Hold HDFC Bank; target of Rs 580: Emkay

Emkay Global Financial Services has recommended hold rating on HDFC Bank with a target of Rs 580, in its April 18, 2012 research report.

“HDFC Bank’s Q4FY12 NII at Rs33.9bn was marginally ahead of our estimates of Rs32.4bn. The NII growth at 19.3% yoy / 8.7% qoq was aided by healthy 22% yoy growth in loan portfolio and 10bps qoq improvement in NIM. LDR albeit declined 440bps qoq to 79%. A 19% yoy growth in non-interest income and lower provisioning compensated for higher operating cost. Opex at Rs24.6bn (+24% yoy / +14% qoq) primarily comprised of higher other expense being in nature of expenditure towards branch additions. The bank has added 343 branches and over 1,800ATM’s during Q4FY12. On the asset quality front, GNPA / NNPA at Rs20bn / Rs3.5bn respectively continue to remain in comfortable terrain. Restructuring portfolio too comprises mere 0.4% of total advances. Resultant, net profit at Rs14.5bn was inline with our estimates.”

“On the balance sheet front, loan portfolio expanded 22.2% yoy (0.6% qoq). A large part of the growth in loan book was towards retail book which expanded 33% yoy. On the deposits front, term deposits were up 29% yoy. CASA deposits grew 8.6% yoy, largely being in nature of savings deposits. The improved branch reach has enabled HDFC bank withstand stiff competition in savings deposits. So, despite, deregulation of interest rates on savings deposits, the bank has witnessed 21% increase in savings accounts and 5.2% qoq / 17% yoy in savings deposits.”

“HDFC Bank has for the second consequent quarter reported qoq decline in corporate loan portfolio. The mgmt attributed the reason for the decline towards their conscious strategy of shedding away low yielding loans. Resultant, wholesale book for Q4FY12 grew by meager 10.5% yoy / albeit declined 6% qoq. On the retail front, increasing branch network with domain expertise in few secured asset pockets like home, auto including CV has enabled the bank gain higher growth. Retail loan portfolio expanded 34% yoy / 7% qoq with strong traction in segments of home loans (+24% yoy / 8% qoq), vehicle loans (+30% yoy / 3% qoq) and business banking (+24% yoy / +7% qoq). Unsecured loans (ie personal loans + credit card + loan against securities) grew 34% yoy / 6% qoq. In recent past, the bank has also expanded its loan mix to include gold loans, which accounts for sub-3% of retail loans. Going forward, mgmt has guided for steady mix between wholesale / retail loan portfolios.”

“HDFC Bank has delivered yet another quarter of healthy operating matrix viz a) margin expansion b) healthy loan / deposit growth c) stable asset quality and d) adequate capital with decent return ratios and e) exponential increase in its reach. Over FY12-14E, as economy activities revive, we believe the time spent by the bank towards its branch expansion (branch / ATM) would garner results in form of higher loan / deposit / fee income growth. We expect the bank to witness 24% CAGR in loan portfolio over FY12-14E. We roll our estimates to FY14 and now value the bank at 3.3x FY14 ABV of Rs175. We believe the premium valuation should continue given a) superior operating matrix b) stable asset quality c) adequate capital and d) decent return ratios. Maintain HOLD rating with TP of Rs580,” says Emkay Global Financial Services research report. 

Public holding more than 90% in Indian cos

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