HDFC Bank Q3 Preview: NII Likely To Post Double-digit Growth On Strong Loan Book; Focus On Merger Deal

Ahead of Q3 earnings, HDFC Bank's share price closed flat on Friday at ₹1,600.85 apiece on BSE compared to the previous day's closing price of ₹1,599.70 apiece.

HDFC Bank is the third largest company in terms of market share with a valuation of over ₹8.92 lakh crore as of January 13, 2023.

It needs to be noted that HDFC Bank has already announced provisional data for Q3FY23 which includes the performance of the bank's deposits and advances.

During Q3FY23, as per the provisional data, the bank's advances aggregated to approximately ₹ 15,070 billion rising by 19.5% from ₹12,609 billion as of December 31, 2021, and growth of around 1.8 % over ₹ 14,799 billion as of September 30, 2022.

The bank's domestic retail loans climbed by around 21.5% YoY and 5% QoQ in Q3, while commercial & rural banking loans jumped by 30% YoY and 5% QoQ. Corporate and whole loans increased by 20% YoY but were lower by 1% QoQ.

Total deposits in Q3FY23 stood at ₹17,335 billion up by 19.9% from ₹14,459 billion as of December 31, 2021. The bank recorded a growth of 3.6% sequentially in total deposits.

Furthermore, HDFC Bank's retail deposits zoomed 21.5% YoY and 5% QoQ in Q3FY23, while wholesale deposits advanced by 11.5% YoY and 2.5% QoQ. CASA deposits recorded a growth of 12% YoY.

In its Q3 preview report, ICICI Direct said, "The bank reported 20% YoY advances growth to ₹1,50,700 crore. Deposits also surged 19.9% YoY to ₹17,33,500 crore. CASA grew 15.4% YoY. Accordingly, NII growth is seen at 18.5% YoY to ₹21,835 crore, and expect margins stable QoQ. Other income is expected to see an improvement QoQ while asset quality may see seasonal agri slippages. Hence, expect provision at ₹3,164 crore with PAT growth expected to be 16% YoY to ₹12,021 crore.

Meanwhile, in its Q3 preview report, Kotak Institutional Equities said, "We expect NII growth at ~20% yoy led by loan growth of ~20% yoy (strong growth retail but slower in the corporate segment). We expect NIM to show a marginal improvement but lower than peers given the structure of the loan book."

Kotak's note further said, "We expect gross NPL ratio to be stable qoq led by lower slippages (<2%), better recovery (expect a bullish commentary of the situation on the ground) and strong loan growth outlook. Near term, focus would be the

status of the merger with HDFC Ltd (conversation on regulatory dispensations)."

Overall, ICICI Direct expects HDFC Bank's net interest income to be around ₹21,834.9 crore in Q3 up by 18.4% YoY and 3.9% QoQ. While PAT is seen at ₹12,021.4 crore in Q3 higher by 16.2% YoY and 13.3% QoQ.

During September 2022 quarter, HDFC Banj posted a 20.1% YoY growth in net profit to ₹10,605.8 crore, while net interest income (NII) soared by 18.9% YoY to ₹21,021.2 crore. Core net interest margin was at 4.1% on total assets, and 4.3% based on interest-earning assets.

As of September 30, 2022, the bank's gross NPA stood at 1.23%, while its net NPA was at 0.33%.

ICICI Direct has set a 'Buy' recommendation on HDFC Bank for a target price of ₹1,750 apiece. Kotak Institutional Equities has also given a 'Buy' rating on the bank for a fair value of ₹1,750 apiece.

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