Aditya Birla Money neutral on HDFC Bank

Aditya Birla Money has maintained neutral rating on HDFC Bank with a target of Rs 656, in its October 15, 2012 research report.

“HDFC Bank, Net Profit after tax for the current quarter increased 30.1% YoY (10.1% QoQ) to `15599.8 mn. The growth in PAT was mainly driven by 26.7% YoY (7.1% QoQ) increase in the NII (led by robust growth in advances 22.9% YoY and 8.6% QoQ, stable NIMs & dividend income from Mutual fund of ~1 bn). Besides this lower provisioning during the quarter (decline of 20.0% YoY and 39.9% QoQ) on the back of stable asset quality also aided in profit growth. On the flip side, growth in other income remain muted (11.0% YoY and -12.1% QoQ) as the dividend income from bank’s investment portfolio (included in NII) has led to MTM losses (loss on revaluation / sale of investment of ~1.06 bn). This coupled with sequential decline in forex income (due to lower volatility) has contributed in muted other income growth. However core fee income growth remained strong at 22% YoY and 6% QoQ led by strong third party distribution income.”
“Net Interest Margins (reported) during the quarter registered an increase of 10 bps YoY (decline of 10 bps on QoQ basis). The margins declined sequentially as the bank has reduced its base rate from 10.0% to 9.8% during end of Q1 which brought down the yield on advance book. (25% of the advance book linked to base rate). Going forward, the management expects the margins to remain in the current range.”
“We estimate HDFC Bank to report an EPS CAGR of 26.9% over FY12-FY14E. ABV is estimated to grow at 17.8% CAGR during the same period. The bank continued show of impressive performance across all operating parameters, reflecting the bank’s strong and dynamic business model. We believe the bank’s valuation (at 4.3x its FY13E 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 September 13 revising our target price to `655.9 (`635.9 earlier) valuing the bank at 3.5x its FY14E ABV, implying an upside of 3.9% from current levels. Thus we change our rating from Accumulate to Neutral,” says Aditya Birla Money research report.  Non-Institutions holding more than 90% 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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