Prabhudas Lilladher has given Buy recommendation for HDFC Bank with a target price of Rs. 1870 in its research report issued on Jul 19, 2021
Prabhudas Lilladher’s research report on HDFC Bank
HDFCB’s earnings profile of Rs77.3bn was lower than estimates (PLe: Rs79.8bn) led by a much weaker than expected NII growth of 9% YoY despite a loan growth of 14% YoY. NII profile has remained weaker than loan growth for some time now but unfavorable mix on high liquidity & non-retail focus is reflecting much higher. In our view, HDFCB will continue to face near term setbacks with difficult operating environment leading to weaker cross cycle NII of 12% YoY, higher slippages of 200bps and volatile earnings of 17-18%. Although, bank has a strong balance sheet with PCR of 67-70% and ability to absorb higher credit losses, 60bps of contingency provisions and restructuring <1%.
HDFCB earnings should improve as visibility remains high post pandemic leading to superior ROEs of 17-18% over FY23-FY24E and is best in the industry. We retain BUY with revised TP of Rs1,872 (from Rs1,735) as we roll over to Sep-23 ABV and retain our multiple of 3.6x.