Aditya Birla Money neutral on HDFC Bank

Aditya Birla Money has maintained neutral rating on HDFC Bank with a target of Rs 691.1 in its January 23, 2013 research report.

“HDFC Bank’s net Profit after tax for the current quarter increased 30.0% YoY (19.2% QoQ) to  Rs18590.7 mn. The growth in PAT was mainly driven by robust other income growth,  improvement in C/I ratio & lower provisioning expense. Net interest income grew by  21.9% YoY (1.8% QoQ) supported by strong 24.3% YoY (4.2% QoQ) increase in  advances and steady NIM at 4.1% on YoY basis. Non-interest income grew by 26.7%  YoY (33.7% QoQ) to Rs17.9 bn (led by core fee income growth of 24.3% YoY). Besides  this profit on forex transaction and bond gains also contributed to the non-interest income  growth. C/I ratio during the quarter declined 159 bps YoY (254 bps QoQ) to 46.0%. Bank  proposes to reduce the C/I ratio by ~200 bps over next 3-4 years.” 

“Total business of the bank registered a robust growth of ~23.1% YoY (11.6% QoQ) as at Q3FY13. Deposits grew by 22.2% YoY (3.6% QoQ), whereas Net Advances grew by 24.3% YoY (4.2% QoQ). The mix of retail and corporate loans stood at 53.8% / 46.2% in the quarter under review against 53.2% / 46.8% in quarter ended Sept’12. The wholesale book grew at 19%, while retail book advanced 30% on YoY basis during the quarter. Strong 30% YoY growth in the CV and construction equipment advances coupled with 33% increase in business banking advance supported the retail loan book growth. On the deposit side, the bank witnessed a slight decline in CASA ratio from 45.9% in Q2FY13 to ~45.4% in the current quarter. Going forward, the bank expects the CASA ratio to hover in the range of 42-47% depending on the interest rate cycle.”

 “We estimate HDFC Bank to report an EPS CAGR of 27.8% over FY12-FY14E. ABV is estimated to grow at 18.0% CAGR during the same period. We believe the bank’s valuation (at 3.7x its FY14E ABV) adequately factors in its strong fundamentals in the form of consistent operating performance and stable asset quality, thus leaving limited room for upside. We roll our target price to December 13 revising our target price to Rs691.1 (Rs655.9 earlier) valuing the bank at 3.5x its FY14E ABV, implying an upside of 5.8% from current levels. Thus we retain our Neutral rating on the stock,” says Aditya Birla Money research report.

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