1QFY2014 Result Update | Banking

July 17, 2013

HDFC Bank
Performance Highlights

Particulars (` cr) NII Pre-prov. profit PAT 1QFY14 4,419 3,306 1,844 4QFY13 4,295 2,963 1,890 % chg (qoq) 2.9 11.6 (2.4) 1QFY13 3,652 2,675 1,417 % chg (yoy) 21.0 23.6 30.1

ACCUMULATE
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Banking 158,289 1.0 727/563 176,187 2 19,949 5,973 HDBK.BO HDFCB@IN

`663 `752
12 Months

Source: Company, Angel Research

HDFC Bank delivered yet another quarter of consistent performance on the bottom-line front, with a growth of 30.1% yoy. On the operating front, NII growth came in healthy at 21.0% yoy, while non-interest income grew by 16.7%, leading to a healthy growth of 19.7% yoy in operating income and 23.6% yoy in preprovisioning profit. On the asset quality front, absolute Gross and Net NPA levels, increased sequentially by around 16% and 47% qoq, respectively. On back of 9.4% yoy lower provisioning, the bank was able to record a 30.1% yoy earnings growth. Balance sheet growth robust; Asset quality stable: The bank registered a robust growth in its balance sheet, with advances growing by 21.2% yoy, largely aided by robust traction in its retail loan portfolio (up 25.5% yoy and 3.0% qoq). Overall, the share of retail advances to overall loan book increased by around 200bp yoy to 54.3%. Within the retail loan portfolio, a strong buildup was witnessed in Personal loans; while Business Banking, Auto loans and CVCE registered a healthy growth of 22.1% 17.4% and 16.7% yoy, respectively. On the liabilities front, the deposit growth was healthy at 17.8% yoy. While, the current deposits accretion was moderate at 10.5% yoy, savings deposits grew by a healthy 16.7% yoy. CASA ratio declined by around 127bp yoy to 44.7%. NIM for the bank remained flat sequentially at 4.6%. The non-interest income (excluding treasury) for the bank grew at a moderate pace of 9.1% yoy, as fee income growth came in moderate at 11.7% yoy and income from others increased by 8.2% yoy. The bank reported treasury gains of `200cr for the quarter compared to `67cr in 1QFY2013. On the asset quality front, the Gross NPA ratio for the bank remained flat at 1.0% sequentially, while the Net NPA ratio increased by 10bp sequentially to 0.3%. PCR (excluding write-offs) for the bank declined sequentially by 525bp to 74.7%. Outlook and valuation: Given the challenging macro-economic developments, we believe within the banking sector, defensive stocks like HDFC Bank are likely to outperform rest of the banking sector, going forward. Also, with minimal NPA issues over the past couple of years, unlike other banks, the bank has had substantial management bandwidth to continue laying the building blocks for organic growth and market share gains. This should place it better than peers from a relative growth stand-point as well. At CMP, it is trading at a one-year forward P/ABV of 3.6x (3.1x FY2015E ABV). We recommend an Accumulate rating on the stock, with a target price of `752. Key financials (standalone)
Y/E March (` cr) NII % chg Net profit % chg NIM (%) EPS (`) P/E (x) P/ABV (x) RoA (%) RoE (%)
Source: Company, Angel Research

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 22.7 8.6 51.9 16.8

Abs. (%) Sensex HDFC

3m 6.5 0.3

1yr 16.6 13.7

3yr 11.1 62.5

FY2012 12,885 22.2 5,167 31.6 4.5 22.0 30.1 5.2 1.7 18.7

FY2013 15,811 22.7 6,726 30.2 4.6 28.3 23.4 4.4 1.8 20.3

FY2014E 19,365 22.5 8,640 28.5 4.6 36.3 18.2 3.7 1.9 21.8

FY2015E 23,767 22.7 10,730 24.2 4.6 45.1 14.7 3.1 1.9 22.8

Vaibhav Agrawal
022 3935 7800 Ext: 6808 [email protected]

Sourabh Taparia
022 3935 7800 Ext: 6872 [email protected] Harshal Patkar 022 3935 7800 Ext: 6847 [email protected]

