Equity Research Report HDFC Bank

Sector: Banking HDFC Bank Ltd is a major Indian financial services

Stock Details:
SENSEX Ticker: 500180 company based in Mumbai. The Bank is a publicly
NSE: HDFCBANK held banking company engaged in providing a wide
MCap(Rs Million): 1,020,375.73
Beta: 0.67 range of banking and financial services including
52 Week H/L: commercial banking and treasury operations.
2,518.00/1,550.00
Chairman of HDFC bank is C M Vasudev and
Managing director is Aditya Puri.

Investment Thesis

The average EBITDA Margin of the last three year is

22% which is consistent and predict future growth.
Good and consistent YOY PAT Margin of 15%.
Average advance growth in the last three years is 40%
and this indicates good future earning from advances.
Net interest margin was at 4.3% in the last quarter and
it is consistent for the last 6 months. The banks total
capital adequacy remained strong at 16.45%. With
tier-1 constituting 70% of the total CAR

Risks
COMPANY BACKGROUND
RBI guidelines and policies for banks, RBI is very
Company Background strict after Recession it keeps on changing Repo &
HDFC Bank Ltd Was incorporated on August 30,Reverse 1994 by Repo Rate. Development
Housing Banks have investments
Finance in large
Corporation Ltd. In the year 1994, Housing Development no. ofFinance
private Corporation Ltd was
and government amongst
projects. Profitability of
the first to receive an 'in principle' approval from the Reserve Bank of India to set up a bank in
banks depends on the Profitability of these Projects.
the private sector, as part of the RBI's liberalization of the Indian Banking Industry. HDFC Bank
commenced operations as a Scheduled Commercial Bank Microfinance
in Januarysector,
1995. 2G spectrum, and realty scams
have adverse affects on banking sector.
In the year 1996, the Bank was appointed as the clearing bank by the NSCCL. In the year 1997,
the launched retail investment advisory services. In the year 1998, they launched their first retail
lending product, Loans against Shares. In the year 1999, the Bank launched online, real-time Net
Banking.
In February 2000, Times Bank Ltd, owned by Bennett, Coleman & Co. / Times Group
amalgamated with the Bank Ltd. This was the first merger of two private banks in India. The
Bank was the first Bank to launch an International Debit Card in association with VISA (Visa
Electron). In the year 2001, they started their Credit Card business. Also, they became the first
private sector bank to be authorized by the Central Board of Direct Taxes (CBDT) as well as the
RBI to accept direct taxes. During the year 2009-10, the Bank expanded their distribution
network from 1,412 branches in 528 cities to 1,725 branches in 779 cities. The Bank's ATMs
EBITDA
increased margin
from 3,295grew
Nos atohealthy 27%during
4,232 Nos in thethe year. As on June 30, 2010, the total number
of branches
last year. (including extension
Average EBITDA forcounters) and the ATM network stood at 1725 branches and
the last year
4393 ATMs respectively.
three year is 26% which means the EBITDA
Company Business
margin is stable and the future looks bright.
EBITDA increases from Rs.24416.3 Cr to
The Bank has three primary business segments, namely banking, wholesale banking and
Rs.44190.1
treasury. Cr it banking
The retail is 80% growth
segmentrate.
serves retail customers through a branch network and other
delivery channels. This segment raises deposits from customers and makes loans and provides
Retail
other banking
services withcontinues
the help toof be the biggest
specialist product groups to such customers. The wholesale
banking
earnersegment
in the provides
year 2010 loans, non-fund from
its Revenue facilities and transaction services to corporate, public
sector units, government bodies, financial institutions and has
Pat margin medium-scale
increased fromenterprises.
11% in yearThe2009
retail banking is 155617.3 Cr improved from
treasury segment includes net interest earnings on investments portfoliocash
to 15% operating of the Bank.
flow was negative in the
148808.3 Cr in the year 2009. Wholesale
year 2009 but it picked up tremendously and it
Subsidiary
banking is also doing well and is constant was 94698.4 in the year 2010.
also.has two subsidiaries, HDFC Securities Limited (“HSL”) and HDB Financial Services
Bank Financing cash flow has also been consistent and
Limited (“HDBFS”). HSL is primarily in the business of providing
has grown by 22%brokerage
since the services
last year.through
Total income has not increased in the last
the internet and other channels. HDBFS is a non-deposit taking non-bank finance company
year but with
(“NBFC”), theestablishment
for the trend in growth of for the last
which the Bank ROE has decreased
received Reservefrom
Bank16.91%
of Indiato (“RBI”)
16.12% it is
approval during the fiscal year ended March
5 years it seems that it will increase. Small 31, mainly
2008. due to the global recession and if we see
the year 2007 and 2008 it 19.46 & 17.74
decline in the FY 2010 is due to the financial
Historical performance respectively. Hence as the recession is over it is
crisis. Now the condition has improved and expected to grow at more than 17.5% which is a
hence it will resume the previous growth robust growth.
rate, expectation is that it will grow faster
than previous years.

P/E Multiple has increased from 18.95 last

year to 30.95 in this year. EPS has also
NET Profit and Cash Flows
shown good improvement from Rs.52 to
Rs.73 EPS growth is also consistent.
DuPont Analysis

PBIDT/Sales is almost the same

throughout the year. Sales/Net
Asset has improved in the last two
years.