Download - Equity Research Report HDFC Bank
Equity Research Report HDFC Bank
1QFY09
2QFY09
3QFY09
4QFY09
1QFY10
2QFY10
3QFY10
4QFY10
1QFY11
2QFY11
3.9
4
4.1
4.2
4.3
4.4
4.5
4.1
4.2
4.3
4.2
4.1
4.2 4.2
4.4
4.3
4.2
%Interest Margin
%Margin
HDFC Bank Ltd is a major Indian financial services
company based in Mumbai. The Bank is a publicly
held banking company engaged in providing a wide
range of banking and financial services including
commercial banking and treasury operations.
Chairman of HDFC bank is C M Vasudev and
Managing director is Aditya Puri.
Investment Thesis
The average EBITDA Margin of the last three year is
22% which is consistent and predict future growth.
Good and consistent YOY PAT Margin of 15%.
Average advance growth in the last three years is 40%
and this indicates good future earning from advances.
Net interest margin was at 4.3% in the last quarter and
it is consistent for the last 6 months. The banks total
capital adequacy remained strong at 16.45%. With
tier-1 constituting 70% of the total CAR
Risks
RBI guidelines and policies for banks, RBI is very
strict after Recession it keeps on changing Repo &
Reverse Repo Rate. Banks have investments in large
no. of private and government projects. Profitability of
banks depends on the Profitability of these Projects.
Microfinance sector, 2G spectrum, and realty scams
have adverse affects on banking sector.
Sector: BankingStock Details:SENSEX Ticker: 500180NSE: HDFCBANKMCap(Rs Million): 1,020,375.73Beta: 0.6752 Week H/L: 2,518.00/1,550.00
22-Dec-
08
22-Feb-09
25-Apr-0
9
26-Jun-09
27-Aug-0
9
28-Oct-
09
29-Dec-
09
1-Mar-
10
2-May
-10
3-Jul-1
0
3-Sep-10
4-Nov-1
00
500
1000
1500
2000
2500
3000
0
5000
10000
15000
20000
25000
Share Price Linear (Share Price)SENSEX Linear (SENSEX )
COMPANY BACKGROUND
Company Background
HDFC Bank Ltd Was incorporated on August 30, 1994 by Housing Development Finance Corporation Ltd. In the year 1994, Housing Development Finance Corporation Ltd was
amongst the first to receive an 'in principle' approval from the Reserve Bank of India to set up a bank in the private sector, as part of the RBI's liberalization of the Indian Banking Industry. HDFC Bank commenced operations as a Scheduled Commercial Bank in January 1995.
In the year 1996, the Bank was appointed as the clearing bank by the NSCCL. In the year 1997, the launched retail investment advisory services. In the year 1998, they launched their first retail lending product, Loans against Shares. In the year 1999, the Bank launched online, real-time Net Banking.
In February 2000, Times Bank Ltd, owned by Bennett, Coleman & Co. / Times Group amalgamated with the Bank Ltd. This was the first merger of two private banks in India. The Bank was the first Bank to launch an International Debit Card in association with VISA (Visa Electron). In the year 2001, they started their Credit Card business. Also, they became the first private sector bank to be authorized by the Central Board of Direct Taxes (CBDT) as well as the RBI to accept direct taxes. During the year 2009-10, the Bank expanded their distribution network from 1,412 branches in 528 cities to 1,725 branches in 779 cities. The Bank's ATMs increased from 3,295 Nos to 4,232 Nos during the year. As on June 30, 2010, the total number of branches (including extension counters) and the ATM network stood at 1725 branches and 4393 ATMs respectively.
Company Business
The Bank has three primary business segments, namely banking, wholesale banking and treasury. The retail banking segment serves retail customers through a branch network and other delivery channels. This segment raises deposits from customers and makes loans and provides other services with the help of specialist product groups to such customers. The wholesale banking segment provides loans, non-fund facilities and transaction services to corporate, public sector units, government bodies, financial institutions and medium-scale enterprises. The treasury segment includes net interest earnings on investments portfolio of the Bank.
