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HDFC Bank (HDB) Earnings Up Y/Y in Q4, Stock Rises 1%

ADRs of HDFC Bank Ltd. HDB were up nearly 1% following the release of its fourth-quarter fiscal 2016 (ended Mar 31) and fiscal 2016 results on Apr 22, before the market opened. Net profit was INR33.74 billion ($0.50 billion), up 20.2% year over year.

For fiscal 2016, net income increased 20.4% from the prior-year to INR122.96 billion.

HDFC Bank’s quarterly results continued to reflect top-line growth as both net interest income and non-interest revenues witnessed improvement. However, elevated operating expenses as well as provisions marginally weighed on the results.

Performance in Detail

HDFC Bank’s net revenue grew 20.3% year over year to INR103.19 billion ($1.54 billion). For fiscal 2016, net revenues were INR383.43 billion, up 22.1% from fiscal 2015.

Net interest income rose 24% year over year to INR74.53 billion ($1.11 billion). The rise was driven by growth in average assets. Moreover, net interest margin stood at 4.3%.

Non-interest revenues amounted to INR28.66 billion ($0.43 billion), up 11.8% year over year. The increase was attributable to a rise in fees & commissions and miscellaneous income, partially offset by a fall in foreign exchange & derivatives revenue and lower gain on revaluation/sale of investments.

Operating expenses totaled INR45.84 billion ($0.68 billion), up 18.9% year over year. The cost-to-income ratio came in at 44.4% compared with 44.9% as of Mar 31, 2015.

As of Mar 31, 2016, total deposits increased 21.2% year over year to INR5.46 trillion ($0.08 trillion). Also, advances jumped 27.1% year over year to INR4.65 trillion ($0.07 trillion), driven by growth in both domestic retail loans and wholesale loans.

Additionally, HDFC Bank’s total capital adequacy ratio (“CAR”) as of Mar 31, 2016(computed per Basel III guidelines) came in at 15.5%, higher than the regulatory minimum of 9.0%. Moreover, Tier-I CAR was 13.2% as of Mar 31, 2016, up from 13.7% as of Mar 31, 2015.

Asset Quality

Asset quality represented a mixed bag with provisions and contingencies of INR6.63 billion ($0.10 billion) up 14.9% year over year. However, gross nonperforming assets of gross advances were 0.94% as against 0.93% as of Mar 31, 2015.

Total restructured loans to gross advances came in at 0.1% as of Mar 31, 2016, onpar with the Mar 31, 2015 level.


HDFC Bank continued to expand its distribution network. As of Mar 31, 2016, the bank had a total of 4,520 branches in 2,587 cities. Further, as of the same date, there were 12,000 ATMs under the company. The bank also stated that 55% of its branches are presently situated in semi-urban and rural areas.

Our View

HDFC Bank faces several challenges in the form of persistently rising operating expenses and intense competition in the retail space from local peers like ICICI Bank Ltd. IBN, UTI Bank, IDBI Bank and IndusInd Bank. Further, weakening asset quality continues to be a drag on the bank’s financials.

Nonetheless, the bank’s initiatives toward expanding its branch network are expected to drive an increase in loans and deposits, which in turn, will boost profitability, going forward.

HDFC Bank currently carries a Zacks Rank #2 (Buy).

Among other foreign banks, Barclays PLC BCS and HSBC Holdings plc HSBC are scheduled to report first-quarter 2016 results on Apr 27 and May 3, respectively.

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ICICI BANK LTD (IBN): Free Stock Analysis Report
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