Aditya Birla Money is bullish on HDFC Bank and has recommended accumulate rating on the stock with a target price of Rs 757 in its July 19, 2013 research report.
Aditya Birla Money's report on HDFC Bank
HDFC Bank, net Profit after tax for the current quarter increased 30.1 percent YoY (decline of 2.4 percent QoQ) to Rs 18438.6 mn. The growth in PAT on YoY basis was mainly driven by robust net interest income (NII) growth, improved operational efficiency & lower provisioning expense. NII grew by 26.8 percent YoY (2.9 percent QoQ) supported by strong 21.2 percent YoY (7.9 percent QoQ) increase in advances and stable NIMs at 4.6 percent both on YoY and QoQ basis. C/I ratio during the quarter improved 63 bps YoY (353 bps QoQ) to 47.9 percent. Non-interest income grew by 16.7 percent YoY (6.8 percent QoQ) to Rs 19.3 bn mainly driven by higher trading gains (significant bond gains) and strong forex income (due to high currency volatility). However, core fee income growth continued to remain subdued (11.7 percent YoY, decline of 7.1 percent QoQ) due to continuous decline in third party distribution products contribution (impacted by adverse regulatory changes, volume moderation and mix change). Provisions during the quarter declined 9.4 percent YoY. The bank has created a floating provision of Rs 0.30 bn during the quarter taking the total floating provision balance to Rs 18.7 bn.
Total business of the bank registered a robust growth of 19.3 percent YoY (4.8 percent QoQ) as at Q1FY13. Deposits grew by 17.8 percent YoY (2.4 percent QoQ), whereas Net Advances grew by 21.2 percent YoY (7.9 percent QoQ). The growth in the loan book was mainly driven by corporate segment which grew by 14 percent sequentially as against 3 percent sequential growth in retail book. While the corporate loan book grew on the back of strong working capital demand, the moderation in growth in the CV & CE segment impacted the retail loan growth. Resultantly, the mix of retail and corporate loans tilted in favour of corporate loans at 54 percent/46 percent in the quarter under review as against 57 percent/43 percent during Q4FY13. Going forward, the management guided for 3-6 percent above industry growth in credit for FY14E. On the deposit side, CASA ratio registered a decline of 274 bps sequentially from ~47.4 percent in Q4FY13 to 44.7 percent in the current quarter led by 247 bps sequentially decline in current deposits (due to higher year end base) and some outflows witnessed by the bank in the government related saving balances. However, the management stated that average daily CASA ratio was largely stable QoQ. Going forward, we expect the bank's business to grow at a CAGR of 20.0 percent over FY13-15E.
Asset quality deteriorated slightly during the quarter with Gross NPA at 1.04 percent up from 0.97 percent both on YoY and QoQ basis. In absolute terms Gross NPA increased 30.3 percent YoY (16.5 percent QoQ). About 55 percent of incremental bad loans came from retail and 45 percent from corporate segment. On the corporate side, slippages were more granular & spread across industries, however, in retail segment, CV & CE continued to witness stress with higher slippages. The restructured advances of the bank remained stable sequentially at 0.2 percent.
The bank had opened 57 new branches in this quarter taking the total number of branches to 3119. The bank plans to moderate its branch expansion target and plans to add ~250-350 branches in FY14 after strong branch expansion in last two years.
Outlook and Valuations: "We estimate HDFC Bank to report an EPS CAGR of 23.5 percent over FY13-FY15E. ABV is estimated to grow at 18.0 percent CAGR during the same period. We believe the bank is best placed in the current environment with matched funding book, strong liability franchise & stable asset quality. The bank's valuation (at 3.9x its FY14E ABV) adequately factors in its strong fundamentals, thus leaving limited room for upside. We roll our target price to June 14 revising our target price to Rs 757.8 (Rs 742.0 earlier), implying an upside of 11.4 percent from current levels. Thus we retain our Accumulate rating on the stock," says Aditya Birla Money research report.
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