HDFC Bank slips over 1% as Q3 provisions rise; analysts maintain 'Buy'

Shares of private lender HDFC Bank declined 3.4 per cent from day's high to hit an intra-day low of Rs 1,258.75 on the BSE on Monday as investors turned cautious after it reported sharp spike in the provisions during the October-December quarter of the current fiscal (Q3FY20).

The bank's provisions, including those for bad loans and contingencies, grew a whopping 37.6 per cent to Rs 3,043.6 crore in Q3FY20, from Rs 2,211.5 crore reported in the year ago quarter. The increase in specific loan loss provisions jumped by 66.2 per cent to Rs 2,883.6 crore in the quarter from Rs 1,734.6 crore the previous year.

The asset quality, too, came under pressure during the quarter under review. Gross Non-performing assets (NPAs) ratio moved up at 1.42 per cent in December 2019, from 1.38 per cent in December 2018. The gross NPAs stood at 1.38 per cent in September 2019.

"Asset quality has deteriorated as the bank reported higher slippages from lumpy accounts and the agri segment. However, provisioning buffers should enable a steady earnings trajectory," said analysts at Motilal Oswal Financial Services in a results review note. They, now, peg the bank's loan book/PAT CAGR at 19 per cent/25 per cent over FY19-22, led by continued improvement in operating leverage, higher fee income and stable margins. The brokerage maintains a 'buy' on the stock with a target price of Rs 1,500.

The management, on its part, clarified that the asset quality of unsecured loans was holding well.

"However, the concern is over stress in the commercial vehicles and equipment segment. This is a function of the economic climate as freight rates and volumes have come down," it said during the post-result conference call.

"Though the bank’s orientation is more towards retail, we have been seeing robust traction in the wholesale segment for the last several quarters. Wholesale growth during the quarter has been a function of deepening penetration among existing clients as well as on-boarding new clients. The bank sees more room to grow further in the wholesale segment, but at the cost of credit quality or margins," said analysts at Nirmal Bang. They maintain 'Accumulate' rating (revised target price of Rs1,358 from Rs1,322) on the stock with revised NII estimates by 0.0%/0.7%/1.1%, PPOP estimates by 1.3%/0.6%/1.0% ,and PAT estimates by -3.6%/1.8%/0.8% for FY20/FY21/FY22, respectively. revised our target price to ).

Meanwhile, analysts at Edelweiss Securities, too, maintain 'buy' on the stock with a revised target price of Rs 1,520, up from earlier target of Rs 1,456.

"While headline GNPLs were steady at 1.42 per cent, Q3FY20 saw sharp rise in slippages at 2.4 per cent led by higher agri (expected) and corporate slippages (unexpected). That said, the bank created further specific provisions of INR7bn marked to corporate assets. This is in addition to Rs 14.5bn of floating provisions and Rs 14.6bn of contingency provisioning, in line with its policy of creating provisioning buffer when there are exceptional gains. Factoring this, we have baked credit cost of 130bps (earlier trend of 90bps) for FY20," they wrote in an earnings review note.

On the upside, the Mumbai-headquartered bank's net profit (profit after tax) rose 32.8 per cent year-on-year (YoY) to Rs 7,416.5 crore, compared to Rs 5,585.85 crore in the corresponding period of the previous year, while the profit before tax (PBT) rose by 15.6 per cent to Rs 9,901.85 crore. It had posted a PBT of Rs 8,566.89 crore in quarter ended December 2018 (Q3FY19).

Additionally, its net interest income (NII) in the quarter rose by 12.7 per cent to Rs 14,172.9 crore from Rs 12,576.8 crore a year ago. The net interest margin (NIM) for the quarter remained stable at 4.2 per cent, the bank said in a statement.

That apart, the bank's advances rose by 20 per cent to Rs 9.36 trillion. While domestic retail loans grew by 14.1 per cent, domestic wholesale loan book expanded at a much faster pace of 29.3 per cent. The domestic loan mix showed retail share of 52 per cent, while that of wholesale was 48 per cent.

The numbers were in line with Street expectations. “Led by the aggressive festive campaign, HDFC Bank is set to maintain its superior credit growth compared to the industry and increase market share. Credit and deposit growth is seen growing at 20 per cent and 25 per cent YoY to Rs 9.34 lakh crore and Rs 10.68 lakh crore, respectively,” analysts at ICICI Securities had written in an earnings preview note.

At 10:17 am, the stock was trading 1.28 per cent lower at Rs 1261.45 apiece, as against a 0.28 per cent decline in the benchmark S&P BSE Sensex. The stock hit an intra-day high of Rs 1,303.8 in the early morning deals.