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HDFC Bank Ltd Research Report - 21st Jan 2016

Banking | Published on Oct 23rd 2015

IT

HDFC Bank continued its trend of delivering consistent earnings performance quarter after quarter. For 2QFY2016, it registered a net profit growth of 20.5% yoy which is in line with our expectation. Advances grow strongly; Asset quality top-notch: During 2QFY2016, the loan book grew at a rapid pace, ie by 27.9% yoy. Retail growth picked further traction; the growth in the retail book was at 29.3% yoy, which took the total contribution of retail as a proportion of total advances book to 49%. Corporate credit growth rate, at 23.4% yoy, stood well above that of the industry. Current and Savings account deposits also saw fairly healthy growth, ie of 20.8% yoy and 18.7% yoy, respectively. Time deposits saw further stronger momentum, growing at 37.8% yoy, which continued to outshine the CASA deposits growth. Because of the spurt in fixed deposits and in-turn total deposits, the CASA ratio came in at 40%. The NIM came off by 14bp qoq to 4.20%; the decline was on account of cuts in base rates to pass on policy rate reductions by the central bank and owing to higher fixed deposits growth. The bank’s non-interest income (excluding treasury) grew by 22% yoy, with fee income growing by 21.6% yoy. Asset quality continued to remain healthy with the Gross NPA rate at 0.91%, declining by 4bp qoq, in a challenging macro environment. The Net NPA ratio stood at 0.25% for the quarter, as against 0.27% in 1QFY2016. The Provision Coverage Ratio (PCR) stood at 72.9%. Outlook and valuation: Credit and deposit growth beat the industry growth rate, driven by strong retail business, healthy CASA and continued network expansion. This provides strong visibility for a robust 20% earnings trajectory, coupled with high quality of earnings. This in our view justifies a premium valuation multiple. At the current market price, the bank is trading at 3.3x FY2017E ABV. We recommend a Buy rating on the stock, with a target price of Rs1,265.

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CMP 1,095
Target Price 1,265
Investment Period12 Months

Stock Info

MCAP BSE (Rs in Cr)305,874.62
MCAP NSE (Rs in Cr)305,925.68
P/E (x)22.78
EPS (Rs.)52.59
BV (Rs.)315.55
Div Yield (%)0.79
FV (Rs.)2.00
P/BV (x)3.80
EV/Sales (x)14.00
EV/EBITDA (x)20.52

Shareholding Pattern (%)

Foreign69.0
Promoter21.0
Institution12.0
Corporate7.0
Public & Others-9.0
Grand Total100.0

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