Buy HDFC; target of Rs 1530: ICICI Direct

PAT increased 37.5% YoY to Rs 1871 crore, largely in line with our estimate. The surge can be attributed to one-time exceptional gain of Rs 922 crore, from 22.9% stake in the general insurance business NII growth remained on a slower trajectory at 8.1% YoY to Rs 2116 crore. Margins were flat YoY at 3.8% as expected Net loans grew at 14.9% YoY to Rs 265731 crore, led by individual loans growing 16% YoY to Rs 185281 crore forming 69.7% of the book while non individual loan saw improved traction at 12% YoY Asset quality was maintained with GNPA at 0.75%, (GNPA - Rs 2006 crore) vs. 0.70% QoQ. Total provisions were at Rs 340 crore vs. Rs 50 crore last year. During Q1FY17, an additional provision to the tune of Rs 275 crore, was made (utilising part of the exceptional gains from sale of stake in general insurance businesses).

HDFC has commanded premium valuations over the years due to its consistent track record in earnings and business growth. Return ratios have remained healthy across economic cycles with RoE >20% & RoA >2.5%. We expect PAT CAGR of 9% in FY16-18E. Its life insurance arm entered into an agreement to consider merger with Max Life Insurance that would form largest private life insurance company. We revise our SOTP based TP higher to Rs 1530 (Rs 1370 earlier) as we assign multiple of 3.4x FY18E ABV for the core business and due to increase in HDFC bank’s target value. We maintain our BUY recommendation.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.