Earnings Outlook: HDFC Bk Q4 net seen up 33%; Centurion buy weighs

[K.Karthik Raja]

Earnings Outlook: HDFC Bk Q4 net seen up 33%; Centurion buy weighs
Tuesday, Apr 15

MUMBAI - HDFC Bank's net profit for Jan-Mar is expected to rise 33%
year-on-year to 4.58 bln rupees, while its net interest income is seen
47% higher at 16.51 bln rupees, according to an estimate by four
brokerages.
The bank's advances are expected to grow at around 50% and
deposits at
46%, analysts said.
Acquisition of Centurion Bank of Punjab will take the bank's
number of
branches to 1,148, which will help it to expand retail business more
rapidly.
"HDFC Bank's branch expansion has stagnated for the last three
consecutive quarters due to non-receipt of new branch licenses from
the RBI
(Reserve Bank of India). However, the bank has been able to reap
benefits
from 150 branches opened in FY07," said Motilal Oswal in it pre-
earnings
report.
The bank is expected to maintain its fee-income growth at 30%,
while
lower treasury income may drag its other income growth.
Quarter-on-quarter, the bank is expected to post a 7% growth in
net
profit in the last quarter of 2007-08 (Apr-Mar) and 14% growth in net
interest income.
HDFC Bank will announce its results on Apr 24.
The bank is not likely to witness any significant mark-to-market
loss on its
currency derivatives exposure as it has not seen any default of
payment from
its corporate clients, analysts said.
.
CENTURION BUY
Most brokerages gave thumbs down to the costly acquisition of
Centurion
Bank of Punjab.
"At a swap ratio of 29:1 at current price, it is an expensive
acquisition
and in favour of Centurion Bank of Punjab shareholders, valuing
Centurion
Bank at 18% premium to HDFC Bank," brokerage CLSA had said after the
merger
was announced.
CLSA had cut its price target to 1,700 rupees a share in February
from
1,900 rupees in January.
At 2:42PM, HDFC Bank's shares were at 1,304.75 rupees on National
Stock
Exchange, down 1.9% from Friday.
Besides high cost of acquisition, integration of culture will also
be an
issue as Centurion Bank was already having problems merging the
different
cultures of Bank of Punjab and Lord Krishna Bank. Centurion had
acquired Bank
of Punjab and Lord Krishna Bank in the last two years.
.
RETURN ON EQUITY
HDFC Bank's return on equity is expected to come down following
dilution
of its promoter Housing Development Finance Corp's stake.
"The 23% equity dilution due to share swap deal to acquire CBOP
and
further issue of convertible warrants to HDFC would lower return
ratios. We
believe that current valuations provide little upside," Motilal Oswal
said.
The brokerage house also downgraded HDFC bank to 'neutral' from
'buy'
earlier.
The price to expected bookvalue of 2008-09 has come down to 3.7
from 4.2
for 2007-08. End