One of India's top banks - HDFC Bank (HDB) - is out this morning with yet another impressive report, especially considering the rising rate environment in India. The stock took a big hit along with everything in India at the beginning of 2011, but has rebounded very nicely the past two months. I've had a tough time with the valuation since this time last year, but it first traded around the current price last August, so has had 3/4 of a year to "grow into its valuation". It also remains one of the relatively few ways to play India via U.S. ADRs, and showcases impressive growth - especially for a financial firm.
- India's HDFC Bank Ltd. Monday beat market expectations to post a more than 33% jump in its fiscal fourth-quarter net profit, helped by higher earnings on loans and strong fee income. Net profit for the January-March period rose to 11.15 billion rupees ($252 million) from 8.37 billion rupees a year earlier, higher than the 10.90 billion rupees estimated in a Dow Jones Newswires poll of 13 analysts.
- Net interest income--the difference between interest earned and interest expended--rose 21% to 28.40 billion rupees from 23.51 billion rupees a year earlier, the country's third largest lender by assets said. The higher net interest income was led by a wide net interest margin of 4.2% and a strong loan growth of over 27%. Net interest margin is broadly the difference between yields on advances and cost of funds over the net loans.
- But loan growth in the next quarter is likely to slow as the central bank's continuous interest rate tightening to tame stubbornly high inflation may start impacting growth. "It [inflation and rate tightening] certainly could shave off a bit from what the underlying growth potential [could be] in the economy," Paresh Sukthankar, HDFC's executive director, said during a post-earnings conference call.
- Banking analysts say the continued tightening may put pressure on lenders' net interest margin in April-June, which is traditionally a slower quarter for businesses. But HDFC begs to differ. "I don't see net interest margins, despite the pressure [from the rising cost of deposits], moving outside the 3.9% to 4.3% range, which we have maintained over the last many years," Mr. Sukthankar said on the call.
- The confidence partly stems from the bank's ability to keep fund costs low through its large share of low-cost current and saving bank deposits. Current and saving bank deposits amounted to about 51% of the bank's total deposits of 2.09 trillion rupees as at the end of March.
- Mr. Sukthankar also said the lender is likely to outpace the banking system's expected 20% loan growth this fiscal year. He doesn't expect lending or deposit rates to rise further near-term.
- Fees and commissions alone contributed 10.01 billion rupees to other income followed by foreign exchange and derivatives gains of 2.45 billion rupees, it said.
Other metrics also continue to impress:
- Other income, including fees, commissions, treasury and foreign exchange transactions, for the bank jumped 32% to 12.56 billion rupees.
- The asset quality of the bank improved with gross bad loans as a percentage of total advances falling to 1.1% from 1.4% a year earlier.
- The capital adequacy of the bank declined to 16.2% from 17.4% in the year ago period but remained far above the regulatory minimum of 9%.
[Jul 20, 2010: HDFC - Another Solid Quarter]
[Apr 26, 2010: HDFC Bank Beats Estimates but Valuation Getting Quite Rich]
[Jan 15, 2010: HDFC Bank Earnings Rise 32% Year over Year]
[Oct 15, 2009: HDFC Bank's Earnings Propel Upward 30%]