HDFC Bank is expected to report a double-digit profit, net interest income and loan growth year-on-year (YoY) in the second quarter of FY19 with sequentially stable asset quality. The country's second largest private sector lender will release its second quarter (July-September) earnings on October 20.
Key issues to watch for would be the performance in retail loan/agri portfolio, especially commercial vehicle/commercial equipment; trends in digital banking/payments and various initiatives; overall balance sheet growth outlook and economic recovery.
The stock corrected nearly 5 percent during the quarter ended September 2018 while it rallied 5 percent year-to-date (YTD). Stable asset quality could be one reason for the stock performance.
Here are 5 key factors to watch out for:
Profit
Overall brokerage houses expect profit in the range of 18-25 percent for the quarter, driven by net interest income and stable asset quality. Other income driven by fee income is also expected to boost the bottomline.
Motilal Oswal said it estimated PAT at Rs 4,920 crore, a growth of around 18 percent over a year-ago while Kotak Securities expects growth at around 24.3 percent.
ICICI Securities estimates profit growth at around 18.8 percent and Emkay Research at 24.8 percent for the quarter ended September 2018.
"HDFC Bank should continue to report steady earnings of 20 percent YoY benefitted from capital raise and lower bond losses," Prabhudas Lilladher said.
Net Interest Income
Net interest income, the difference between interest earned and interest expended, is likely to show a growth in the range of 13-22 percent YoY.
"NII growth should be 18-19 percent as net interest margin (NIM) headwinds are not over yet as the historical book is to get repricing benefit," Prabhudas Lilladher said.
Motilal Oswal expects NII to grow at around 13 percent YoY. "Calculated margins at 4.1 percent are expected to contract due to a rise in the cost of funds."
Kotak expects NII growth to be marginally lower than loan growth of around 20 percent YoY while Emkay Research said NII growth is expected around 22 percent YoY.
Loan Growth
Overall brokerage houses expect loan growth at minimum 20 percent YoY for the quarter.
"Loan growth is expected to around 20 percent, mainly driven by retail loans, whereas deposit growth is expected to be around 21 percent YoY led by traction in CASA and bulk deposits," Motilal Oswal said.
Kotak Securities expects loan growth on the corporate side to be strong along with retail (mostly led by unsecured loans). Loan impairments could be flat QoQ with growth in credit costs being a key along with the pace of revenue slowdown or quality of growth of operating profits.
Emkay Research anticipates robust business momentum on both the loan and deposit fronts and expects advances growth of 24 percent YoY.
Prabhudas Lilladher also expects loan growth at around same levels YoY.
Asset Quality
Asset quality is the key factor to watch out for. The bank has maintained its asset quality quite well for the past many quarters when other banks expressed concern over the NPA levels.
HDFC Bank's asset quality is expected to remain stable, with gross non-performing assets (GNPA) at around 1.3 percent, Motilal Oswal said.
Emkay Research said the bank has experienced volatility in its agriculture loan portfolio, and, therefore, expects the GNPA ratio to settle around 1.3-1.5 around levels.
Other Income
Motilal Oswal expects other income growth to moderate to around 11 percent YoY, factoring in lower trading gains. "Fee income should remain healthy."
Kotak expects fee income growth at 20 percent but treasury income is expected to fall 48.5 percent.
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