Analyst Corner: Maintain ‘Buy’ on HDFC Bank, ‘growth runway’ is huge

The FY22 annual report of HDFC Bank laid stress on reimagining the future with technology and a service-first culture. The CEO’s message is similar to what was articulated during the analyst day on May 31, highlighting why this is an opportune time to fructify the merger given housing loan growth opportunity with deeper penetration, regulatory convergence, conducive market development, pricing convergence, portfolio rebalancing, enhanced cross-sell, etc.

The annual report says the growth runway is huge and the proposed merger adds an entirely different dimension to the future; there may not be any need to raise further funds to meet reserve requirements; the lender plans to nearly double its network in next three-five years by opening 1,500 to 2,000 branches every year; and it will continue to invest in modern technology and talent. Maintain ‘BUY’.

Incremental financial data points reflect a 13% YoY decline in earnings from retail segment (over and above 18% decline in FY21). The (pre-tax) earnings growth of 17% was buoyed by the wholesale segment where earnings were up 44% in FY22 (over and above 23% growth in FY21). Treasury profits were stable at Rs 9,000 crore.

HDFC Bank has bought Rs 1 trillion of PSL certificates (PSLC) in FY22 with incremental certificates skewed more towards micro enterprise and general category.

Besides, deposits with Nabard/Sidbi/NHB for PSL shortfall have spiked to Rs 44,700 crore. Of the overall advances, priority sector advances stood at Rs 3.9 trillion (30% of domestic 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. GNPAs were down to 1.17% (vs 1.32% in FY21).The asset mix has been shifted to high rated, but low yielding segments and NIMs moderated to 4.0%.