Please refer to important disclosures at the end of this report

HDFC Bank | 1QFY2014 Result Update

Exhibit 1: 4QFY2013 performance (standalone)

Particulars (` cr) Interest earned - on Advances / Bills - on investments - on balance with RBI & others - on others Interest Expended Net Interest Income Other income Other income excl. treasury - Fee & commission income - Treasury income - Forex & derivative income Operating income Operating expenses - Employee expenses - Other Opex Pre-provision Profit Provisions & Contingencies PBT Provision for Tax PAT Effective Tax Rate (%) 1QFY14 9,663 7,325 2,218 110 10 5,244 4,419 1,926 1,726 1,285 200 314 6,344 3,038 1,109 1,929 3,306 527 2,779 935 1,844 33.6 4QFY13 9,324 7,087 2,096 78 64 5,029 4,295 1,804 1,739 1,383 65 201 6,099 3,136 1,005 2,131 2,963 301 2,662 772 1,890 29.0 % chg (qoq) 3.6 3.4 5.8 41.7 (84.1) 4.3 2.9 6.8 (0.7) (7.1) 207.4 56.1 4.0 (3.1) 10.3 (9.5) 11.6 75.4 4.4 21.1 (2.4) 464bp 1QFY13 8,176 6,232 1,879 51 14 4,523 3,652 1,649 1,583 1,150 67 315 5,302 2,627 993 1,633 2,675 582 2,094 676 1,417 32.3 % chg (yoy) 18.2 17.5 18.1 115.8 (28.3) 15.9 21.0 16.7 9.0 11.7 200.0 (0.2) 19.7 15.7 11.7 18.1 23.6 (9.4) 32.7 38.3 30.1 135bp FY2013* 34,746 26,504 7,820 282 141 19,254 15,493 6,606 6,445 5,137 161 1,010 22,099 10,862 3,965 6,897 11,236 1,486 9,751 3,024 6,726 31.0 FY2012* 27,286 20,537 6,505 137 108 14,990 12,297 5,244 5,440 4,276 (196) 1,139 17,540 8,590 3,400 5,190 8,950 1,437 7,513 2,346 5,167 31.2 % chg (yoy) 27.3 29.1 20.2 105.4 30.2 28.4 26.0 26.0 18.5 20.1 (11.3) 26.0 26.5 16.6 32.9 25.5 3.4 29.8 28.9 30.2 (21)bp

Source: Company, Angel Research, Note: * figures (before PBT) not comparable as FY2013 numbers as per revised accounting practices

Exhibit 2: 1QFY2014 Actual vs. estimates

Particulars (` cr) Net interest income Other income Operating income Operating expenses Pre-prov. profit Provisions & cont. PBT Prov. for taxes PAT
Source: Company, Angel Research

Actual 4,419 1,926 6,344 3,038 3,306 527 2,779 935 1,844

Estimates 4,360 1,885 6,245 3,097 3,148 455 2,693 848 1,845

Var. (%) 1.3 2.2 1.6 (1.9) 5.0 15.8 3.2 10.2 (0.0)

July 17, 2013

HDFC Bank | 1QFY2014 Result Update

Exhibit 3: 1QFY2014 performance analysis

Particulars Balance sheet Advances (` cr) Deposits (` cr) Credit-to-Deposit Ratio (%) Current deposits (` cr) Saving deposits (` cr) CASA deposits (` cr) CASA ratio (%) CAR (%) Tier 1 CAR (%) Profitability Ratios (%) Reported NIM Cost-to-income ratio Asset quality Gross NPAs (` cr) Gross NPAs (%) Net NPAs (` cr) Net NPAs (%) Provision Coverage Ratio (%)
Source: Company, Angel Research

