HDFC Bank
Concern on balance sheet remains
BUY
CMP: Rs977 Target Price: Rs1,100
HDFC Bank's has reported net profit of Rs6.2bn for Q3FY09, inline with our expectations. The NII (on like to like basis) has grown by 21.6% yoy driven by 9% sequential growth in the total assets and slight expansion in NIMs. The fee income has remained flat. The operating profit has grown by 22.0% yoy (on like to like basis) to Rs14.6bn.
However, there are some concerns to the balance sheet front. The advances reported a decline of 3.4% sequentially to Rs988bn. The CASA profile has also deteriorated significantly. The Opex/assets ratio continued to remain steep at 3.3%. The bank has seen higher slippages during the quarter with gross NPAs at Rs19.1bn (1.9%) compared with Rs16.8bn (1.6%) in Q2FY09.
In our earlier note on the bank Shadow over near term earnings dated October 17, 2008) we had highlighted three problems with the banks 1) lower utilization of branches and high Opex ratio, 2) deteriorating CASA profile and 3) growing NPAs. None of them seems to be subsiding. At the current valuations, the stock is quoting at 14.1x FY10E EPS and 2.1x FY10E ABV. We maintain our BUY recommendation on the stock with a revised price target of Rs1,100.
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