Accumulate HDFC Bank; target of Rs 2000: Dolat Capital

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Dolat Capital's research report on HDFC Bank

Q2FY18 witnessed mild setback of asset quality as GNPA stood tad higher at 1.26% against 1.24% in Q1FY18 and 1.02% in Q2FY17. Elevated provisions (up 97% YoY) was primarily led by prudent provisioning against a project loan account approved under the JLF restructuring mechanism for the second quarter in a row. PAT stood in-line at Rs 41.5bn (up 20% YoY) on the back of strong NII led by healthy 22% YoY advances growth and core fee income performance (up 24%+ YoY forming 72% of the overall other income).

Outlook

We believe the provisions to remain high for FY18 and likelihood of marginal blips in asset quality ahead cannot be ruled out. Hence, we tweak our FY18 provisions estimates by 6% and maintain GNPAs spike to 1.4% levels for FY19. With minimal pain on credit quality, adequate provision cover (should rise to 70%+ FY18-19E) and sustainable higher margins, HDFC Bank continues to maintain an edge over its peers. Recommend ACCUMULATE.

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