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Last Updated : Jul 13, 2012 05:38 PM IST | Source: CNBC-TV18

Banks to post 15-20% earnings growth in Q1: Nirmal Bang

In an interview with CNBC-TV18, Hemindra Hazari, Banking Analyst at Nirmal Bang said HDFC Bank has met expectations and delivered in accordance with the numbers predicted by analysts. He is optimistic about the banking sector and feels banks are going to report pretty decent net profit earnings growth of 15% to 20% in this quarter.


HDFC Bank, the second largest private sector lender in India posted a net profit of nearly 31% year-on-year to Rs 1,417 crore, driven by strong loan growth and increase in other income component.


In an interview with CNBC-TV18, Hemindra Hazari, Banking Analyst at Nirmal Bang said HDFC Bank has met expectations and delivered in accordance with the numbers predicted by analysts. He is optimistic about the banking sector and feels banks are going to report pretty decent net profit earnings growth of 15% to 20% in this quarter.


Hazari is positive about HDFC, picking it as a good buy along with Syndicate Bank and IndusInd Bank.


Below is the edited transcript of the interview on CNBC-TV18.  


Q: A comment on the HDFC frontline numbers first, it is pretty stable as you would expect it to be?


A: Normally HDFC Bank like its parent does not surprise on reported numbers. True to that tradition, I think HDFC Bank has met the analysts’ consensus numbers and are slightly better. But normally that is to be expected from HDFC Bank.


Q: What would you be watching out largely among the private banks this time, do you get the sense that perhaps on asset quality, the street was slightly ahead in factoring in the negatives and hence, the result season may not be a very disappointing or maybe even better than street expectations?


A: By and large, in the banking industry what we would find from the analysts consensus is that banks are going to report pretty decent net profit earnings growth. It will be anywhere between 15% and 20%. This to me is an anomaly. Even if they were to meet these kind of earnings, you are going to find a deceleration in earnings growth in the rest of the corporate sector.


To me, it does not appear normal because it would imply that the banking industry has decoupled itself from the broader economy, which is extremely difficult to achieve practically. Although we expect the bank earnings to show profit growth numbers, to me it should be taken with many pinches of salt.


Q: The only question would be whether at Rs 590 you will buy HDFC Bank. Is all the good news in the price? Would you wait for a dip or do you think you will get good stuff only at high prices?


A: In this type of market where you are getting visibility of earnings and decent asset quality in the banking sector, you should go with those types of banks and HDFC Bank is one of those banks.


Q: What are the other banking favourites that you would watch out for? Would it be just the other private sector banks or is there something in the public sector space that interests you?


A: I have always maintained that one should not distinguish on this type of economic slowdown between private sector and public sector because today the pain is in corporate India. Both private and PSU banks have exposure to corporate India.


Therefore, even very large private banks like ICICI Bank, Axis Bank would be having significant exposure to the corporate like the PSUs, which are either becoming NPAs or they are running CDR for fresh proposals. Having said that, in general we are negative on Indian banks. But, we do like banks such as HDFC Bank, Syndicate Bank or IndusInd Bank.


Q: I take your concerns on the banking sector itself especially, when the economy is growing through a downturn and we have not heard the last in terms of NPL growth but within the pack, are there people who are managing it better and therefore you would be interested in the stock on a relative basis?


A: Yes, definitely. I think banks like HDFC Bank which was not very aggressive into infrastructure lending or even a PSU bank like Syndicate Bank which had been conservative in its infrastructure lending, would be better off in this type of environment. Today what is happening is that the corporate sector is where the maximum pain is being felt.


You can see that in the NPA accretion, you can see that in the CDR proposals and today it is kind of widespread. It was the big corporates, the SMEs and you have this huge infrastructure overhang because some of those power generating companies are going to face problems very quickly.


Q: What about the PSU side, SBI has already indicated that we could see Rs 4,500-5,000 crore in terms of new bad loans, are you seeing a lot of that already priced in, do you think that Rs 4,500 crore figure will not be met with a lot of adverse reaction?

A: In Q4 they gave a guidance about their asset quality being under control for FY13 and now they have revised that for Q1. Looking at the broader economy, my expectation for SBI is that there is going to be more pain ahead for all large banks, particularly those banks which had been aggressive in their credit growth and infrastructure. SBI has been one of those banks. We do have a sell on SBI.

First Published on Jul 13, 2012 03:35 pm
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