HDFC Bank Q3 Results Review - Inline Earnings; Core PPoP Growth Improves: Motilal Oswal

Motilal Oswal Report

HDFC Bank Ltd. reported an inline quarter. Profit after tax was up 19% YoY, supported by a pickup in net interest income growth and controlled provisions. Net interest margins stood stable QoQ.

Pre provision operating profit growth remained modest at 13% YoY. However, core PPoP grew by a healthy ~19% YoY.

Loan growth was driven by strong traction in commercial and rural banking and retail loans. The corporate book witnessed a marginal QoQ decline. 

HDFC Bank's asset quality ratios remained stable even as slippages were high at Rs 66 billion due to high agri slippages. The restructured book declined to ~42 bps of loans (versus 53 bps in Q2 FY23).

Healthy provision coverage ratio of ~73% and a contingent provision buffer (62 bps of loans) should support asset quality.

We estimate a ~19% PAT compound annual growth rate over FY22-25, with return on asset/return on equity at 2.0%/17.7% in FY25.

We expect the stock to perform gradually as the margin profile revives and the merger-related overhang eases (bank aims to complete the merger by Q1/Q2 FY24)

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