1QFY14 258,589 303,315 85.3 46,071 89,480 135,551 44.7 16.0 10.6 4.6 47.9 2,719 1.0 689 0.3 74.7

4QFY13 239,721 296,247 80.9 52,310 88,211 140,521 47.4 16.8 11.1 4.5 51.4 2,335 1.0 469 0.2 79.9

% chg (qoq) 7.9 2.4 434bp (11.9) 1.4 (3.5) (274)bp (80)bp (50)bp 10bp (353)bp 16.5 3bp 46.9 10bp (525)bp

1QFY13 213,338 257,531 82.8 41,682 76,674 118,356 46.0 15.5 10.9 4.3 49.5 2,086 1.0 396 0.2 81.0

% chg (yoy) 21.2 17.8 241bp 10.5 16.7 14.5 (127)bp 50bp (30)bp 30bp (165)bp 30.3 3bp 74.0 10bp (636)bp

Loan growth remains above industry

During 4QFY2013, the bank registered an above-industry average growth in advances at 21.2% yoy, which was largely aided by robust traction in its retail loan portfolio (up 3.0% qoq and 25.5% yoy). Within the retail loan portfolio, a strong buildup was witnessed in Personal loans; while Business banking, Auto loans and CVCE registered a healthy growth of 22.1%, 17.4% and 16.7% yoy respectively. Home loans and Credit Cards grew by a strong 26.0% and 37.5% yoy. The Gold loan portfolio grew by 37.2% yoy and now constitutes 3.4% of the total retail advances (2.0% of total loan book). Overall, the share of retail advances to overall loan book increased by around 200bp yoy to 54.3%. Within the retail loan book, the share of unsecured advances (Personal loans and Credit Cards) increased sequentially to 20.8% from 20.2%. On the liabilities front, the deposit growth was healthy at 17.8% yoy. The current deposits accretion was moderate at 10.5% yoy, while savings deposits grew by a healthy 16.7% yoy. The CASA ratio declined by around 127bp yoy to 44.7%.

July 17, 2013

HDFC Bank | 1QFY2014 Result Update

Exhibit 4: Strong growth in retail loans aides robust advance growth

Particulars (` cr) Auto Loans CVCE Two Wheelers Personal Loans Business Banking Loans Against Securities Credit Cards Home loans Gold Others Retail Advances 1QFY14 4QFY13 % chg (qoq) 1QFY13 % chg (yoy) 32,310 16,848 3,020 18,586 23,866 991 10,571 17,146 4,767 12,337 30,942 16,106 3,008 17,500 24,516 1,210 10,114 16,783 4,965 11,243 4.4 4.6 0.4 6.2 (2.7) (18.1) 4.5 2.2 (4.0) 9.7 27,513 14,440 2,653 14,776 19,541 965 7,686 13,604 3,474 7,224 17.4 16.7 13.8 25.8 22.1 2.7 37.5 26.0 37.2 70.8 25.5 % share 23.0 12.0 2.2 13.2 17.0 0.7 7.5 12.2 3.4 8.8 100.0

140,442 136,387

3.0 111,876

Source: Company, Angel Research

NIM remains flat sequentially

The banks NIM remained flat sequentially at 4.6%. HDFC Bank has had a rapid expansion of branches over the last two years (558 branches added in FY2012 and 518 branches added in FY2013). In 1QFY2014, the bank added only 57 branches, thereby taking the total branch network to 3,119. Of the total branch additions over last one year, around 35% were micro branches (manned by 2-3 employees). Regionally, most of the expansion came in semi-urban and rural areas. The banks increased geographic presence along with healthy network expansion should aid it in maintaining an above-system average retail loan growth on the asset side and CASA accretion on the liability side. Going forward, the bank plans to add 250-300 branches in the current fiscal.

Exhibit 5: Business growth remains robust

(%) 30.0 22.5 15.0 7.5 Advances
Source: Company, Angel Research

Exhibit 6: Reported NIM remains well above 4%

1QFY14
(%) 4.7 4.6 4.5 4.4 4.3 4.2 4.1 4.0 1QFY13 2QFY13* 3QFY13 4QFY13 1QFY14 4.20 4.30 4.60 4.60 4.6

1QFY13

2QFY13

3QFY13

4QFY13

21.5

22.9

24.3

22.7

21.2

22.0

18.8

22.2

20.1

Deposits

17.8

Source: Company, Angel Research, Note:*as per old reporting practices.