Subsidiary
2007 2008 2009 20100%
10%
20%
30%
40%
50%
60%
22%
47%42%
17%
34% 35%
56%
27%
% Deposits&Advances
DepositesAdvancesAxis Title
Bank has two subsidiaries, HDFC Securities Limited (“HSL”) and HDB Financial Services Limited (“HDBFS”). HSL is primarily in the business of providing brokerage services through the internet and other channels. HDBFS is a non-deposit taking non-bank finance company (“NBFC”), for the establishment of which the Bank received Reserve Bank of India (“RBI”) approval during the fiscal year ended March 31, 2008.
Historical performance
2007 2008 2009 20100
10000
20000
30000
40000
50000
0%5%10%15%20%25%30%35%40%45%
25847.6 25311.1 24416.3
44190.139%
25%
15%
27%
EBITDA And EBITDA Margin
EBITDA EBITDA Margin
EBITDA margin grew a healthy 27% in the
last year. Average EBITDA for the last year
three year is 26% which means the EBITDA
margin is stable and the future looks bright.
EBITDA increases from Rs.24416.3 Cr to
Rs.44190.1 Cr it is 80% growth rate.
Retail banking continues to be the biggest
earner in the year 2010 its Revenue from
retail banking is 155617.3 Cr improved from
148808.3 Cr in the year 2009. Wholesale
banking is also doing well and is constant
also.
Total income has not increased in the last
year but with the trend in growth for the last
5 years it seems that it will increase. Small
decline in the FY 2010 is due to the financial
crisis. Now the condition has improved and
hence it will resume the previous growth
rate, expectation is that it will grow faster
than previous years.
P/E Multiple has increased from 18.95 last
year to 30.95 in this year. EPS has also
shown good improvement from Rs.52 to
Rs.73 EPS growth is also consistent.
2007 2008 2009 20100%
10%20%30%40%50%60%70%80%90%
100%
4733.935337.3 49170.1 46228.2
77648.890964.9 148808.3 155617.3
50904.3 67373.1 106058.2 81620.3
0 12794.2 21460.4 23199.3
YOY Segment Revenue
Treasury Reatil bankingWhole sale banking Other banking opration
2006 2007 2008 2009 20100
20000400006000080000
100000120000140000160000180000
44753.266461.5
101170.3
163140.2 162329.2
12452.6 16556.5 23757.536169.6 40370.8
Total income
Interest earned Other Income
2006 2007 2008 2009 201005
101520253035
28.61 27.4830.4
18.95
30.95
Growth in MultiplesPrice to Book Value ( P/BV)Price/Cash EPS (P/CEPS)EV/EBIDTAMarket Cap/SalesPrice Earning (P/E)
NET Profit and Cash Flows
Pat margin has increased from 11% in year 2009 to 15% operating cash flow was negative in the year 2009 but it picked up tremendously and it was 94698.4 in the year 2010.
Financing cash flow has also been consistent and
2007 2008 2009 2010
-40000
-20000
0
20000
40000
60000
80000
100000
120000
0%
2%
4%
6%
8%
10%
12%
14%
16%
14%13%
11%
15%
Cashflows Contribution
PAT OperatinInvesting FinancingPAT Margin
2006 2007 2008 2009 20100
5
10
15
20
25
17.7419.46
17.74 16.91 16.12
ROE
ROE
DuPont Analysis
Pat margin has increased from 11% in year 2009 to 15% operating cash flow was negative in the year 2009 but it picked up tremendously and it was 94698.4 in the year 2010.
Financing cash flow has also been consistent and
PBIDT/Sales is almost the same throughout the year. Sales/Net Asset has improved in the last two years.
Year PBIDT/Sales(%)
Sales/Net Assets
PBDIT/Net Assets
PAT/PBIDT(%)
Net Assets/Net Worth
ROE(%)
7-Mar 52.42 0.26 0.14 26.42 4.9 19.468-Mar 52.24 0.25 0.13 24.55 4.4 17.749-Mar 56.34 0.33 0.18 20.12 4.02 16.91
10-Mar 53.72 0.33 0.18 27.47 2.82 16.12
7-Mar 8-Mar 9-Mar 10-Mar0
10
20
30
40
50
60
0
5
10
15
20
25
19.4617.74
16.91 16.12 PBIDT/Sales(%) Sales/Net Assets PBDIT/Net Assets PAT/PBIDT(%) Net Assets/Net Worth ROE(%)
PBIDT/Sales is almost the same throughout the year. Sales/Net Asset has improved in the last two years.