HDFC Bank's 1QFY24 Results: A Comprehensive Analysis
HDFC Bank, a pivotal player in India's financial market, remains a focus of keen interest among stakeholders, analysts, and enthusiasts. This post provides an in-depth examination of the bank's 1QFY24 results, bringing to light the financial dynamics that underscore the bank's operations.
Understanding HDFC Bank's 1QFY24 Results
In the first quarter of FY24, HDFC Bank reported a pre-merger PAT (Profit After Tax) of INR 119 bn, marking an impressive 30% YoY growth. With a Return on Assets (ROA) of 1.9%, the bank signifies an in-line performance, with the management expressing confidence about the impending merger execution.
A Look at the Pre-Merger Performance
The pre-merger period saw HDFC Bank's Net Interest Income (NII) grow by 21% YoY, albeit by 1% QoQ. Although slightly below street estimates, the bank witnessed a steady QoQ growth in its Net Interest Margin (NIM). Simultaneously, loans grew 16% YoY, with a marginal QoQ growth of 0.9%.
Despite the strong cost growth of 34% YoY, the core Pre-Provision Operating Profit (PPP) grew slower at 12% YoY. Asset quality remained strong, with a Net Non-Performing Loan (NNPL) ratio of 0.3%.
Post-Merger Performance Analysis
The post-merger period showcased an impressive loan growth of 13% YoY. Deposits also grew 19% YoY, showing signs of robust financial health post-merger.
The bank's management remains optimistic about maintaining the RoA in the range of 1.9%-2.1% and doubling the balance sheet size in four years. With this, our Book Value (BV) increases by 10% and 7% for FY24/25, and the Street expects RoA and Return on Equity (RoE) to be 1.9% and 15%-16%, respectively.
A Glimpse at HDFC Bank's Growth Trajectory
HDFC Bank's loan growth remained soft during this period, with pre-merger loans growing 16% YoY and 0.9% QoQ. However, HDFC Bank anticipates that the benefits of the merger will drive future growth. Despite a slowdown in HDFC Ltd.'s wholesale book, the merged book grew 18% YoY.
HDFC Bank's deposits grew 19% YoY in the liabilities department and 1.6% QoQ. Despite declining the Current Account Savings Account (CASA) ratio to 42.5%, the bank still managed to mobilize INR 297 bn and INR 252 bn of retail deposits.
YoY Growth: The Numbers
Year-on-year growth remained an essential aspect of the bank's financial performance, with PAT showing an increase of 30% YoY.
RoA: The Importance and Current Status
RoA remains a crucial measure of a bank's profitability. For HDFC Bank, the RoA post-merger was at 1.9%, indicating efficient utilization of assets to generate earnings.
HDFC Bank's Future Outlook
Given the current performance, HDFC Bank's future appears promising. Street expects the Long-term growth rates to be around 17%-18%, with RoA projected to stay in the range of 1.9%-2.1%. Furthermore, the bank remains confident of achieving a RoE of 15%-16%.
Conference Call Highlights
The management of HDFC Bank elucidated further on their FY24 first-quarter performance during a conference call. The dialogue provided deeper insights into the bank's growth strategy, plans, and market dynamics.
Advance Growth
The bank reported a 16% YoY growth in advances. On excluding IBPC (Indivisible Bond Paying Corporation), the growth reached an impressive figure of 20%. Additionally, the retail book recorded an 18% YoY growth, commercial and rural sectors reported 29%, and the wholesale book saw an 11% increment.
The Merged Book
HDFC Bank’s loans (excluding IBPC) along with HDFC Ltd.’s individual loans grew by 19% to INR 22,107 bn. HDFC Ltd.'s non-individual book de-grew by 18% YoY. However, the bank aims to grow this book as it is a relationship-based value proposition closely connected with mortgage financing and other fee channels.
Growth Forecast
The bank is optimistic about achieving a 17%–18% long-term growth rate.
Deposit Growth
Despite Q1 typically being a slow quarter, the bank reported a deposit growth of 19% YoY. The momentum in deposit growth is expected to continue.
Margins and Branch Expansion
The bank noted that margins had remained steady. As for branch expansion, the bank is looking to increase the pace in the medium term. The goal is to utilize the favourable credit environment to sustain its branch expansion strategy, aiming to break even on branch expansion within 18-24 months.
Regulatory Requirements and Credit Costs
The bank remains confident in its ability to meet regulatory requirements such as CRR & SLR of HDFC Ltd. Credit costs this quarter were reported at 0.7%. According to the bank's estimation, long-term mean credit costs could be somewhere in the range of 90-110 basis points.
Asset Quality
Regarding asset quality, the bank reported Gross NPA at 1.17% (core 1.03%) and Net NPA at 0.30%. Recoveries were 19 basis points of gross advances, with credit costs excluding recoveries amounting to 51 basis points of gross advances.
HDFC Bank's 1QFY24 results indicate a solid financial performance pre- and post-merger. With management's confident outlook on future growth, the bank seems well-positioned to deliver strong returns and maintain a healthy financial position in the coming years.
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