Hold HDFC Bank; target of Rs 610: Emkay

Emkay Global Financial Services has recommended hold rating on HDFC Bank with a target of Rs 610, in its July 13, 2012 research report.

“HDFC Bank Q1FY13 NII at Rs34.8bn / PAT at Rs14.2bn - largely inline with our estimates. Non-interest income in the nature of fee income and forex gains compensated for higher provisioning. NII growth at 22.3% yoy (3% qoq) was aided by healthy 21.5% yoy growth in loan portfolio, stable calculated margins at 4% and 360bps sequential rise in LDR to 82.8%. Operating profit at Rs25.8bn was up 27% yoy. The bank has added 20branches and ~800ATM’s in Q1FY13. While GNPA / NNPA increased 4% / 12% qoq, they continue to remain at comfortable 1%/0.2% levels respectively. Credit cost came in marginally higher at Rs4.9bn (0.9% annualized). Restructuring portfolio comprises mere 0.3% of gross advances.”
“After two-quarters of muted growth in corporate loan portfolio, Q1FY13 saw growth in corporate loans at healthy 15% qoq (11% yoy). This compares well against 9% sequential growth in overall loan portfolio and mere 4% qoq rise in retail loan book. The share of corporate loans has increased to 47.6% vs 45.2% in Q4FY12 and continues to be in nature of working capital requirements / short-to-medium term loans. Asset quality continues to hold well for HDFC Bank with GNPA at Rs20.8bn up 4% qoq. NNPA, albeit increased 12% qoq to Rs3.9bn still remains comfortable at 0.2% of loans ie near best in the private banking space. Additionally, PCR at 81% acts as a cushion. NPA related provisioning stood at Rs4.8bn or 89bps annualized. This is more of a quarterly phenomenon. The bank has not witnessed any major slippages across industries and expects asset quality to remain largely stable at 1% GNPA levels. Restructured loans comprise 0.3% of gross advances. HDFC bank remains adequately capitalized with CAR at 15.5% including tier-I CAR at 10.9%. After inclusion of Q1FY13 PAT, CAR would increase to at 16%.”
“HDFC Bank Q1FY13 results provided comfort in terms of a) healthy loan growth across all segment ie retail and corporate b) steady margins despite sequential decline in CASA ratio c) stable asset quality including higher PCR and d) adequate capital for growth. We are factoring 21% / 26% CAGR in NII / net profit over FY12-14E. We remain positive on the stock given its ability to deliver on superior return with stable asset quality and adequate credit cost. However, current valuations at 4.0x/3.4x leave limited room for upside. Downgrade to HOLD with target price of Rs610 (3.5x 1-year forward PB),” says Emkay Global Financial Services research report.    Shares held by Mutual Funds/UTI   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. To read the full report click on the attachment

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