HDFC Bank’s Q1FY21 performance was commendable and the management’s narrative was resilient, despite challenges reflected in: 1) Morat 2.0 portfolio at 9% (lowest heard till now), 2) confidence in credit reserves of ~55bps coupled with 76% NPL coverage being sufficient ceteris paribus, 3) digital initiatives, franchise strength and sharp focus helping capture opportunities without compromising quality. Market share gain (21% advance growth), steady NIMs at 4.3% (despite 70bps MCLR cut) and operating cost agility (down 24% YoY ex-employee cost) aided 7% core operating profit growth in the most disrupted quarter. Accelerated recognition of 30bps of advances and expedited provisioning (coverage up 4%) initiated on non-morat pool – though contingency buffer was limited at mere 10bps.
OutlookEarnings growth of 20% was buoyed by treasury gains of Rs10.9bn. Performance reaffirms our stance that HDFC Bank will lead responsibly and is best positioned to rebound quicker offsetting nearterm weakness. Maintain BUY.
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