Accumulate HDFC Bank; target Rs 760: Emkay

Emkay Global Financial Services is bullish on HDFC Bank and has recommended accumulate rating on the stock with a target price of Rs 760 in its January 18, 2013 research report.

"HDFC Bank Q3FY13 NII/PAT at Rs38bn/18.6bn– inline with estimates. Stellar show on fee income (+24% yoy) and stable provisions help clock 30% yoy growth in PAT. Loan growth at 24% yoy driven by retail loans esp. credit cards, business banking and gold loans. NIM declined 10bps qoq to 4.1% as well as unfavorable base effect in Q2FY13. GNPAs spike up by 14% qoq with more than 60% of the same occurring in CV/CE segment. However, the actual slippages in retail portfolio are far lower than the expected. Strong growth in loans, healthy CAR and lower delinquencies put HDFCB in higher orbit than peers. Valuations at 4.3x/3.6x FY13/FY14 ABV leave limited room for upside. HDFC Bank’s Q3FY13 NII at Rs38bn (+22%yoy) and PAT at Rs18.6bn (+30% yoy) were in line with expectations. The NII growth was driven by 24% growth in loan book even as the reported NIMs were down 10bps qoq. In Q2FY13, HDFC Bank had booked dividend income on mututal funds which pushed up the NIMs in that quarter. Robust fee income (+24% yoy) and flat provisions helped further. Despite expanding its footprint (added 156 branches and 174 ATM’s in Q3FY13) operating profit grew by healthy 27% yoy. The GNPA/NNPA went up 14%/28% qoq largely driven by slippages in the CV/CE portofolio which contributed almost 60% of the additions to GNPAs. Loan growth at 24% yoy (4% qoq) was driven by more by retail advances. Deposit growth too remained healthy at 22%yoy/3.6% qoq. CASA remained stable at 45.4%. Increasing penetration into smaller cities (tier-III and lower) has enabled the bank to garner CASA deposits and also expand its retail portfolio. HDFC Bank continues to drive valuation premium over its peers owing to its a) ability towards healthy loan growth and across all segment ie retail and corporate b) NIM at 4%+ levels c) stable asset quality including higher PCR (~80%) and d) adequate capital for growth with superior return ratios. The stronger loan growth, controlled slippages and healthy capital adequacy put HDFC Bank in higher orbit than the peers. We expect 24% /31% CAGR in NII / net profit over FY12-15E. However, current valuations at 4.3x / 3.6x FY13/FY14ABV leave limited room for upside. We upgrade the stock to accumulate with 12-m target price of Rs 760 (3.5x FY15E ABV)," says Emkay Global Financial Services research report. Institutional holding more than 40% in Indian cos 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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