HDFC Financial institution: Bank card biz, Covid-19 second wave pose near-term menace


Market members had been fast to dump shares of personal lender HDFC Financial institution on Monday as near-term considerations on the financial institution’s development prospects weighed on buyers’ minds. Shares of the Mumbai-based financial institution skidded 4 per cent within the intra-day commerce to hit a low of Rs 1,373 apiece on the BSE. The scrip, nonetheless, settled 1 per cent decrease on the BSE at Rs 1,412 apiece.

HDFC Financial institution’s backside line for the March quarter missed Avenue estimates because the lender put aside larger than anticipated provisions. The lender’s provision and contingencies in Q4FY21 rose 24 per cent over the identical interval final yr to Rs 4,693.7 crore, which incorporates contingent provisions of Rs 1,300 crore. Within the previous quarter, provisions and contingencies made by the lender had been to the tune of Rs 3,414 crore.

Successfully, its internet revenue got here in at Rs 8,186.5 crore, up 18 per cent year-on-year (YoY), which was beneath consensus estimate of Bloomberg analysts who had estimated a internet revenue of Rs 8,436 crore.

The online curiosity revenue (NII) grew 12.6 per cent YoY to Rs 17,120 crore, pushed by development in advances at 14 per cent and a internet curiosity margin (NIM) of 4.2 per cent.

“Regardless of steady NIMs and better charges resulting in a beat on working revenue, the financial institution reported barely decrease PAT at Rs 8,186 crore, as in opposition to expectation of Rs 8,300 crore, primarily because of extra contingent provisions of Rs 800 crore amid raging second Covid-19 wave and Rs 500 crore for interest-on-interest waiver,” famous Anand Dama, analysis analyst at Emkay World, together with Neelam Bhatia and Mayank Agarwal in a consequence evaluate report.

Nonetheless, the strong credit score development and steady asset high quality within the March quarter aren’t assuring sufficient as analysts consider the second wave of the coronavirus could delay development and asset high quality normalization within the near-to-medium time period.

Dama highlighted that the financial institution reported a slight enchancment in its gross non performing asset (GNPA) ratio at 1.32 per cent in contrast with professional forma GNPA ratio of 1.38 per cent in Q3, whereas its NBFC subsidiary HDB Monetary Companies reported a discount in GNPA to three.9 per cent relative to professional forma GNPA of 5.9 per cent in Q3, primarily led by heavy write-offs. “Nonetheless, after witnessing a significant enchancment in Jun’20-Mar’21 interval, the financial institution is seeing rising incidence of EMI bounces within the system because of localized lockdowns induced by the second Covid wave which must be tracked,” he mentioned.

Prakhar Sharma, fairness analyst at international brokerage agency Jefferies, mentioned that the current enhance in cheque bounce charge in April will probably be a key side to observe as it can impression credit score prices in addition to urge for food for development within the near-term. One other international brokerage CLSA estimates this enhance in credit score prices at 15-20bps in FY22.

Moreover, analysts consider that the lender’s retail development, which was at 6.7 per cent YoY as in opposition to business development of 9 per cent YoY, may stay lackluster within the near-term amid localized lockdowns as a result of raging second Covid wave.

“A recent Covid wave can doubtlessly disrupt the restoration of companies hurting some sections of the mortgage guide. Development challenges could stay in place as retail is a extremely worthwhile enterprise for the financial institution and any derailment within the financial restoration because of Covid resurgence would impression income development,” mentioned a report by Kotak Institutional Equities.

In Q4FY21, advances of the lender grew by 14 per cent to Rs 11.32 trillion with retail home advances up 6.7 per cent YoY and wholesale advances up 22 per cent YoY. Deposits of the guide lender grew by 16 per cent to Rs 13.35 trillion and CASA deposits grew by 27 per cent.

“The onerous work HDFC Financial institution needed to do to even develop 14 per cent in FY21 might be seen from the truth that it had roughly 50 per cent incremental market share in company loans in FY21. On condition that SBI/ICICI/Axis/KMB have steadiness sheet power in addition to value of funds to match HDFC Financial institution, it is going to be troublesome for HDFC Financial institution to speed up mortgage development except sector degree development picks up,” mentioned a report by Ambit Capital.

The third issue that, analysts consider, stays a key overhang on the inventory is the restrictions positioned by the Reserve Financial institution of India on the lender’s bank card enterprise.

“Decision of evaluate of IT platforms and lifting of embargo on new bank card issuances must be watched. As per administration, the current tech-glitches are disparate occasions, however we consider they may elongate the evaluate course of,” mentioned Sharma of Jefferies.

Ambit Capital believes that ban on issuing bank cards ought to impression top-line development given the phase contributes almost 15 per cent in the direction of core working revenue. “Bank card enterprise (5 per cent of mortgage guide) which has NIMs of 21- 22 per cent ought to come down in FY22 as proportion of mortgage guide because of RBI ban and will negatively impression NIMs,” it added.

That mentioned, HDFC Financial institution gives a robust steadiness sheet and certain larger residual capital than most. This larger residual capital, Edelweiss Securities mentioned, ensures that its best-in-class franchise can assist an adequately giant steadiness sheet after this disaster and fulfil its earnings potential within the long-run.



Goal Worth (in Rs)







Edelweiss Securities



ICICI Securities



Emkay World



BOB Capital



Motilal Oswal Monetary Companies



Kotak Institutional Equities



IDBI Capital



Ambit Capital




Supply hyperlink