July 17, 2013

HDFC Bank | 1QFY2014 Result Update

Exhibit 7: CASA ratio lower by 127bp yoy

(%)
50.0 46.0 45.0 45.9 45.4 47.4 44.7

Exhibit 8: CASA growth remains healthy for the bank

CASA growth (%) 30.0 20.3 20.0 10.0 15.1 16.7 14.5 SA growth (%)

40.0

1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13

3,119
35.0 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14

Source: Company, Angel Research

Source: Company, Angel Research

Exhibit 9: Capital adequacy remains healthy

Tier-I CAR (%) 20.0 15.5 15.0 10.0 5.0 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 10.9 11.4 10.9 11.1 10.6 4.6 17.0 5.6 Tier-II CAR (%) 17.0 6.1 16.8 5.7 16.0 5.4

Exhibit 10: Branch network growth slowing down

Branches 3,500 3,000 2,500 2,000 9,709 10,316 10,490 10,743 ATMs (RHS) 11,088 13,500 11,500 9,500 7,500 5,500

2,564

2,620

2,776

1,500 1,000

3,062

3,500 1,500

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14

Source: Company, Angel Research

Source: Company, Angel Research

Non-interest income (excl. treasury) grew at moderate pace as fee income and flat Forex income
During 1QFY2014, the non-interest income (excluding treasury) for the bank grew at a moderate pace of 9.1% yoy, as fee income growth came in moderate at 11.7%, while forex income remained flat on a yoy basis. The bank reported treasury gains of `200cr for the quarter compared to `67cr in 1QFY2013. Overall, other income for the bank grew at a healthy pace of 16.8% yoy, during the quarter.

Exhibit 11: Non-interest income (excl. treasury) grew at moderate pace

Particulars (` cr) Fees & Commission Treasury Income Forex Income & Others Other Other income Other income excl. treasury
Source: Company, Angel Research

1QFY14 1,285 200 314 127 1,926 1,726

4QFY13 1,383 65 201 155 1,804 1,739

% chg (qoq) (7.1) 207.4 56.1 (17.7) 6.8 (0.7)

1QFY13 1,150 67 315 118 1,649 1,583

% chg (yoy) 11.7 200.0 (0.2) 8.2 16.8 9.1

July 17, 2013

1QFY14

HDFC Bank | 1QFY2014 Result Update

Asset quality faces moderate pressure

On the asset quality front, the bank reported moderate pressure, as its Gross and Net NPA levels, on an absolute basis, increased sequentially by around 16% and 47%, respectively. Its Gross NPA ratio remained flat at 1.0% sequentially, while the Net NPA ratio increased by 10bp sequentially to 0.3%. The restructured advances for the bank were at 0.2% of gross advances in 1QFY2014 as against 0.3% in 1QFY2013. The bank has been able to maintain its asset quality consistently, as reflected in the decline in slippages, ie from 5.2% in FY2009 to 1.0% in FY2013. Provisions to average assets also declined from 1.2% in FY2009 to 0.5% in FY2013. Further, the bank has been actively making floating provisions (cumulative of around `1,865cr, as against `1,680cr a year ago) and going forward, even if specific credit costs increase to normalized levels, the overall provisioning burden is expected to be manageable due to the buffer created by these floating provisions.

Exhibit 12: Asset quality trends

Gross NPAs (%) 1.2 81.0 0.9 81.9 79.6 79.9 74.7 0.6 70.0 0.3 80.0 Net NPAs (%) PCR (Calc, %, RHS) 90.0

