Buy HDFC Bank; target of Rs 1300: Dolat Capital

Dolat Capital's research report on HDFC Bank

HDFC Bank reported in-line NII and PPoP growth of 18% and 15% respectively. Weaker fee income was compensated by elevated treasury gains and moderation in other operating expenses. Loan growth during the quarter was led by 7% QoQ (42% YoY) growth in corporate loans. Despite increased share of corporate loans and lower CD ratio, NIM remained sequentially stable at 4.3% despite. Additional contingent provisions of Rs10bn were made during 1QFY21, with total provision buffers at Rs54.5bn or 0.6% of advances. Despite risk to earnings, we expect HDFC bank to be amongst the least impacted given its superior portfolio quality, healthy contingent & floating provisions, and high capital levels (CET 1 ratio at 16.7%).

Outlook

Tweaking our estimates to factor in moderation in fee income and lower operating expenses, we maintain BUY recommendation on the stock with a SOTP-based TP of Rs1,300, implying 3.4x of FY22E P/ABV. The stock currently trades at 2.9x FY22 ABV.

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