Earnings momentum for
HDFC Bank Ltd.
) has advanced over the past 60 days based on this Indian bank's
impressive fiscal second-quarter results. The company hit its 52
week high on November 21 and became a Zacks #1 Rank (Strong Buy) on
October 16. With a year-to-date return of approximately 53.1% and a
long-term expected earnings growth rate of 30.0%, the ADRs look
like a solid aggressive pick.
Robust Q2 Results
On October 12, HDFC Bank reported fiscal second quarter earnings
per share of INR6.50 (36 cents per ADR), topping the year-ago
earnings by 27.5%. Moreover, the company reported notable growth in
deposits and loans.
HDFC Bank's net revenue surged 22.2% year over year to INR50.77
billion ($0.96 billion). Net interest income improved 26.7% to
INR37.32 billion ($0.70 billion), driven by strong loan growth and
a stable net interest margin. Non-interest revenues of INR13.45
billion ($0.25 billion) grew 11.0%. Operating expenses totaled
INR25.06 billion ($0.45 billion), increasing 23.4% from the
Asset quality continued to remain strong with gross nonperforming
assets (NPAs) at 0.90% of gross advances, down 10 basis points year
over year. Furthermore, net NPAs remained healthy at 0.20% of net
advances, on par with the year-ago quarter. Moreover, provisions
and contingencies plummeted 20.0% to INR2.93 billion ($0.09
Surge in Earnings Estimates
Over the last 60 days, the Zacks Consensus Estimate for fiscal 2013
rose 6.5% to $1.64 per ADR. For fiscal 2014, the Zacks Consensus
Estimate advanced 6.1% to $2.09 within the same time frame.
The Zacks Consensus Estimate for fiscal 2013 reflects
year-over-year growth of about 18.8%, while the expected growth
rate for fiscal 2014 is 27.4%.
ADRs of HDFC Bank currently trade at 24.5x 12-month forward
earnings, a 98% premium to the peer group average of 12.4x. Its
price to book ratio of 5.2 is at a significant premium to the
industry median of 1.6. Given its strong fundamentals, the premium
valuation looks justified.
Moreover, given the long-term growth projection of 30.0%, the PEG
ratio comes in at 0.82, an 18.0% discount to the benchmark of 1 for
a fairly priced stock. Thus, the expected long-term earnings growth
is currently priced at a discount.
The company has a trailing 12-month ROE of 17.4%, compared with the
peer group average of 11.4%. This implies that the company
reinvests its earnings more efficiently than its industry peers.
Chart Echoes Growth Potential
HDFC Bank has been continuously outperforming its 200-day moving
average over the past three months, showing a steady growth trend.
The year-to-date return for the stock came in at 53.1% compared
with the S&P 500's return of 10.6%.
Headquartered in Mumbai, India, HDFC Bank commenced operations in
1995. After growing aggressively in a relatively short span of
time, the company is now one of the largest banks in India. The
bank enjoys favorable brand equity among Indian consumers and
depositors, which enables it to keep its borrowing costs low. The
company has a market cap of about $31.5 billion. ICICI Bank Ltd. (
) is another strong Indian bank, but it holds a Zacks #2 Rank
Want More of Our Best Recommendations?
Zacks' Executive VP, Steve Reitmeister, knows when key trades are
about to be triggered and which of our experts has the hottest
hand. Then each week he hand-selects the most compelling trades and
serves them up to you in a new program called
HDFC BANK LTD (HDB): Free Stock Analysis Report
To read this article on Zacks.com click here.