HDFC Bank Ltd. Q1 FY2024 earnings call

Management Statement and Operational Highlights

• Merger Update: HDFC Limited merged into HDFC Bank effective July 1, with all subsidiaries of HDFC Limited becoming subsidiaries of HDFC Bank. Shareholders of HDFC Limited received HDFC Bank shares.
• Macro Environment: Strong GDP growth in March quarter, robust GST collections, manufacturing PMI 57.8, services PMI 58.5, narrowing current account deficit, but monsoon uncertainty with El Nino risk to rural recovery and inflation.
• Distribution and Engagement: Added 39 branches in the quarter, 1,482 branches over 12 months (7,860 branches total). Payment acceptance points at 4.6 million, up 37% year-on-year. Added 2.4 million new liability relationships. Added 29,000 employees over 12 months and 8,500 during the quarter.
• Cards and Digital: Issued 1.5 million cards in the quarter, total cards 18.4 million. Website received 109 million monthly visits, 89 million unique visitors year-on-year +42%.
• Financials: Net revenues INR32,829 crores, up 26.9% year-on-year. Net interest income INR23,599 crores, up 21% year-on-year. Other income INR9,230 crores, fees and commission INR6,290 crores up 17% year-on-year. Operating expenses INR14,057 crores, up 33.9% year-on-year. PPOP grew 22%. Asset quality: GNPA 1.17%, net NPA 0.30%.

Segment Performance

• Deposits: Total deposits stood at INR19.1 lakh crores, a 19.2% year-on-year increase. Retail deposits, constituting ~83.5% of total deposits, grew 21.5% year-on-year and 2.4% quarter-on-quarter. Wholesale deposits were 16.5% of total deposits, growing 9% year-on-year but 2.5% quarter-on-quarter.
• Advances: IBPC advances grew 20% year-on-year. Net of IBPC advances, at INR16.3 lakh crores, they grew 15.7% year-on-year. Retail advances grew 20% year-on-year and 4% quarter-on-quarter. Commercial and rural banking grew 29% year-on-year. Wholesale segment grew 11% year-on-year but -1.2% quarter-on-quarter. Pro forma core loan growth for the merged entity was 18.7% year-on-year.
• HDB Financial Services: Loan book as of June end was INR73,568 crores, growing 5.1% quarter-on-quarter and 19% year-on-year. Net interest income for the quarter was INR1,501 crores, up 5% quarter-on-quarter and 13% year-on-year. Profit after tax for the quarter was INR567 crores.
• HDFC Securities: Client base was 4.6 million. Revenue for the quarter was INR497 crores, with net profit after tax of INR189 crores.

Guidance

• Management expects India's GDP growth to be 7.7% in Q1 FY24 and >6% for the full year '24.
• Confident of sustaining ROE in the range of 1.9% to 2.1%.
• Expect loan growth to be around 17-18% over the full year, with consideration of evaluating the non-wholesale book of HDFC Limited.

Risks

• Weather-related uncertainty with El Nino posing risk to rural recovery and inflation.
• Integration challenges and potential costs related to the merger of HDFC Limited into HDFC Bank.
• Credit cost trends and the risk of reversion to mean in the credit cycle.

Question and Answer

• Q: On deposit growth and market share, A: Srinivasan Vaidyanathan states there's no specific reason for Q-o-Q deposit growth dip, attributes to quarter-seasonality and sustained build from the strong March quarter.
• Q: On loan growth and merged profitability, A: Discusses credit growth components, including retail and non-retail segments, and confidence in sustained growth.
• Q: On deposit repricing and NIM volatility, A: Talks about deposit pricing strategy and transition to EBLR for mortgages, with NIM volatility managed by risk management.
• Q: On merger-related costs, A: Srinivasan Vaidyanathan mentions there will be integration costs like stamp duties, but they are within reason and not substantial to financials.