HDFC (HDB) Continues to Execute - Even in Rising Rate Environment - HDFC Bank (NYSE:HDB)

Lost in this morning's drama is the fact we're launching into the heaviest few weeks of the earnings season. Over 100 S&P 500 companies will report this week, and due to the holiday this will be crammed in 4 days. Of course, there are interesting companies outside the S&P 500 as well; we'll turn our focus more company specific the next few weeks as long as the macro picture stays relatively benign.

One of India's top banks - HDFC Bank (HDB) - is out this morning with yet another impressive report, especially considering the rising rate environment in India. The stock took a big hit along with everything in India at the beginning of 2011, but has rebounded very nicely the past two months. I've had a tough time with the valuation since this time last year, but it first traded around the current price last August, so has had 3/4 of a year to "grow into its valuation". It also remains one of the relatively few ways to play India via U.S. ADRs, and showcases impressive growth - especially for a financial firm.

Via WSJ:

India's HDFC Bank Ltd. Monday beat market expectations to post a more than 33% jump in its fiscal fourth-quarter net profit, helped by higher earnings on loans and strong fee income. Net profit for the January-March period rose to 11.15 billion rupees ($252 million) from 8.37 billion rupees a year earlier, higher than the 10.90 billion rupees estimated in a Dow Jones Newswires poll of 13 analysts.
Net interest income--the difference between interest earned and interest expended--rose 21% to 28.40 billion rupees from 23.51 billion rupees a year earlier, the country's third largest lender by assets said. The higher net interest income was led by a wide net interest margin of 4.2% and a strong loan growth of over 27%. Net interest margin is broadly the difference between yields on advances and cost of funds over the net loans.
But loan growth in the next quarter is likely to slow as the central bank's continuous interest rate tightening to tame stubbornly high inflation may start impacting growth. "It [inflation and rate tightening] certainly could shave off a bit from what the underlying growth potential [could be] in the economy," Paresh Sukthankar, HDFC's executive director, said during a post-earnings conference call.

HDFC seems to believe they can maintain net interest margins, despite the central bank increases

Banking analysts say the continued tightening may put pressure on lenders' net interest margin in April-June, which is traditionally a slower quarter for businesses. But HDFC begs to differ. "I don't see net interest margins, despite the pressure [from the rising cost of deposits], moving outside the 3.9% to 4.3% range, which we have maintained over the last many years," Mr. Sukthankar said on the call.
The confidence partly stems from the bank's ability to keep fund costs low through its large share of low-cost current and saving bank deposits. Current and saving bank deposits amounted to about 51% of the bank's total deposits of 2.09 trillion rupees as at the end of March.
Mr. Sukthankar also said the lender is likely to outpace the banking system's expected 20% loan growth this fiscal year. He doesn't expect lending or deposit rates to rise further near-term.
Fees and commissions alone contributed 10.01 billion rupees to other income followed by foreign exchange and derivatives gains of 2.45 billion rupees, it said.

Other metrics also continue to impress:

Other income, including fees, commissions, treasury and foreign exchange transactions, for the bank jumped 32% to 12.56 billion rupees.
The asset quality of the bank improved with gross bad loans as a percentage of total advances falling to 1.1% from 1.4% a year earlier.
The capital adequacy of the bank declined to 16.2% from 17.4% in the year ago period but remained far above the regulatory minimum of 9%.