Arihant Capital has given Accumulate recommendation for HDFC Bank with a target price of Rs. 1683 in its research report issued on Apr 19, 2021

Arihant Capital’s research report on HDFC Bank

HDFC Bank has posted good performance during Q4FY21 results with stable asset quality. In Q4FY21, there was a beat on NII and operating profit front but profit came in lower than our estimates due to contingency provision of INR 1300 cr made by the bank. Net interest income stood at INR 17,120 cr, increasing by +13% YoY/+5% QoQ as compared to our estimate of INR 16,742 cr. Operating profit for the quarter grew by 20% YoY/2.3% QoQ to INR 15,533 cr vs. our estimate of INR 14,849 cr. Profit for the quarter grew by 18% YoY to INR 8,187 cr against our estimate of INR 8,849 cr. Provisions for the quarter stood at INR 4,694 cr as against INR 3,414 cr in Q3FY21. Provisions includes INR 1300 cr of contingency buffer comprising of INR 800 cr towards additional contingent provisions and INR 500 cr on interest on interest reversal. With this the bank carries cumulative (floating + contingent) provision of INR 6,812 cr (0.6% of loans). On business growth front, the bank’s loan book grew by +14% YoY/+5% QoQ to INR 11.32 lakh cr while deposits grew strongly by +16% YoY/+5% QoQ to INR 13.35 lakh cr on account of bank’s strong customer loyalty. The advances growth was primarily driven by corporate lending at +22% YoY while retail loan growth stood at +7% YoY.

Outlook

We revise our earnings by 3%/6% for FY22/23E and maintain our Accumulate rating on the stock with a revised target price of INR 1,683 (earlier INR 1,647), valuing the bank at 3.6x FY23E P/ABV. But we would like to keep an eye on current wave of covid and its impact specially on SME and retail going forward. The RBI’s suspension of new card acquisition due to tech outages remains an overhang for the near term.

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