1.0

0.2

0.9

0.2

1.0

0.2

1.0

0.2

1.0

0.3

0.0

60.0

1QFY13

2QFY13

3QFY13

4QFY13

1QFY14

Source: Company, Angel Research

July 17, 2013

HDFC Bank | 1QFY2014 Result Update

Investment arguments
Strong capital adequacy, expanding network, to sustain traction in credit market share and CASA deposits, respectively
As of 1QFY2014, the banks capital adequacy as per Basel-III stood strong at 15.5%, with the tier-1 ratio at a comfortable 10.5%. On the back of such strong CAR, we feel the bank is well positioned to continue its growth path and increase its credit market share over FY2014-15. The banks strong and profitable growth over FY200513 is supported by significant traction in the CASA market share (from 3.3% in FY2005 to ~6.2% in FY2013). The dominant transaction banking business lies at the core of the banks strength in CASA deposits. Moreover, aided by the merger of the Centurion Bank of Punjab, the banks branch network moved up at around 27% CAGR during FY200513. During the past one year, the bank increased its presence in 475 new towns/cities. The banks increased geographic presence along with healthy network expansion should aid it in maintaining above system-average retail loan growth on the asset side and CASA accretion on the liability side.

Comprehensive product portfolio, sustain traction in fee income

effective

cross-selling

to

Apart from the traditional CEB (commission, exchange & brokerage) and forex income, the bank earns substantial fee income from transaction banking, cards and third-party distribution, among others. Overall, the banks core fee income posted a 31.2% CAGR over FY200813 and stands at 1.8% of average total assets (ATA) for FY2013, one of the best in the sector offering another significant competitive advantage to the bank. The banks major proportion of fee income (~80-90%) comes from the retail asset side. Strong growth in retail loan book over the past year (25.5% yoy) coupled with potential fee income revenue from new branch additions (though with a lag) should help the bank maintain its fee income to average assets at 1.8% over FY2014-15 as well.

Asset quality face moderate pressures

The bank has been able maintain it asset quality consistently, as reflected in the decline in slippages, ie from 5.2% in FY2009 to 1.0% in FY2013. Provisions to average assets also declined from 1.2% in FY2009 to 0.5% in FY2013. Further, the bank has been actively making floating provisions (cumulative of around `1,865cr, as against `1,680cr a year ago) and going forward, even if specific credit costs increase to normalized levels, the overall provisioning burden is expected to be manageable due to the buffer created by these floating provisions.

Outlook & Valuation

We believe HDFC Bank is among the most competitive banks in the sector, with an A-list Management at the helm of affairs, which has one of the best track records in the sector. We believe the bank is well positioned for high qualitative growth, with strong CAR, and robust asset quality.

July 17, 2013

HDFC Bank | 1QFY2014 Result Update

Relative to the rest of the banking sector, the banks asset quality remains superior and is likely to outperform in the current environment. Given the challenging macro-economic developments, we believe within the banking sector defensive stocks like HDFC Bank are likely to outperform rest of the banking sector going forward. Also, with minimal NPA issues over the past couple of years, unlike other banks, the bank had substantial management bandwidth to continue laying the building blocks for organic growth and market share gains. This should place it better than peers from a relative growth stand-point as well. At the current market price, HDFC Bank is trading at a one-year forward P/ABV of 3.6x (3.1x FY2015E ABV). We recommend an Accumulate rating on the stock, with a target price of `752.

Exhibit 13: Key assumptions

Particulars (%) Credit growth Deposit growth CASA ratio NIMs Other income growth Growth in staff expenses Growth in other expenses Slippages Coverage ratio
Source: Angel Research

Earlier estimates FY2014 25.0 25.0 45.7 4.6 19.6 16.0 18.0 1.2 79.0 FY2015 25.0 25.0 45.1 4.6 22.0 20.0 20.0 1.3 79.0

Revised estimates FY2014 25.0 25.0 45.7 4.6 17.1 15.0 15.0 1.2 70.3 FY2015 25.0 25.0 45.1 4.6 18.3 17.5 17.5 1.3 70.3

Exhibit 14: Change in estimates

FY2014 Particulars (` cr) NII Non-interest income Operating income Operating expenses Pre-prov. profit Provisions & cont. PBT Prov. for taxes PAT
Source: Angel Research

