Home Enterprise bank Analyst Corner: Keep buying HDFC Bank, the ‘growth avenue’ is huge

Analyst Corner: Keep buying HDFC Bank, the ‘growth avenue’ is huge

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HDFC Bank’s FY22 Annual Report focused on reimagining the future with technology and a service-first culture. The CEO’s message is similar to what was articulated at the May 31 analyst day, emphasizing why now is the time to bring the merger to fruition given the opportunity for housing loan growth with deeper penetration, the regulatory convergence, conducive market development, price convergence, portfolio rebalancing, improved cross-selling, etc.

The annual report says the growth avenue is huge and the proposed merger adds an entirely different dimension going forward; it may not be necessary to raise additional funds to meet reserve requirements; the lender plans to almost double its network in the next three to five years by opening 1,500 to 2,000 branches each year; and it will continue to invest in modern technology and talent. Hold ‘BUY’.

The additional financial data points reflect a 13% year-over-year decline in retail segment revenue (beyond the 18% decline in FY21). Profit (pre-tax) growth of 17% was supported by the wholesale segment where profit grew by 44% in FY22 (above the 23% growth in FY21) . Treasury profits were flat at Rs 9,000 crore.

HDFC Bank purchased Rs 1 trillion PSL (PSLC) certificates in FY22 with additional certificates geared more towards the micro business and general category.

Also, deposits with Nabard/Sidbi/NHB for PSL shortfall reached Rs 44,700 crore. Of all advances, priority sectoral advances amounted to 3.9 trillion rupees (30% of national advances). FY22 slippages of Rs 26,860 crore (2.3% run rate) were offset by better recoveries/upgrades and write-offs of Rs 9,430 crore. ARPG declined to 1.17% (from 1.32% in FY21). Asset allocation shifted to high-rating but low-yielding segments, and NIMs moderated to 4.0%.