HDFC Bank: Meets Expectations But Fails To Beat Expectations

India’s largest private sector bank by market capitalization, HDFC Bank, came out with its third quarter results today (January 18, 2013). It was able to meet street estimates and its net profit increased by 30 per cent on a yearly basis. It posted a net profit Rs 1859 crore for the quarter ending December 2012 against Rs 1430 crore posted in the same quarter last year.

This result was posted on the back of healthy growth of its Other Income that grew by 27% and stood at Rs 1798.9 crore. Advances grew by 24.3% on a yearly basis and the net interest margin of the bank remained at 4.1%, which is the same as what it posted for Q3FY12. The net interest income posted by the bank for Q3FY13 is Rs 3798.9 crore, which is up by 21.9% in on a yearly basis.

In terms of asset quality, its Non-performing Assets (NPA), at gross level, increased by 28% on an absolute basis. But in terms of advances, it was 1 % against 0.91% in the same quarter last year. The Net NPA remained constant at 0.2%. However, there was a decrease in provisions and contingencies for the quarter ended December 31, 2012, which were Rs 307.2 crore against Rs 329.2 crore for the quarter ended December 31, 2011. The bank has maintained a healthy provision coverage ratio of 80%. The capital adequacy ratio according to Basel II has remained healthy at 17%

Despite posting such growth numbers, the shares of HDFC bank closed at Rs 659 per share, 1.18% below its previous close. One of the reasons is definitely the increase in gross NPAs. The other is the bank failing to beat the street's estimates. The price to book value at which a share of HDFC Bank is trading is around 5x, which is one of highest among the Indian banks. The street always expects the bank to beat estimates rather than just meeting them. Therefore, we ask our readers not to go long on the stock at current prices.

Result Snapshot