FY2015 Earlier estimates 23,767 9,998 33,766 15,815 17,951 2,184 15,767 5,045 10,722 Revised Var. (%) estimates 23,767 9,496 33,264 15,183 18,081 2,184 15,897 5,166 10,730 (5.0) (1.5) (4.0) 0.7 0.0 0.8 2.4 0.1

Earlier estimates 19,365 8,195 27,560 13,179 14,381 1,767 12,614 3,973 8,640

Revised Var. (%) estimates 19,365 8,027 27,392 12,922 14,470 1,765 12,706 4,066 8,640 (2.1) (0.6) (2.0) 0.6 (0.1) 0.7 2.3 (0.0)

Exhibit 15: Angel EPS forecast vs. consensus

Year (`) FY2014E FY2015E Angel forecast 36.3 45.1 Bloomberg consensus 35.5 44.7 Var. (%) 2.2 0.9

Source: Bloomberg, Angel Research

July 17, 2013

HDFC Bank | 1QFY2014 Result Update

Exhibit 16: P/ABV band

Price (`) 1,200 1,000 800 600 400 200 0 2.00x 2.75x 3.50x 4.25x 5.00x

Oct-08

Feb-07

Nov-10

Sep-06

Sep-11

Feb-12

May-08

May-13

Dec-07

Aug-09

Dec-12

Oct-13

Jan-10

Jun-10

Apr-06

Apr-11

Jul-07

Jul-12

Source: Company, Angel Research

Exhibit 17: P/E band

1,350 1,200 1,050 900 750 600 450 300 150 0 Price (`) 15x 20x 25x 30x

Jul-05

Jul-06

Jul-07

Mar-09

Jul-08

Jul-09

Jul-10

Jul-11

Jul-12

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Jan-12

Source: Company, Angel Research

Exhibit 18: HDF Bank Premium/Discount to the Sensex (%)

(%) 70 60 50 40 30 20 10 0 (10) (20) (30) Premium/Discount to Sensex Avg. Historical Premium

Source: Bloomberg, Angel Research

July 17, 2013

Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13

Jan-13

Jul-13

Mar-14

HDFC Bank | 1QFY2014 Result Update

Exhibit 19: Recommendation summary

Company AxisBk FedBk HDFCBk ICICIBk* SIB YesBk AllBk AndhBk BOB BOI BOM CanBk CentBk CorpBk DenaBk IDBI# IndBk IOB J&KBk OBC PNB SBI* SynBk UcoBk UnionBk UtdBk VijBk Reco. Buy Accumulate Accumulate Buy Neutral Neutral Accumulate Neutral Buy Accumulate Accumulate Neutral Neutral Buy Accumulate Neutral Accumulate Neutral Neutral Buy Buy Buy Accumulate Neutral Buy Accumulate Accumulate CMP (`) 1,193 368 663 980 22 427 84 77 549 214 49 319 61 326 66 69 106 47 1,242 173 621 1,807 108 64 156 45 44 Tgt. price (`) 1,498 409 745 1,219 95 642 236 54 379 70 113 203 718 2,126 121 186 51 47 Upside (%) 26 11 12 24 13 17 10 10 16 6 6 17 16 18 11 19 13 7 FY2015E P/ABV (x) 1.3 0.8 3.1 1.4 0.8 1.8 0.4 0.5 0.6 0.5 0.5 0.5 0.5 0.4 0.4 0.4 0.4 0.3 0.9 0.4 0.6 1.0 0.5 0.7 0.5 0.3 0.5 FY2015E Tgt. P/ABV (x) 1.6 0.9 3.5 1.7 0.4 0.7 0.5 0.6 0.5 0.4 0.4 0.4 0.7 1.2 0.6 0.6 0.4 0.5 FY2015E P/E (x) 7.4 6.5 14.7 9.8 5.3 8.6 2.5 3.4 3.8 3.1 3.8 3.7 3.2 3.1 2.7 3.0 2.6 2.4 5.9 2.8 3.5 6.3 3.9 4.1 3.3 2.2 4.1 FY2013-15E EPS CAGR (%) 20.8 7.5 26.3 17.4 5.7 17.1 18.3 (0.3) 16.8 21.6 10.0 15.4 52.3 5.7 3.7 27.1 7.0 78.9 (1.7) 17.0 14.5 17.5 (8.5) 67.5 14.7 54.6 9.5 FY2015E RoA (%) 1.6 1.1 1.9 1.6 0.9 1.3 0.7 0.7 0.9 0.7 0.6 0.8 0.6 0.7 0.7 0.8 0.9 0.6 1.2 0.8 1.1 1.0 0.6 0.6 0.7 0.6 0.4 FY2015E RoE (%) 18.5 13.1 22.8 16.2 16.2 22.8 13.6 13.2 16.0 15.1 15.3 14.2 14.3 14.2 14.7 13.5 14.7 13.0 16.8 12.9 16.5 17.0 14.6 13.6 15.2 14.7 11.5

