HDFC Q3-FY24 Result Analysis

Consolidated Earnings Snapshot

Analysis

Net Revenue
1. The q-o-q increase of 8.2% indicates a sustained growth trajectory, highlighting the bank's ability to generate consistent revenue in the short term.
2. The remarkable y-o-y growth of 113.5% is an outstanding performance metric, showcasing a substantial improvement in the bank's financial performance over the past year.

Operating Expenses
1. Short-Term Cost Management: The q-o-q increase of 9.3% in operating expenses indicates a relatively controlled growth in costs in the short term, showcasing the bank's efforts in managing immediate operational expenditures.
2. Challenges or Expansion: The substantial y-o-y increase of 241.8% raises questions about the nature of this surge. It could be attributed to various factors such as expansion initiatives, regulatory changes, or unforeseen challenges.
3. Investments in Technology & Infrastructure: A significant y-o-y increase might indicate substantial investments in technology upgrades, infrastructure, or digital transformation initiatives. These investments are crucial for long-term competitiveness.

Consolidated Profit
The q-o-q increase of 2.7% indicates a steady growth in consolidated profit, demonstrating the bank's ability to maintain positive momentum in its financial performance in the short term.

Strong Year-over-Year Performance: The significant y-o-y growth of 35.9% is noteworthy, reflecting a robust overall performance over the past year & indicating effective strategic management & adaptability to market conditions.

Effective Cost Management: If this growth is achieved while operating expenses increased modestly (as indicated in the previous information), it suggests effective cost management practices, leading to improved profitability.

EPS

Q-o-Q EPS Dip: The q-o-q decrease from 22.8 to 22.2 indicates a slight decline in the bank's earnings on a per-share basis during the specified quarter. 

Y-o-Y Stability: Despite the q-o-q dip, the y-o-y EPS remains relatively stable, decreasing only marginally from 22.8 to 22.7. This suggests that, on an annual basis, the bank has maintained a reasonably consistent level of earnings per share.

Potential Short-Term Factors: The q-o-q decline influenced by various short-term factors such as changes in interest rates, market conditions, & specific events affecting the bank's performance during that quarter.

Book Value Per Shares

Book Value per share Improving for last 2 years

The Performance Metric

1. Advances growth (↑4.9%) ₹ 1.1 tr in the quarter 
2. Deposits increased (↑1.9%) ₹ 0.4 tr in the quarter
3. Retail deposits grew ₹ 0.5 tr in the quarter (↑2.9%)
4. Asset quality continues to remain stable
5. RoA of 2.0% & RoE of 15.8% in the current quarter
6. Consolidated EPS of ₹ 22.7 for the quarter & BVPS of ₹ 576.0
7. Capital adequacy ratio at 18.4%; positioned for continued growth

Key financial parameters for Q3 FY24

Standalone Indian GAAP

Asset Quality

Gross NPA & Net NPA

1. Asset quality improved with gross non-performing assets falling 8 bps sequentially to 1.26 percent & net NPA declining 4 bps QoQ to 0.31 percent in Q3 FY24.
2. Gross non-performing assets (NPA) for the bank increased to 1.26 percent from 1.23 percent the previous year. However, net non-performing assets (NPA) for the quarter were 0.31 percent as opposed to 0.33 percent in the previous year.

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank said that the bank has historically seen an improvement in its asset quality. "Historically, we have seen that our asset quality has improved & the current credit environment seems to be benign. The credit conditions seem to be quite good," Srinivasan said in the press conference after announcing the results.

Overall Assessment

With more than 20 years of consistent profitable growth, HDFC Bank is the best-run bank. Although the merger has caused a decline in return ratios, the believe is this is only transitory and the bank will eventually rebound to high-teens RoE.