Emkay Global Financial has given Buy recommendation for HDFC Bank with a target price of Rs. 1950 in its research report issued on Apr 18, 2022

Emkay Global Financial’s report on HDFC Bank

Despite sector-leading credit growth (~21% yoy), HDFCB reported a slight miss on PAT at Rs100bn (est.: Rs103bn) due to continued weak core profitability (up 10% yoy), which was dragged by weak margins/fees and additional contingent provisions of Rs10bn. Asset quality trended well, with GNPA ratio down 9bps qoq to 1.2%; for HDB Fin, it was down by 200bps qoq to 5%. Retail credit growth (15% yoy/4% qoq) lagged overall credit growth (21% yoy/9% qoq on corporate/commercial credit growth), with the share of retail down to 45%, thus weighing on core margins (~4.1-4.2% down from 4.2-4.3% range). Management argues that the focus is on risk-adjusted margins, which have improved qoq to 3.5% from 3.1%. It expects retail growth to improve, driven by unsecured loans, providing some support to margins. However, we believe that the rising share of mortgages/higher fixed-rate loan book could keep margins in check in the near term.

Outlook

We expect pro forma average RoE for HDFCB (merged) at ~16.6% over FY24-25E, which will still be reasonable vs. large peers. Retain long-term Buy on the stock given recent correction, with it trading at 2.4x standalone FY24E ABV (stripping subs value of Rs78 per share).

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