JM Financial is bullish on HDFC has recommended buy rating on the stock with a target price of Rs 1890 in its research report dated October 30, 2017.
JM Financial's research report on HDFC
HDFC Ltd reported PAT of Rs. 21bn (15% YoY, inline with JMFe) as AUM growth improved to 18% YoY with sustained traction in individual loans (up 16% YoY on AUM basis), while the corporate book grew 23% YoY. Adj. NII growth moderated to 13% YoY in 2Q18. While we expect some pressure on spreads due to recent lending rates cuts, however, pickup in non-individual segment would offset the decline. GNPL ratio remained stable sequentially at 1.14%. While individual GNPL remained stable at 0.65%; non-individual GNPL increased 9bps QoQ to due to slippage of one developer account (of INR 1.6bn) to NPL. Credit cost (including provisions for standard assets) remained stable QoQ at 12bps and coverage ratio increased to 27% (vs. 26.4% in 1Q18).
With a gradual pick up in the high-margin corporate book, we expect core operating profit growth of 18% by FY20E (vs. 14% in FY17). We value HDFC using the SOTP method and maintain BUY with a TP of Rs1,890.
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