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HDFC Bank Q2 profit may rise 18% YoY on credit revival, lower provisions

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HDFC Bank Q2 Preview: Supported by healthy loan growth, stable interest margins, and lower operating expenses, private sector lender HDFC Bank is expected to report mid-teen growth in net profit for the July-September quarter (Q2FY22), say analysts. It is slated to report its quarterly result on Saturday, October 16.

At the top end of profit expectation, brokerage firm Motilal Oswal Financial Services pegs the profit after tax (PAT) at Rs 8,890 crore for the quarter under review. This would mean an 18.3-per cent growth over last year’s (Q2FY21) and 15 per cent improvement over previous quarter’s (Q1FY22) profit of Rs 7,513.1 crore and Rs 7,729.7 crore, respectively. 

At the lower end, ICICI Securities pegs the PAT at Rs 8,677 crore.

The profit, analysts say, will be driven by a healthy expansion of loan book and deposits which will support the lender’s net interest income and margins (NMs).

"HDFC Bank has shown robust traction in its corporate book (which constitutes 54 per cent of the overall loan book) has compensated for the softness in retail lending, supporting overall growth. While the management continues to focus on lending to highly rated corporates, the embargo being lifted from the Credit Cards business would enable healthy revival in retail loans, particularly the unsecured business," said MOFSL in its earnings preview report.

During its Q2 business update, the Mumbai-based lender informed the exchanges that its loans rose by 15.4 per cent (year-on-year basis) to Rs 11.98 trillion as of September 30, 2021. Sequentially, loans grew by 4.4 per cent over Rs 11.47 trillion in June 2021, showing traction in demand after the second wave of Covid-19 cases.

"Loans in the commercial and rural banking space showed strong traction, with 27.5 per cent growth over September 2020 and 7.5 per cent over June 2020. Retail loans grew by around 13 per cent over September 30, 2020 and around 5.5 per cent over June 30, 2021," according to filing with BSE.

Deposits, on the other hand, grew by 14.4 per cent YoY to Rs 14.06 trillion compared to over Rs 12.29 trillion a year ago. Retail deposits grew by around 17.5 per cent over September 30, 2020 and around four per cent over June 30, 2021.

Effectively, net interest income (NII), which is the difference between interest earned on loans extended and interest paid on deposits, is seen improving in the range of 9 per cent and 15 per cent YoY, up to Rs 18,111 crore.

"HDFC Bank has reported 15.4 per cent YoY growth in advances driven by the revival of retail growth. Deposits are expected to grow in line with advances led by CASA, which are expected to grow at 29 per cent YoY. Healthy loan growth, stable NIMs at 4.16 per cent, and lower operating expenses should result in strong profitability on a YoY basis," said analysts at KRChoksey Securities.

NII was Rs 15,776.4 crore in Q2FY21 and Rs 17,009 crore in Q1FY22. 

As regards asset quality, gross non-performing assets (GNPA) ratio may rise on a yearly basis but remain largely stable sequentially, believe analysts.

MOFSL pegs the same at 1.5 per cent for the period under study while those at Prabhudas Lilladher forecast it at 1.44 per cent. GNPA ratio was 1.08 per cent in Q2FY21 and 1.47 per cent in Q1FY22. 

"Provisions are expected to remain steady on a QoQ basis, with provision coverage ratio (PCR) remaining strong at 70 per cent. Unsecured growth will again take back seat and focus will shift to secured assets," said analysts at Prabhudas Lilladher.

The brokerage expects provisions to come in at Rs 3,905.3 crore while ICICI Securities expects the same at Rs 3,351 crore. The same was Rs 3,703.5 crore in Q2FY21 and Rs 4,830.8 crore in Q1FY22.

Among key monitorables, the Street would eye asset quality in agri or unsecured book and slippages due to the second wave, and commentary around credit cards and fee income traction.

On the bourses, the stock of the lender has risen about 17 per cent so far in the current calendar year 2021 (YTD) compared with a 27.5 per cent gain in the benchmark S&P BSE Sensex, ACE Equity data show. 

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