HDFC Bank Q1 profit seen rising up to 33% YoY on low provisions: Analysts

Motilal Oswal Financial Services expects provisions to decline to Rs 3,730 crore in Q1FY23 from Rs 4,830 crore in Q1FY22

HDFC Bank Q1 preview: Key brokerages have wide ranging estimates for HDFC Bank’s net profit growth in the April-June quarter (Q1FY23). While global brokerage BNP Paribas expects the lender’s bottom-line to grow mere 13.4 per cent (Rs 9,284.5 crore) year-on-year, JPMorgan pegs the expansion at a more aggressive pace of 32.4 per cent (Rs 10,232 crore).

Domestic brokerages Motilal Oswal Financial Services, and Emkay Global Financial Services, meanwhile, expect PAT (profit after tax) to swell up to 20 per cent (Rs 9,280 crore) YoY. Sequentially, the decline in net profit could be anywhere between 1.5 per cent and 9 per cent.

"HDFC Bank is likely to report healthy profitability led by better growth and contained credit cost. However, margin/fees may remain soft," pointed out Emkay Global in its result preview report.

The lender is set to report its Q1 earnings' report card on Saturday, July 16. Margin expansion, asset quality in Agri/Unsecured book, slippages, commentary around Credit Cards, traction in fee income, and the merger with HDFC will be the key monitorables, analysts said.

'Uninspiring loan growth'

Apart from subdued profit growth on a quarterly basis, brokerages believe the lender's sequential credit book expansion remains underwhelming.

"HDFC Bank’s business update was not enthusing with loan growth at an uninspiring level of 1.9 per cent QoQ. But its lower-than-sector loan growth is now priced in," said Edelweiss Securities.

As per the lender's Q1 business update, its growth in advances stood at 21.5 per cent YoY to Rs 13.95 trillion. Advances were to the tune of Rs 11.48 trillion on June 30, 2021. On a quarterly basis, the bank’s deposits climbed 2.9 per cent from Rs 15.59 trillion as of March 31, data showed.

On a sequential basis, the bank’s loans grew 1.9 per cent from Rs 13.69 trillion on March 31. Meanwhile, HDFC Bank’s deposits saw a YoY rise of 19.3 per cent to Rs 16.05 trillion from Rs 13.46 trillion a year ago.

Edelweiss Securities, however, anticipates net interest margin (NIM) to improve QoQ, with a higher proportion of retail and a large part of corporate loans booked at the end of Q4-FY22.

It pegs NIM at 4.04 per cent for the quarter under review, up from 4 per cent at the end of Q4FY22. It would be lower than 4.1 per cent reported last year (Q1FY22).

NII growth to bounce back

On average, brokerages expect HDFC Bank’s net interest income – the difference between interest earned and expended – to rise around 15-18 per cent YoY. In absolute terms, NII could be between Rs 19,440 crore and Rs 19,997 crore.

"NII growth post moderation to 10 per cent is likely to retrace to 14-15 per cent YoY. The bank is chasing the best quality customers across product segments. This will be offset by growth led by high-yielding payment products, rural and commercial," said ICICI Securities in its earnings’ preview report.

Stable asset quality

Analysts believe containment of slippages, better recoveries, and improved collections will support asset quality trends. For instance, MOFSL expects, both, gross and net non-performing asset ratios to remain unchanged on a sequential basis at 1.2 per cent and 0.3 per cent, respectively.

The brokerage expects provisions to decline to Rs 3,730 crore from Rs 4,830 crore in Q1FY22 and Rs 3,310 crore in Q4FY22. Those at Edelweiss peg the same even lower at Rs 2,800 crore for the quarter under review.

ICICI Securities expects credit cost at 1 per cent, and operating expenses growth upwards of 23 per cent YoY on a low base.