Broking house, IL&FS Investmart has downgrade its recommendation from ‘Buy’ to ‘Accumulate’.

IL&FS Investmart report on HDFC Bank:

"HDFC Bank reported a 30% plus net profit growth for yet another quarter - Q2FY07 was the  bank's 14th consecutive quarter to register such profit growth.  Net  profits  increased  by 32% YoY and 10% QoQ; this increase was registered  despite the surge in interest expenses (92% up YoY) and heavy provisions made towards NPAs and standard assets during this quarter."

"HDFC Bank's balance sheet growth appears to be consciously controlled and more  directed  to  high  yielding asset classes. This step has enabled the bank  to  manage  the  increasing  cost  of  funds without pressurizing the margins. HDFC Bank maintained its NIMs at 4%."

"For the fourth quarter in a row, HDFC Bank has been unable to open any additional  branch  due  to  non-receipt  of  licenses  from  the RBI. This regulatory  risk  and  uncertainty is likely to remain as a key concern for the bank, over mid-long term."

"We strongly believe in HDFC Bank's impeccable asset liability management and  its  ability  to take pro-active steps to be in line with the changing business  environment. Nevertheless,  the current valuations, at 26.8x and 20.6x  FY07 and FY08 EPS respectively, and 5.1 and 4.4 times estimated BV respectively,  look stretched.  This  has  forced us to downgrade  our recommendation from 'Buy' to 'Accumulate'."