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

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10000

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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.