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HDFC Bank Q2 preview: Profit seen 22% higher; growth in retail loans eyed

Change in deferred tax asset (DTA) amount due to the government’s decision to rationalise corporation tax rate may hamper HDFC Bank’s September quarter (July-Sept) numbers for the financial year 2019-20 (Q2FY20). The bank, analysts say, may still post a 22 per cent year-on-year (YoY) growth in net profit at around Rs 6,164 crore, when it reports its earnings on Saturday, October 19. 

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Analysts at Emkay Global Financial Services believe that despite the bank enjoying the overall benefit of the tax rate cut, its DTA could be hit by Rs 1,200 crore in this quarter. They say that the “benefits of the lower tax rate could get off-set by the mark-down on one-time DTA, leading to a net higher tax outflow”.  They peg the net profit at Rs 6,102.6 crore, up 22 per cent YoY, from a profit of Rs 5,005.7 crore logged in Q2 of FY19. Sequentially, the PAT is likely to rise nearly 10 per cent from Rs 5,568.2 crore (Q1FY20).

“Revised lower tax rate, post-DTA impact will likely be used for higher contingency provisions given the stress emerging in the sector,” analysts at Prabhudas Lilladher noted in an earnings preview report.

They expect the provisions to jump 3.8 per cent on a yearly basis but decline nearly 28 per cent sequentially to be Rs 1,890 crore in the recently concluded quarter. Accordingly, the gross non-performing asset (GNPA) ratio is pegged at 1.37 per cent, up from 1.33 per cent in the corresponding quarter of the previous fiscal. The GNPA ratio, however, was 1.40 per cent in the first quarter of FY20.

During the quarter under review, the stock of India’s largest bank by market value has outperformed the benchmark indices. Between July and September, HDFC Bank dipped 1.2 per cent, as against a 2.6 per cent decline in the S&P BSE Sensex. The S&P BSE Bankex, too, tumbled 12.1 per cent during the period.

For the recently concluded quarter, the slippages are expected to show mixed trend as analysts eye stable numbers from the agri-sector but warn of stress in the retail space.

“Slippages should moderate as agricultural-slippages should be much lower QoQ… However, we will watch loan growth, current account-savings account (CASA) growth and NPLs from retail book,” said Prabhudas Lilladher.
For Q2FY20, loan growth of 17-19 per cent YoY, and 6-8 per cent QoQ between Rs 8.81 lakh crore and Rs 8.97 lakh crore is being eyed. On the deposits front, analysts at Nirmal Bang peg the deposits at Rs 10.2 lakh crore, a jump of 23 per cent YoY.

As for net interest income (NII), an estimated rise of 15-19 per cent is being eyed by analysts. Reliance Securities, for instance, pegs the NII at Rs 13,565 crore while Prabhudas Lilladher pegs the same at Rs 14,003 crore for the recently concluded quarter. Consequently, the net interest margin (NIM) is seen at 4.33 per cent.

Over the past year, the company’s market value has surged by $21 billion, more than any other bank worldwide, a Bloomberg report said. Analysts that Bloomberg spoke to said, HDFC Bank would grab market share from embattled shadow lenders and benefit from a flight to quality by investors who’ve grown wary of smaller competitors.

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