Accumulate HDFC Bank; target of Rs 1100: AB Money

Aditya Birla Money's report on HDFC Bank

HDFC Bank’s Q3FY15 result was largely in line with estimate in majority of parameters. Its PAT grew by healthy 20.2% YoY and 17.3% QoQ to Rs 27.9 bn led by the strong NII growth of 23% YoY to Rs 57 bn. Asset quality was stable as expected with GNPA ratio of 1%, NNPA ratio of 0.3% and restructured book proportion of 0.1%. Recently, the bank has raised capital of ~Rs 97.7 bn which would augment its tier 1 ratio from 12% to ~14.3%. This shall support the HDFC Bank’s aim to outpace industry credit growth by 4-5% which shall support the steady NII growth. No major negative surprise in asset quality is expected. Overall, PAT growth trajectory of 20%+ to be maintained.

Outlook and Valuations"We estimate HDFC Bank to continue to deliver steady PAT growth trajectory of 20%+ while maintaining stable asset quality. We believe the bank will continue to command premium valuations on the back of strong capital adequacy, faster credit growth than industry, strong liability franchise, healthy NIM and stable asset quality. We re-initiate coverage on HDFC Bank and value the bank at 4.1x FY16E ABV to arrive at a target price of Rs 1100. We recommend Accumulate rating on the stock", says Aditya Birla Money research report.

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