Q3 Credit Growth Improves For HDFC Bank

Yesterday’s Market Performance

Nifty: 17,925.25 | +120.00 (+0.67%)
FII Net Bought: INR 1,273.86 crore

Sensex: 60,223.15 | +367.22 (+0.61%)
DII Net Bought: INR 532.97 crore

Howdy Toasters!

In today’s issue of the Morning Toast, we discuss:

December quarter looking good for HDFC Bank
Ambani making the decision of his lifetime
An education concept to keep you chugging along

December quarter looking good for HDFC Bank; what’s up and what do you need to know? 😇

Credit growth for HDFC Bank stood at a healthy 16% Y-o-Y (5% Q-o-Q) in Q3FY22 to reach a loan amount of Rs. 12.6 lakh crore (Rs. 10.8 lakh crore last year)
All segments contributed – Retail, Commercial/Rural and Corporate grew at 13.5%, 30% and 7.5% respectively on a Y-o-Y basis (4.5%, 6%, 4.5% respectively Q-o-Q)
Deposit growth was steady too and grew at 14% Y-o-Y (3% Q-o-Q) to Rs. 14.46 lakh crore at the end of the quarter

Nicee, tell us more! 🤩

Retail deposits grew by ~ 17% & wholesale deposits followed at ~ 1%; Its large housing portfolio stood at Rs. 74.6 billion
HDFC Bank’s current and savings account deposits stood at Rs 6.8 lakh crore (a growth of ~ 24.6% Y-o-Y), partly benefiting from RBI’s directive to maintain current accounts with only the main lender
CASA deposit ratio remains strong at 47%, and should significantly help in cost of funds for the bank; this coupled with strong Loan to Deposit Ratio growth (up 200 bps Q-o-Q to 87%) should support Net Interest Margins (which were previously under pressure from higher share of Corporate book)

So what happened and what’s next?! 🙄

HDFC’s strong presence in the semi-urban and rural sectors have played a major role in the past few years
It has also started regaining its share in the cards segment (after RBI’s embargo on its digital initiatives)
Faster growth in retail loans may also aid margins going forward; better collection efficiency in the retail segment may push down NPAs further
Agri NPAs are still to be monitored closely along with asset-quality outcomes at HDB Financial Services (its NBFC subsidiary) due to the risky customer profile

Interesting! Stock performance, valuations et al.? 😁

The stocks underperformed by its on standards, and when compared to its peer set (think: ICICI Bank) after the management change (Mr. Puri completed his term and retired), and more so due to the RBI’s embargo on its card / digital initiatives
After its recent corrections, the stock trades at reasonable valuations of 2.9x FY23/2.5x FY25 P / Adjusted Book value, which is cheap in comparison to past growth cycles
The risk of fresh Covid wave induced lockdowns could once again disrupt business / asset-quality normalisation, yet the bank seems well placed to manage any surprises, with a reasonable COVID buffer of 0.8% of loans

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Ambani making the decision of his lifetime; what’s up and what do you need to know? 🤯

Mukesh Ambani has promised a “momentous leadership transition” for his $217 billion empire (damn!!)
Learning from the past, which left him and his younger brother Anil in a battle after the OG Ambani failed to write a will, Mukesh wants to avoid all unpleasantries as he passes the baton (think Succession type scenarios)
A trust like structure is proposed with Ambani, along with wife Nita, 59, and their three children – twins Akash and Isha, 30, and their younger sibling Anant, 26 – on its board.

Nice! Tell me more? 🤩

Oil Refining & Petrochemicals, Telecom, and Retail are the three major business units; they will either be operated as a whole or divided up
The former seems to be more plausible as Reliance is heavily invested in making the switch to clean fuels across its solar, hydrogen and battery chains (first of its kind change attempted for a business of this size, anywhere in the world)
All 3 have been defined as superstars according to McKinsey & Co. as the top 10% of companies capturing 80% of positive economic profit in an economy
Low interest rates in the past years + a zero net debt helps the company be ripe for expansion

Okay, let’s take a deep dive now 🧐

Telecom seems to be the lowest hanging fruit with high 4G investment, intense price competition and exorbitant claims by the government, which depressed the RoCE to 3% from 8% five years ago.
The industry’s annual earnings are expected to increase to more than 1 trillion rupees ($13 billion) by March 2023 as operators raise tariffs
It’s strategic partnerships with Google + improved pricing + data demand growth is sure to propel the Jio Platform to dominance

Nice! All things positive? 🙄

Not necessarily, retail might not be this easy – with plans to launch an e-commerce platform on WhatsApp not showing much promise
It’s deal with Future Retail (meant to the the jewel in its crown) is facing controversy of its own (with Amazon, ring a bell?) with seemingly no light at the end of this tunnel
In energy too, Ambani will go head to head with Adani who has plans to become the world’s largest renewables producer by 2030 by investing $70 bn

Success seems to be a matter of ‘when’ and not ‘if’ – the only thing left to see is who will lift the trophy!

What else caught our eye? 👀

HC rules in favour of Future

Future had filed at the Delhi HC that the arbitration process is a ‘perpetuation of illegality’ since the CCI has stated that the deal with Amazon has ‘no legal existence’ in India
Delhi HC has stayed the arbitration proceedings in Singapore International Arbitration Centre as it believes there is a case in favour of Future
A single judge bench had previously dismissed the petition to terminate the arbitration proceedings leading to this subsequent plea by Future

Delhivery extending its wings

Delhivery Ltd has invested in Falcon Autotech in line with their objective of sustained investments in future-ready hardware solutions in its operations.
The amount of the investment has not been disclosed though the aim is to design and implement new automation solutions for transportation and warehousing operations.
Delhivery in on track to raise Rs.7460 cr in its IPO at a valuation of $6-6.5 billion that will both provide an exit to existing investors and be used for growth initiatives

Goldman puts its faith in $BTC

Goldman believes that Bitcoin will continue to take market share away from gold as demand for digital assets increase
They also believe that the environmental concerns (regarding consumption of natural resources) will not be a major hindrance to demand for the asset
They have also claimed that a price of $100000 is in fact a possibility ($BTC has been trading at ~ $46000)

What is an ELSS fund?

ELSS or Equity Linked Savings Schemes are Mutual fund investment schemes that help you save income tax. That’s why they are also known as tax-saving funds.

The Income Tax Act, under section 80c, allows taxpayers to invest up to INR 1.5 lakh in specific securities and claim it as a deduction from their taxable income