KR Choksey is bullish on HDFC Bank has recommended buy rating on the stock with a target price of Rs 2350 in its research report dated October 22, 2018.
HDFC Bank (HDFCBK) reported PAT of INR 50.1 bn, +21% yoy/9% qoq translating into ROA/ROE of 1.8%/15.2%. Advances growth at 24.1% yoy/6% qoq was commendable given the tough environment, driven by 24% yoy growth in retail and 25% yoy growth in corporate book (loan mix â€“ retail/ corporate stands at 53%/47%). Unsecured lending continued to grow at hgiher rates with PL up 37% yoy and CC up 31% yoy. Business banking (BB) is witnessing growth taper off with yoy growth at 19% (vs. 45% avg over Marâ€™17-Junâ€™18). Auto grew by 16% yoy and CE/CV grew by 26% yoy. Though the bank is witnessing some pricing pressure in the CE/CV segment on account of competition, yields on the incremental book are higher. NII growth at 21% yoy/9% qoq lagged loan book growth (on yoy basis) on account of NIM compression (-10 bps yoy). Sequentially, NIMs were up around 10 bps, benefitting from the capital raise done during the quarter. Considering the rising rates scenario, the bank has been prudent in parking funds in t-bills/bonds in order to create liquidity on the balance sheet (LCR at 118%). CASA, up 18% yoy (vs. deposits growth of 21% yoy), stood at 42%. The bank has also been focusing on garnering retail term deposits. Asset quality was stable with GNPAs at 1.33% (flat qoq) and NNPAs at 0.40% (-1 bp qoq).
We expect the bank to deliver ROA of 1.8%/1.9% and ROE of 16% for FY19/20E. Based on 4x FY20E ABVPS of INR 595, we value the stock at INR 2350 per share. We maintain BUY.
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