Source: Company, Angel Research; Note:*Target multiples=SOTP Target Price/ABV (including subsidiaries), #Without adjusting for SASF

Company Background
HDFC Bank is the second-largest private sector bank in India with a pan-India network of 3,119 branches and nearly 11,088 ATMs. The bank is promoted and 23% owned by HDFC, India's largest housing Finance Company. HDFC Bank has been at the forefront of modern retail banking in India. The bank has pioneered the transaction banking model in India, which has enabled it to garner substantial CASA deposits as well as fee income, while the focus on retail lending (which forms more than 50% of total loans) has further helped the bank in maintaining above-industry margins.

July 17, 2013

10

HDFC Bank | 1QFY2014 Result Update

Income statement
Y/E March (` cr) Net Interest Income - YoY Growth (%) Other Income - YoY Growth (%) Operating Income - YoY Growth (%) Operating Expenses - YoY Growth (%) Pre - Provision Profit - YoY Growth (%) Prov. & Cont. - YoY Growth (%) Profit Before Tax - YoY Growth (%) Prov. for Taxation - as a % of PBT PAT - YoY Growth (%) FY09 7,421 42.0 3,471 57.4 10,892 46.5 5,685 51.8 5,207 41.2 1,908 35.6 3,299 44.6 1,054 32.0 2,245 41.2 FY10 8,386 13.0 3,983 14.8 12,370 13.6 5,940 4.5 6,430 23.5 2,141 12.2 4,289 30.0 1,340 31.3 2,949 31.3 FY11 10,543 25.7 4,335 8.8 14,878 20.3 7,153 20.4 7,725 20.2 1,907 (10.9) 5,819 35.7 1,892 32.5 3,926 33.2 FY12 12,885 22.2 5,784 33.4 18,668 25.5 9,278 29.7 9,391 21.6 1,877 (1.5) 7,513 29.1 2,346 31.2 5,167 31.6 FY13 15,811 22.7 6,853 18.5 22,664 21.4 11,236 21.1 11,428 21.7 1,677 (10.7) 9,751 29.8 3,024 31.0 6,726 30.2 FY14E 19,365 22.5 8,027 17.1 27,392 20.9 12,922 15.0 14,470 26.6 1,765 5.2 12,706 30.3 4,066 32.0 8,640 28.5 FY15E 23,767 22.7 9,496 18.3 33,264 21.4 15,183 17.5 18,081 24.9 2,184 23.8 15,897 25.1 5,166 32.5 10,730 24.2

Balance sheet
Y/E March (` cr) Share Capital Reserves & Surplus Deposits - Growth (%) Borrowings Tier 2 Capital Other Liab. & Prov. Total Liabilities Cash Balances Bank Balances Investments Advances - Growth (%) Fixed Assets Other Assets Total Assets - Growth (%) FY09 425 14,627 41.7 2,686 6,478 16,243 FY10 458 21,065 17.2 7,012 5,904 20,616 FY11 465 24,914 24.6 7,447 6,947 28,993 FY12 469 29,455 18.3 13,250 10,597 37,432 FY13 476 35,738 20.1 16,963 16,044 34,864 FY14E 476 42,403 25.0 22,219 15,643 42,696 FY15E 476 50,685 25.0 27,372 15,252 51,590

