And increasing its shield Covid (now 65bp ahead), says Rajiv Mehta, Senior Analyst – Institutional Equities, Yes Securities.

Mehta expects loan growth to not slow significantly in the second half of FY21, thanks to the festive treat program and the acceleration in economic activity. Likewise, NIM appears to have bottomed out and is expected to gradually recover from there. On a basis encouraging collection efficiency trends and management’s expectations of full normalization in a few months, the cost of credit might not climb as feared before, ”he said.

HDFC Bank on Saturday announced an 18.4% year-on-year (year-on-year) increase in net profit to 7,513 crore for the three months to September due to an increase in total income and a decrease in tax expenditures.

His profit was greater than 6,409 crore estimated by a Bloomberg poll of 15 analysts.

Net interest income of banks increased by 16.7% 15,776.4 crore. Its net interest margin, a key measure of profitability, was 4.1%. HDFC Banks’ other revenue grew 9% 6.092 crore.

Here are the main highlights of Rajiv Mehta’s report from Yes Securities:

> Growth of commercial assets

Recent pull has been positive – from July to September double-digit volume improvement was recorded month over month

Q2 disbursements at 80-85% of last year’s level last month were 90% of pre-covid execution rate – bank sees quarterly growth from now on

Recent trends from bureaus showing levels of credit demand nearing pre-covid times – particularly in products like auto loans, 2w and home loans

The pull of unsecured loans is expected to reach the pre-covid level by October – strong pull observed in gold lending – retail LAP and WC loan volumes already at pre-Covid level – MFI will experience a recovery complete in the next 90 days

Massive increase in 2w sales driven by rural demand strong demand for tractor loans due to two consecutive good monsoons – Agri portfolio is doing well thanks to a bumper crop of rabi and strong kharif seedlings

Improved use of field engagement detection capability for freelance / business segment at various business locations in India

Intensification of card business in both spend and acquisitions reaching 97% of September 2019 execution rate in Q3 will be even better year-on-year

Growth in many retail products is also driven by credit policy normalization after drastically tightening it after the Covid outbreak – the bank reverted to pre-covid credit policies in Auto and 2w loans remain cautious about the selection of PL customers

Festive treats (45 day program) will increase commercial traction in Q3, bank bundled offerings from more vendors and improved reach / distribution

> Corporate banking

The growth of the business portfolio continued despite the unsubscribing of a few large accounts

Stay optimistic about cyclical economic recovery Short-term driver would be holiday season spending

Q2 collections were higher yoy and jumped 41% yoy, improving month to month – September collections up 14%

Standardization in the acquisition and disbursement of NTBs in the wholesale SME segment

Growth in client assets (Adv + Inv) comes from the top half of the 10-point internal rating scale

The duration of the asset remains less than 1 year

NIM Wholesale Book improved both value for money and year on year without compromising growth margins

The quality of the book remains intact, providing growth without dilution in credit standards – the additional portfolio in the second quarter of FY21 was 4.4 on average. internal rating (scale from 1 to 10 with 1 being the safest), corresponding to the external rating AA, identical to that of the security in recent quarters

Unsecured exposure valued at 3.5 avg. on an internal rating scale – risk category therefore very safe and much lower than that of the secure aggregate

> NIM and Capital

The decrease in the NIM in Q2 was largely due to the increase in BS liquidity

Historically, they have operated within a 4-4.5% NIM range based on careful ALM management. Would continue this range for months to come.

Internal generation of adequate capital to manage growth and short-term asset quality – net capital generated in Q2 was 22bp and 56bp in H1 FY21 generated 140bp in FY20

> HDB Financial continues to be under pressure

Loan growth decelerates to 2% year-on-year (reserve at 570 billion)

NII down 5% year-on-year with significantly increased liquidity buffer

Profits collapse at 300 mins ( 2.1 billion in Q2 FY20) on a higher provisioning

Gross NPL increases to 4.3% – Net NPLs rise to 3.1% due to lower coverage

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