Hold HDFC Bank; target of Rs 575: KRChoksey

KRChoksey has recommended hold rating on HDFC Bank with a target of Rs 575, in its April 19, 2012 research report.

“HDFC Bank posted strong PAT of Rs1,453 crore growing 30.4% y-o-y and 1.6% q-o-q, in line with our expectation and market consensus. NII grew to 19.3% y-o-y & 8.7% q-o-q led by loan growth 22.1% y-o-y and 20bps q-o-q NIM (calc.) improvement. Fee income saw healthy traction, up 23.7% y-o-y and 9.7% q-o-q. Cost to income ratio increased 298bps q-o-q to 50.6% due to expansion in branches & ATMs. Provisions were down 9.4% q-o-q to Rs298 crore boosted the bottom-line. Broad asset quality remained fairly strong as absolute gross NPAs & net NPAs went down only 1% q-o-q and 11.0% q-o-q respectively with provision coverage of 82.4% in a tough quarter. Loan book growth and deposit growth were 6.1% q-o-q and 0.6% q-o-q, resulted into 436bps decline in CD ratio. CASA ratio remained at healthy levels of 48.4% (200bps up q-o-q in avg CASA balances). Maintain HOLD.”

“NII grew 19.3% y-o-y & 8.7% q-o-q led by loan growth 22.2% yo- y and sequential improvement in NIMs (20bps q-o-q on calculated basis). On sequential basis, run down of corporate loan book and higher growth in high yield retail loan book led to 20bps improvement in loan yields while cost of funds declined 34bps qo- q due to strong CASA growth and run off of wholesale deposits. We expect NII to grow 23.1% over FY12-FY14e driven by 22.0% CAGR in loan book. Non- interest income witnessed healthy growth 18.8% y-o-y & 5.1% q-o-q to Rs 1,492 crore against Rs 1,256 crore a year ago. Healthy fee income growth and strong forex income continued to drive non-interest income contributing 32% of operating income. Fee income grew 23.7% y-o-y and 9.7% q-o-q driven by retail (85%) and wholesale segments (15%).”

“Broadly asset quality continued to be fairly strong as gross NPA and Net NPA declined 1.0% & 11% q-o-q basis to Rs 1,999 crore which is equivalent to 1.0% of gross advances. Net NPAs stood at 0.2% with superior coverage ratio of 82%. Quarterly trend suggests that credit costs are lower than normalized levels due to better than expected portfolio behavior, so we believe credit cost is likely to revert back to normalized levels in medium term. Restructured book stood at 0.4% of gross advances, one of the lowest in peer group banks. We are building in 80bps & 90bps credit costs in FY13 and FY14 respectively against 70bps in FY12.”

“HDFC Bank delivered excellent operating performance in a tough quarter. Strong core earnings growth, healthy fee income growth, margin improvement, lower provisions, strong asset quality and strong CASA ratio were key positives from the result. Strong growth in retail loan book (largely fixed rate loan book) in last few quarters coupled with beginning of rate easing cycle would augur well for NIMs and NII growth – key catalyst going forward. We expect HDFC Bank to deliver 22.3% CAGR in net earnings over FY12- 14e, aided by NII growth, steady fee income growth. At Rs 537 the stock is trading at 3.7x FY13e adjusted book and 20.1x FY13e earnings, rich multiples reflecting strong fundamentals. We have maintained our FY13 earnings estimate and introduced FY14 estimates. We maintain our HOLD rating on the stock with revised target price of Rs575,” says KRChoksey research report.  

Institutional holding more than 40% in Indian cos

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