Accumulate HDFC Bank; target of Rs 913: Angel Broking

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Angel Broking`s research report on HDFC Bank“HDFC Bank reported a healthy earnings performance for 1QFY2015, with a bottom-line growth of 21.1% yoy to Rs2,233cr. Its NII grew by 17% yoy, aided by a 20.7% yoy growth in advances. The margins for the bank were flat qoq at 4.4% but down 20bp yoy on back of higher overseas loans and change in composition in retail loans. The cost to income ratio improved by 39bp qoq and 263bp yoy to 45.3%, mainly due to cost control and operating leverage from new branches. The bank provided for Rs40cr towards provision on un-hedged forex exposure during the quarter. On the asset quality front, Absolute gross NPA levels and net NPA levels for the bank increased by 12.3% and 22.9% qoq respectively, while gross slippage ratio was around ~1.5% in 1QFY2015 as against 1.9% in 1QFY2014.” “During 1QFY2015, the bank’s business, both deposits and advances, grew strong at 22.7% and 20.7% yoy respectively. The core advances yoy growth adjusted for related foreign currency loans stood at ~17-18%. The non-retail loan book grew by 37% yoy; within the retail loan portfolio, a healthy buildup was witnessed in Credit cards, Personal loans and Home Loans, which grew by 25.6%, 15.5% and 14.2% yoy respectively. But despite the faster growth in corporate loans, the bank’s loan mix has not altered significantly over the last one year. Retail loans still account for more than half of the bank’s loan portfolio. Savings deposits grew by a healthy pace of 18.1% yoy, while current deposits also grew by 18.0% yoy with CASA ratio at 43%. The bank’s non-interest income (excl. treasury) grew at a moderate pace of 5.8% yoy due to lackluster performance on the forex income front, which fell by 28.7% yoy. Fees and commission income continued to lag advances growth, growing by 9.5% yoy during the quarter. The overall other income for the bank fell by 3.9% yoy, during the quarter. On the asset quality front, the Gross NPA ratio increased marginally by 9bp qoq to 1.1%, while the Net NPA ratio remained flat at 0.3%. The PCR (excl. write-offs) fell by 258bp qoq to 70.0% during the quarter. Restructured advances remained flat qoq at 0.2% of gross advances.” “Though the current earnings trajectory at 21%+ yoy is lower than its illustrious track record of 30%+ earnings growth, still in light of the current macro environment, it is impressive and relatively better than other large private peers. Going forward, a likely economic recovery would reflect in higher loan growth, which in our view, justifies a premium valuation multiple. At CMP, the bank is trading at 3.5x FY2016E ABV. We recommend an Accumulate rating on the stock, with a target price of Rs913,” says Angel Broking research report. 

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