Accumulate HDFC Bank; target of Rs 1180: AB Money

Aditya Birla Money's report on HDFC Bank
"HDFC Bank’s Q1FY16 result was in line with estimate with PAT growing by 20.7% YoY to Rs 27.0 bn. Strong NII growth of 23.5% YoY and stellar 33% YoY growth in other income supported the PAT growth. In terms of business prospects, the bank is on right track as it focuses on digitisation, e-commerce and strengthens its technology framework. Besides, the bank has been aggressively adding rural branches and is well-positioned to capture the under-penetrated rural market. We expect the bank to grow at 18% CAGR over FY15-17E to Rs 5089 bn, outpacing the industry credit growth. NIM and asset quality to be maintained, thereby supporting healthy PAT CAGR of 20.2% over FY15-17E to Rs 147.6 bn"

Outlook and Valuations"We estimate HDFC Bank 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 (tier 1 ratio of 12.8%), faster credit growth than industry, strong liability franchise, healthy NIM and stable asset quality. The bank has consistently managed attractive return ratios with RoA of ~2% and RoE of ~20%. We value the bank at 3.8x FY17E ABV and maintain our target price of Rs 1180. Despite rich valuations, we believe the bank is a good bet from risk-reward perspective. We recommend to ACCUMULATE the stock on every dips", says Aditya Birla Money research report.

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