142,812 167,404 208,586 246,706 296,247 370,309 462,886

183,271 222,459 277,353 337,910 400,332 493,745 608,260 13,527 3,979 58,818 55.9 1,707 6,357 15,483 14,459 58,608 27.3 2,123 5,955 25,101 4,568 70,929 27.1 2,171 14,601 14,991 5,947 14,627 12,653 16,664 15,605 20,830 19,224

97,483 111,614 135,140 160,888 22.2 2,347 21,722 22.7 2,703 19,014 25.0 3,234 23,451 25.0 3,864 28,890

98,883 125,831 159,983 195,420 239,721 299,651 374,564

183,271 222,459 277,353 337,910 400,332 493,745 608,260 37.6 21.4 24.7 21.8 18.5 23.3 23.2

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HDFC Bank | 1QFY2014 Result Update

Ratio analysis
Y/E March Profitability ratios (%) NIMs Cost to Income Ratio RoA RoE B/S ratios (%) CASA Ratio Credit/Deposit Ratio CAR - Tier I Asset Quality (%) Gross NPAs Net NPAs Slippages Loan Loss Prov. /Avg. Assets Provision Coverage Per Share Data (`) EPS ABVPS (75% cover.) DPS Valuation Ratios PER (x) P/ABVPS (x) Dividend Yield DuPont Analysis NII (-) Prov. Exp. Adj. NII Treasury Int. Sens. Inc. Other Inc. Op. Inc. Opex PBT Taxes RoA Leverage RoE 4.7 1.2 3.5 0.3 3.7 1.9 5.7 3.6 2.1 0.7 1.4 11.9 16.9 4.1 1.1 3.1 0.2 3.3 1.8 5.0 2.9 2.1 0.7 1.5 11.1 16.1 4.2 0.8 3.5 (0.0) 3.4 1.8 5.2 2.9 2.3 0.8 1.6 10.7 16.7 4.2 0.6 3.6 (0.0) 3.5 1.9 5.5 3.0 2.4 0.8 1.7 11.1 18.7 4.3 0.5 3.8 0.0 3.9 1.8 5.7 3.0 2.6 0.8 1.8 11.2 20.3 4.3 0.4 3.9 0.0 4.0 1.8 5.7 2.9 2.8 0.9 1.9 11.3 21.8 4.3 0.4 3.9 0.0 3.9 1.7 5.6 2.8 2.9 0.9 1.9 11.7 22.8 62.8 9.4 0.3 51.4 7.0 0.4 39.3 6.1 0.5 30.1 5.2 0.7 23.4 4.4 0.8 18.2 3.7 1.1 14.7 3.1 1.3 10.6 70.2 1.7 12.9 94.0 2.4 16.9 109.1 3.3 22.0 127.5 4.3 28.3 152.2 5.5 36.3 179.5 7.1 45.1 212.9 8.8 2.0 0.6 5.3 1.0 68.4 1.4 0.3 2.6 1.0 78.4 1.0 0.2 1.1 0.3 82.5 1.0 0.2 1.0 0.4 82.3 1.0 0.2 1.0 0.3 79.3 1.2 0.3 1.2 0.3 70.3 1.2 0.4 1.3 0.3 64.5 44.4 69.2 15.1 10.2 52.0 75.2 17.4 13.3 52.7 76.7 16.2 12.2 48.4 79.2 16.5 11.6 47.4 80.9 16.8 11.1 45.7 80.9 15.3 10.7 45.1 80.9 14.2 10.4 4.9 52.2 1.4 16.9 4.3 48.0 1.5 16.1 4.4 48.1 1.6 16.7 4.5 49.7 1.7 18.7 4.6 49.6 1.8 20.3 4.6 47.2 1.9 21.8 4.6 45.6 1.9 22.8 FY09 FY10 FY11 FY12 FY13 FY14E FY15E

Note: FY2013 onwards ratios reflect revised accounting practices

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HDFC Bank | 1QFY2014 Result Update

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Pvt. Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Pvt. Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Pvt. Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

HDFC Bank No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

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