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HDFC Bank Q3: Mixed numbers; should investors buy, sell or hold?

Motilal Oswal, which has a buy call on the stock with a target of Rs 1,500 per share, has said HDFC Bank's operating performance remained strong in a tough environment.

January 20, 2020 / 12:05 PM IST
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HDFC Bank share price fell nearly 2 percent in the morning trade on January 20 after the private lender reported a mixed bag of numbers for the October-December quarter.

The stock, which has rallied 18 percent in the last one year, was quoting at Rs 1,257.60, down Rs 20.25, or 1.58 percent, on the BSE at 1104 hours.

The country's second largest private sector lender registered 32.8 percent year-on-year growth in Q3FY20 profit, partly driven by operating income, and 12.7 percent rise in net interest income with a loan growth of 19.9 percent YoY. Net interest margin remained steady at 4.2 percent QoQ.

Profit of more than 30 percent came in for the first time in the last 12 quarters, while net interest income (NII) growth was at 14-quarter low, leading to six-quarter low growth in operating profit despite strong treasury income.

But slippages shot up 43.8 percent sequentially to Rs 5,339 crore due to lumpy corporate and stress in agri segment, with provision coverage ratio declining 300bps QoQ to 66.7 percent in the December quarter. Hence, the credit cost was the highest in last eight quarters.


But the bank expects some pullback in agri stress in Q4.

Overall, numbers were a mixed bag, but brokerages retained their positive stance on the stock, with Credit Suisse raising target price to Rs 1,550 (from Rs 1,400 per share).

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The brokerage has maintained outperformed call on the stock, as the lender should continue to allow for market share gains.

"Slippages saw some increase on the back of slippage in agri segment, but ex-corporate accounts, slippages were stable at 1.7 percent of loans," it said, adding operating performance was strong with return on assets at 2.2 percent.

While maintaining add rating with a target of Rs 1,350 per share, Kotak Institutional Equities said the NII growth weakened YoY as the share of unsecured loans was relatively high at 17 percent of loans.

"Credit cost is still running high and slippages spiked to 2.5 percent of loans. Early warning NPL indicators are still stable," it added.

Emkay feels HDFC Bank has been standout performer in the current stressed environment. It maintained buy a call on the stock.

"The stock performance in the near-to-medium term will track news flow around new MD/CEO, in which a better clarity should emerge around mid CY20," the brokerage said.

Motilal Oswal, which has a buy call on the stock with a target of Rs 1,500 per share, also said HDFC Bank's operating performance remained strong in a tough environment.

"While corporate loan growth is strong and driving overall loan growth, retail loan growth remains skewed in favour of unsecured products. Asset quality has deteriorated as the bank reported higher slippages from lumpy accounts and the agri segment. However, provisioning buffers should enable a steady earnings trajectory," said the brokerage, which estimated loan book/PAT CAGR at 19/25 percent over FY19-22, led by continued improvement in operating leverage, higher fee income and stable margins.

Change in the CEO -- Aditya Puri's tenure ends in October 2020--will be a big event, it added.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Moneycontrol News
first published: Jan 20, 2020 12:05 pm

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