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HDFC Bank delivered steady performance for Q3FY2019, with PAT growth of
20.3% yoy. Pre-provision profit grew at healthy rate largely owing to strong other
income growth (up 27.2% yoy) and contained cost (up mere 17.2% yoy). NIM was
stable at 4.3%, as increase in COF was offset by increase in yield. However,
provisions went up primarily owing to stress in agri portfolio and slippages. The
slippages for Q3FY2019 were at 2% though ex-agri at 1.7%. The bank managed
to reduce its expenses and brought down the cost/income ratio from 40.4% in
Q3FY2018 to 38.4 % in Q3FY2019.

Outlook & Valuation: Credit growth beat the industry growth rate, driven by strong
retail business. The strong liability franchise and healthy capitalisation provides
earnings visibility. We value HDFC Bank using SOTP method valuing standalone
banking business at 3.3x of FY21 ABV and its two subsidiaries at `146/share. We
recommend a Buy on the stock, with a target price of `2,500.

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