Accumulate HDFC Bank; target of Rs 950: KRChoksey

KRChoksey`s research report on HDFC Bank“HDFC Bank reported in line net profit of Rs2381 crs growing 20.1% Y-o-Y supported by strong NII growth 23.1% Y-o-Y and healthy non interest income. Key highlights: 1) NII up, 23.1% Y-o-Y on the back of 10bps NIM expansion (4.5%) 2) Wholesale loan book grew by 10.7% Q-o-Q while retail book increased 4.9% Q-o-Q. 3) Sharp rise in other operating expense led to 10.1% OPEX growth and 46.3% C/I ratio (up 102bps Q/Q) 4) Asset quality has been stable during the quarter, GNPA and NNPA ratio remained flat Q-o-Q. 5) Healthy recoup in core fee income growth coupled with strong trading gains supported non interest income. 6) CASA ratio remains strong at 43.2% aided by 20.1% Y-o-Y growth in savings and steady recovery in current account deposits.”"NII grew 23.1% Y-o-Y & 6.6% Q-o-Q led by loan growth 22% Y-o-Y & 9bps NIM improvement sequentially. Higher growth in retail loans, healthy growth in CASA ratio and increase in investment book yields led to NIM improvement during the quarter. We believe net interest margins are hovering around top end of management guided range, further improvement from hereon looks unlikely. Asset quality has been stable during the quarter. Gross NPA ratio stood at 1.0% and net NPA ratio stood at 0.3%, relatively with 73% PCR. Total restructured loans also remained stable at 0.1% of gross loans. Within the retail book, stress in commercial vehicle and construction equipment book seems to be bottomed out while rest of retail products asset quality remains stable. We believe recovery in CV/CE’s asset quality coupled with stable credit quality trend in other retail products and corporate loans should check credit costs over FT14-FY17.""Improving margins, healthy loan growth, fee income growth picking up & relatively stable credit costs are key highlights from the numbers. However, growth pick up in retail loans compared to overall growth and growth in OPEX after cost rationalization in last few quarters are major signs of recovery in retail business. HDFC Bank has been adjusting to the macro environment resulting in optimal business growth. FIPB approval for FII limit & treatment of HDFC’s holding and capital raising plan remain overhang on the stock. We expect HDFC Bank to deliver 19% CAGR in net earnings over FY14-FY17 supported by strong NII growth, healthy fee income growth and stable credit costs. At Rs 885 the stock is trading at 3.6x FY16 adjusted book and 17.6x FY16 earnings, closer to fair value. We maintain “ACCUMULATE” rating on the stock with target price of Rs 950,” says KRChoksey research report. 

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