HDFC Bank matched street expectations on December quarter net profit estimates, supported by other income. The bank’s quarterly net profit grew 25 percent year-on-year to Rs 2,326 crore from Rs 1,859 crore while net interest income, the difference between interest earned and interest earned, rose 22 percent to Rs 4,635 crore from Rs 3,799 crore during the same period.
Also Read: HDFC Bank Q3 net meets forecast, up 25%; asset quality firm
Suruchi Jain of Morningstar India and Vaibhav Agarwal of Angel Broking analyse the bank’s quarterly performance. When asked about their view on the stock, Jain said: “We are very positive on HDFC Bank. We are focused on long-term investing…, but if you have a three-five year horizon in mind then HDFC would be a buy under any scenario.”
According to Agarwal, the stock is currently trading at about 3.1 price to book, which is a decent level to accumulate. “We see about 7-8 percent, maybe 10 percent, upside on the stock from these levels from 12 months perspective. Therefore, it’s a decent stock to hold at these kinds of numbers and these kinds of valuations,” he said.
Below is the edited transcript of Suruchi Jain and Vaibahv Agarwal interview on CNBC-TV 18
Q: Your take on HDFC Bank’s numbers?
Suruchi: The growth has come in quite strong and earnings growth will moderate going forward, so 30 percent sort of growth is going to moderate going forward. But overall, we are very positive on HDFC Bank. It is one of the highest quality banks in India. We are focused on long-term investing so we do not recommend short-term trades, but if you have a three-five year horizon in mind then HDFC would be a buy under any scenario.
Vaibhav: Keeping in mind that since last quarter the basic earnings growth trajectory for HDFC Bank has been recalibrated to 25 percent level for the street, the key positive is that the net non-performing asset (NPA) ratio has not increased, which is a bit of a disappointment for some of the other private sector banks so inline with the newly calibrated expectations the numbers are bang inline and positive on the asset quality.
Q: What would your call on the stock itself be on a valuation basis now post these numbers and how would you compare it to the second quarter performance?
Vaibhav: Broadly this quarter does look stable in terms of the line items, in terms of operating growth trend; broadly the stock is currently trading at about 3.1 price to book, which in our view for a bank like HDFC Bank is a decent level to accumulate. So, we see about 7-8 percent, maybe 10 percent, upside on the stock from these levels from 12 months perspective. Therefore, it’s a decent stock to hold at these kinds of numbers and these kinds of valuations.
Q: Where would you estimate margins coming in?
Vaibhav: We were expecting them to be close to Q2 numbers of 4.3 percent. I think broadly it would be inline with those numbers and HDFC Bank was one of the only very few banks who had raise their base rate during the quarter, so benefiting from that at least it should be a stable quarter on margins if not a slight improvement.
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