Accumulate HDFC Bank; target of Rs 2046: KR Choksey

The benchmark index Sensex gained 15 percent in the last 1-month. Moneycontrol tried to find out the stock which is in momentum trades and outperformed the benchmark index but still trading 70 percent below their 52-week high. From the BSE 500, 10 stocks make the cut. Data Source: ACE Equity.

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KR Choksey's research report on HDFC Bank

On the earnings front, HDFC Bank posted a robust quarter with PAT growing to Rs. 41,510 mn, up 20.1% yoy and 6.6% qoq primarily on account of strong advances growth and non-interest income. Advances for the quarter grew 22.3%. Total interest income grew 15.2% yoy (5.4% qoq), with advances yield at 10.2% against 10% for Q1FY18 and 10.10.4% for Q2FY17. NIM (calculated) came in at 4.5%, largely unchanged. The stability in NIM can be attributed to reduction in cost of funds which in return could be attributed to strong CASA growth (23.6% yoy). Other income grew strongly with fees and commission income growing 24% yoy, thus aiding total income grow of 22.6% yoy (3.7% qoq).

Outlook

We expect the bank to see strong growth momentum on back of continuing retail loans origination, along with market share gains in the corporate loans segment (20% advances CAGR over up to FY20). Higher than minimum provisioning on standard assets and negligible exposure to the 12 accounts identified by the RBI reinforce our confidence in the bank’s asset quality and prudent provisioning policy. Hence, we recommend to ACCUMULATE after assigning a multiple of 4x to FY20E ABVPS which values the stock at Rs. 2,046 per share, offering an upside of 13.9% from current levels.

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