Reduce HDFC Bank; target of Rs 631: KRChoksey

KRChoksey is bearish on HDFC Bank and has recommended reduce rating on the stock with a target of Rs 631 in its October 15, 2012 research report.

“HDFC Bank delivered another strong operating performance with PAT of Rs1,560 crore growing 30.1% Y-o-Y and 10.1% Q-o-Q, in line with our expectation. NII grew to 26.7% y/y & 7.1% q/q aided by strong loan growth 22.9% y-o-y and 6bps q-o-q improvement in calculated NIM. Fee income saw healthy momentum, up 22.4% y-o-y supported by relatively healthy growth in retail fee income. Provisions were down 39.9% q-o-q to Rs293 crore mainly due to higher counter cyclical provisions. Overall asset quality remained fairly strong as absolute gross NPAs increased only 2.3% q-o-q while net NPAs declined 2% q-o-q with provision coverage of 81.9% in the challenging macroeconomic environment. Loan book growth and deposit growth were 22.9% Y-o-Y and 18.8 Y-o-Y, continued to outpace the sector growth. CASA ratio dipped only 10bps Q-o-Q to 45.9%. Saving deposits and current deposits grew 3.2% Q-o-Q & 12.0% Q-o-Q helped the bank to maintain superior CASA ratio. Maintain REDUCE.”

“NII grew 26.7% y-o-y & 7.1% q-o-q led by loan growth 22.9% y-o-y, dividend from mutual funds (Rs100 crore) and sequential improvement in NIMs. On sequential basis, strong growth in high yield retail loan book and slower growth in corporate loan book aided net interest margin. We expect NII to grow 21% over FY12-FY14e driven by 22% CAGR in loan book. Non- interest income grew 11.0% y-o-y & down 12.1% q-o-q to Rs 1345 crore against Rs 1,212 crore a year ago. Core fee income growth which grew 22.4% y-o-y & 5.8% q-o-q supported non-interest income growth. Lower volatility in forex market and decline in proprietary forex gains resulted into sharp fall in FX and derivative income (down 25.1% Q-o-Q) during the quarter. Trading loss reported Rs106 crore vs. 67crore gains in Q1FY13 due to MTM provision on debt MF investments post dividend payments.”

“HDFC Bank continued to report steady and consistent core operating performance in a tough quarter. Strong growth in retail loan book (largely fixed rate loan book) in last few quarters coupled with rate easing cycle would augur well for NIMs and NII growth – key earning catalyst going forward. We expect HDFC Bank to deliver 25.0% CAGR in net earnings over FY12-14e, aided by NII growth, steady fee income growth. We have increased our FY13 & FY14 earnings estimate by 6.9% & 7.8% respectively factoring NIM expansion, better fee income growth and lower provisions. At Rs 630 the stock is trading at 3.7x FY14e adjusted book and 18.3x FY14e earnings, expensive valuation factoring most of the positives. We maintain our REDUCE rating on the stock with revised target price of Rs631,” says KRChoksey research report.

Non-Institutions holding more than 90% in Indian cos

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