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HDFC Bank Q2: Net profit could rise up to 21% YoY, NIM may expand

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Q2 preview: India’s biggest private bank, HDFC Bank, is likely to clock high-teen growth in its net interest income (NII) during the July-September quarter (Q2) of fiscal 2022-23 (FY23), on a year-on-year (YoY) basis, on the back of over 20 per cent growth in its loan book, and around 19 per cent in deposits, brokerages observe.


The bank is scheduled to announce its September 2022 quarter numbers on Saturday, October 15.


is strengthening its geographical footprint in terms of both reach and density, which will result in higher operating expenses growth of around 20 per cent YoY. As a result, operating profit is likely to grow in high-single teens. However, given lower provisioning expectation, and no requirement of new contingency buffer, profit after tax (PAT) growth is expected at around 20 per cent YoY in Q2FY23,” said ICICI Securities in a result preview note.


Brokerages expect net profit to grow in the range of 16-21 per cent YoY and 16 per cent higher quarter-on-quarter (QoQ) at Rs 10,672 crore.


Operating profit, meanwhile, is seen up between 8 per cent and 13 per cent at Rs 17,750.6 crore (Rs 15,367.8 crore in June 2022 quarter), over last year’s PPoP of Rs 15,807.3 crore.


Loan book, NII & NIM


The bank had registered a 23.5 per cent rise in loans to Rs 14.80 trillion in the second quarter of this fiscal. The credit book was Rs 11.98 trillion as of September 30 last year, it said in a recent business update. On the liability side, deposits aggregated to approximately Rs 16.73 trillion at the end of Q2FY23, nearly 19 per cent higher from Rs 14.06 trillion as of September 30, 2021.


Given this, brokerages anticipate NII to improve around 16-18 per cent YoY, between Rs 20,517.5 crore and Rs 20,836.2 crore.


“We expect NII growth at around 17 per cent YoY, from Rs 17,684.4 crore, led by solid loan growth of 23 per cent YoY. We expect net interest margin (NIM) to show a marginal improvement, but stay lower than peers given the structure of the loan book,” said analysts at Kotak Institutional Equities.


Those at ICICI Securities further added that the bank is chasing the best quality customers across product segments that come at a lower yield, which will be offset by growth led by high yielding payment products, rural, and commercial.


“Given higher advances growth, and rise in lending rates, we believe margins are likely to be up around 10-15 basis points quarter on quarter (QoQ) even after offsetting term deposit (TD) rate hike,” it said.


NIM is pegged at 4.1 per cent for the quarter relative to 3.9 per cent QoQ, and 4.1 per cent YoY.


Asset quality trends


Asset quality is seen steady. Most brokerages pencil in gross non-performing asset (GNPA) ratio to stay flat sequentially around 1.3 per cent, or dip marginally to 1.26 per cent, led by lower slippages (2 per cent), better recovery, and strong loan growth outlook.


NNPA is pegged at 0.3 per cent, down from 0.4 per cent QoQ, while provisions are seen between Rs 3,347.1 crore and Rs 3,708.4 crore.


“We expect business growth to see continuous traction. This quarter, margin expansion will be an important metric, along with commentary on asset quality in Agri/Unsecured books, and slippages. Commentary around Credit Cards, traction in fee income, and the merger with HDFC will be the other key monitorables,” said analysts at Motilal Oswal Financial Services.

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