Hold HDFC Bank; target of Rs 620: Emkay

Emkay Global Financial Services has recommended hold rating on HDFC Bank with a target of Rs 620, in its October 12, 2012 research report.

“HDFC Bank Q2FY13 reported NII at Rs37.3bn (+27%yoy) was ahead of our / consensus estimates by 4-5%, adjusted for income from MF, NII growth at ~22-23% yoy was largely inline. Robust fee income (+22% yoy) and sequential decline in provisioning offset the trading losses (-Rs1.1bn vs +Rs0.6bn in Q1FY13). Resultant, PAT at Rs15.6bn (+30.1% yoy /+10% qoq) was inline with estimates. Q2FY13 NII growth at 27% yoy was aided by a) 23% yoy / 9% qoq growth in loan portfolio and b) 170bps qoq rise in LDR to an all-time high of 84.5%. Reported NIM however declined 10bps to 4.2% and is largely attributable to 20bps reduction in base rate implemented at the beginning of Q2FY13. Despite expanding its footprint (added 56 branches and 607 ATM’s in Q2FY13) operating profit grew by healthy 21% yoy. GNPA / NNPA remain lower at 0.9% / 0.2% levels. Specific provision costs came in at Rs1.7bn (30bps annualized). Restructuring portfolio comprises mere 0.3% of gross advances.”

“Loan growth at 23% yoy (9% qoq) remained broad based. Growth in deposits too remained healthy at 19% yoy / 6% qoq. Adjusting for one-off, CASA ratio albeit on a decline has remained at healthy at ~45-46% levels. Increasing penetration into smaller cities (tier-III and lower) has enabled the bank to garner CASA deposits and also expand its retail portfolio. Investment book was up 17% yoy / 2% qoq.”

“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 (~82%) 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 22% /31% CAGR in NII / net profit over FY12-14E. However, current valuations at 4.3x / 3.6x FY13/FY14ABV leave limited room for upside. Maintain HOLD with target price of Rs620 (3.5x 1-year forward PB),” says Emkay Global Financial Services research report. 

Bodies Corporate holding more than 50% in Indian cos

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