HDFC Bank Q3 Results Review - In A Capex Investment Mode; Opex Could Remain Elevated: Systematix

Systematix Research Report

In Q3 FY23, HDFC Bank Ltd.'s performance was quite steady, should we exclude one-time gain (in terms of interest income on IT refunds at Rs 3.0 billion, 5-6 basis points of assets), utilisation of contingent provision (of ~Rs 2.0 billion, ~4 bps of assets) and higher employee expenses (8 bps above the normalized run-rate) and higher than expected operating overheads (7 bps more than the usual run-rate).

The improvement in return on average asset (by ~20 bps QoQ to 224 bps) has come from higher noninterest income and lower credit cost, the elevated RoAA could be difficult to sustain, in our opinion.

As per the HDFC Bank’s annual meet (in June 2022), it’s distinctly clear that it plans to add 1,500 – 2, 000 branches each year for the next next years; in nine months-FY23, HDFC Bank has added 841 branches and there’re another ~600 branches in the pipeline to be added.

Therefore, the operating cost metrics would not change much from the Q3 FY23 level. Notably, HDFC Bank’s management plans to double its branch counts in three years time frame.

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