HDFC Bank has finally broken out of the 30% syndrome. In a break from its run of around 30% growth in net profit for 19 quarters, it has posted a 34.23% jump to Rs 321.23 crore in the quarter ended June 2007.
INSIGHT
HDFC Bank has finally broken out of the 30% syndrome. In a break from its run of around 30% growth in net profit for 19 quarters, it has posted a 34.23% jump to Rs 321.23 crore in the quarter ended June 2007. The growth beat most analyst estimates.
Total income stood at Rs 2,641.70 crore, up 42.4%.
The growth in net profit has come on the back of substantial growth in other income, which grew by 77.3% to Rs 515.82 crore compared to the same quarter last year. Other income consisted principally of fees and commissions of Rs 372.20 crore and foreign exchange and derivatives revenues of Rs 146.50 crore, among others.
Among the factors that helped increase other income substantially was the go-ahead to open new branches again in the third quarter of the fiscal. During the quarter, the bank opened 69 branches, taking the branch network to 753 outlets in 320 cities from 535 outlets in 228 cities in June 2006.
The interest generating part of the business continues to do well. The net interest income (interest earned minus interest expended) for the quarter ended June 30, 2007 increased by 27.5% to Rs 1,042.20 crore. This has helped the bank increase its net interest margins to 4.2% from 4.1%, year on year. Two things have helped here - the relatively huge proportion of current and savings account (CASA) deposits and the hike in prime lending rate (PLR).
In fact, the increases taken in PLR have helped negate the decline in CASA deposits ratio. As on June 30, 2007, CASA as a proportion of the total deposits of Rs 81,604 crore stood at 51.5%, down from 52.6% in Q1 last year and 57.7% in Q4 2006-07. Banks do not pay any interest on their current account deposits and pay an interest of 3.5% interest on their savings account deposits.
A point of worry remains the expenses on employees, which went up by 70.6% to Rs 284 crore. With the bank opening new branches, it has had to recruit new employees, and this is one of the reasons behind the increase in employee costs. Also, with a talent shortage in the sector, salaries have been on their way up.
The market remains unimpressed with the stock falling by 1.73% to Rs 1,147.85. Analysts, though, believe the high proportion of CASA deposits should continue to act in favour of the bank.
Headed north
Niche player Northgate Technologies addresses an extremely potent industry and has reported good financial performance, which is clearly reflected in the stock appreciation of 75% in 2007. At this level, it merits a fundamental check.
The company’s business model, which revolves around online advertising services, underlines its strength. It has five subsidiaries abroad, while the parent company and the R&D centre are in India, giving it the cost competitiveness. These act as developers of new generation products currently used by its subsidiaries Axill.Inc and Globe-7.Inc in the US.
It is making its presence felt in the global telecom and voice over internet protocol (VoIP) market. The company has made its foray into the VoIP sector by launching Globe7, the first ever globally patented SIP VoIP Phone.
Its wholly-owned regional subsidiary, Axill.com, caters to the markets in the US, the UK, Hong Kong, and Singapore and, in March 2007, it has launched the Bharatstudent.com, a social networking website for students. Axill’s USP lies in the fact that it tracks the advertisement response from click to conversion and provides real-time statistics to advertisers and publishers.
NTL’s revenues grew 178% in 2006-07 at Rs 295.60 crore, fuelled by the revenues from Axill.Inc <http://axill.com/>, while Globe7 contributed 10% of total revenues. The latter will be a major growth driver going forward, especially in terms of margins, as they are significantly higher than those of Northgate’s, which were at 20.3% in 2006-07. The profit after tax was at Rs 57.40 crore, up 147%. However, expenses, especially staff costs need to be monitored. Also, in the light of increased competition, from the likes of Skype (acquired by Ebay.com) and Yahoo, the margins need to be watched carefully.
Going forward, Northgate intends capturing the online advertisement and web based-business market in China, which has over 400 million internet users. This could be a good revenue spinner for the company.
The strength in the industry driver is reflected in the growth in the online advertising industry, which has witnessed an upswing off late. The worldwide online advertising spend is forecasted to grow from $19.5 billion in 2005 to over $55 billion in 2010. It is estimated that global Internet usage will grow by at least 15% annually, while corporates are increasing their budgeted outlays for online advertising. This highlights the market size Northgate is addressing.
At Rs 1,475.95, the stock is trading at a PE of 43 based on 2006-07 earnings. Investors considering this niche play may be rewarded, although the risk is higher hereon.
Contributed by Vivek Kaul & Devangi Bhuta
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