Dolat Capital Market has given Buy recommendation for HDFC Bank with a target price of Rs. 1800 in its research report issued on Apr 17, 2021

Dolat Capital Market’s research report on HDFC Bank

HDFC Bank reported in-line NII and PPoP growth of 13% and 20% YoY respectively. PAT growth at 18% was impacted by higher contingent provisions of Rs 13bn including Rs 5bn towards compound interest waiver. Annualized slippages trended lower and were in line with expectations at 1.66% (ex of pro forma slippages in previous quarters). The bank added another Rs8bn to its standard provisioning buffers, which continue to stand at over 0.6% of advances. Restructured portfolio stood at 0.6% of loans. NIM at 4.2% was tad below expectations led by sequentially higher investment book and surplus liquidity, even as improved cost of funds aided NIM. Lack of clarity over the timeline of RBI embargo on digital launches and new credit card issuance remains a key overhang over the near term. The bank’s subsidiary, HDB Financial, reported a 200 bps sequential decline in GNPA to 3.9% (vs pro forma numbers reported last quarter). Sequential loan growth of 4.7% was well distributed between retail and corporate. Key growth drivers for retail were business banking, home, PL and agri loans. Rising CASA share in deposits with CASA ratio at 46% against 43% a quarter ago, have been aiding the bank’s CoF. CASA deposits grew at 27% YoY and 13% QoQ. The bank acquired over 2.5mn corporate salary relationships during the year. Large unutilized contingent provision buffers, along with strong capital position and exposure to top end customers across segments continue to provide significant comfort to earnings profile despite overhang of the RBI ban.

Outlook

Improving operating metrics and lower tax rates remain key levers for improvement in normalized RoAs, which should inch higher by 20 bps to ~2.1%. Marginally tweaking our forward estimates, we maintain our BUY recommendation on the stock with a SOTP-based TP of Rs1800 (Rs 1,750 earlier), implying 3.7x FY23E P/ABV. The stock currently trades at 2.9x Sep-22E ABV.