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On Jun 4, 2013, we reaffirmed our Neutral recommendation on HDFC Bank Ltd. (HDB - Analyst Report). This was based on the company’s impressive fiscal fourth-quarter results, despite the looming concern of higher operating expenses.

Why Neutral?

HDFC Bank’s fiscal fourth-quarter 2013 (ended Mar 31) net profit of INR18.90 billion ($0.35 billion) rose 30.1% year over year. Results benefited from increased revenues, partially offset by higher operating expenses. Moreover, the company reported significant growth in deposits and loan balances.

The estimates over the past 30 days have remained stable for both fiscal 2014 and fiscal 2015. The Zacks Consensus Estimate for fiscal 2014 and fiscal 2015 is $2.00 and $2.60 per share respectively. Hence, with the Zacks Consensus Estimate remaining steady, HDFC Bank now has a Zacks Rank #3 (Hold).

HDFC Bank remains focused on maintaining robust earnings growth through conservative risk management techniques and low-cost funding. Additionally, the Retail Banking segment is expected to be the main driver for future growth. With its extensive branch network and strong brand equity, the company has been able to garner a large share of the retail credit market.

Increasing operating expenses is plaguing factor for HDFC Bank, as it is expected to drag the company’s bottom line in the upcoming quarters. We expect the company’s widening branch network, together with high inflation to keep operating expenses steep in the near term.

Other Foreign Banks Worth Considering

Better performing foreign banks include Mitsubishi UFJ Financial Group, Inc. (MTU - Analyst Report), Deutsche Bank AG (DB - Analyst Report) and Credit Suisse Group AG (CS - Snapshot Report). While the first stock carries a Zacks Rank #1 (Strong Buy), the other 2 carry a Zacks Rank #2 (Buy).

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