Buy HDFC Bank; target of Rs 1300: Dolat Capital

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26 Aug, 2025 12:21

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The bank’s annual report analysis shows stable to improving metrics – sharp decline in RWA/total assets, higher RoRWA (also led by lower tax rate), lower off-balance sheet exposure, well matched ALM, improving business productivity & operating leverage, lower deposit concentration (though advances concentration has increased), and decline in exposure to vulnerable sectors. Improvement in headline asset quality (by 10 bps YoY to 1.3%)was largely driven by elevated write-offs during the year, leading to higher credit costs. Despite increased lending towards lower yielding corporate loans during the year, the bank has managed to keep a sharp eye on return on assets, partly also driven by improved operating leverage, higher treasury gains and lower tax rates. Digitization remains a focus area, helping the bank improve customer experience and enhance operational efficiencies.

Even as financials deteriorate in the interim, we believe the Bank is well positioned to gain market. Its healthy PPoP profile and high provisioning buffers supports RoA of 1.5%, even as we factor in doubling of slippages for FY21E (from FY20). We maintain our BUY recommendation on the stock with a SOTP-based TP of Rs1,300 based on 3.3x FY22E P/ABV for standalone entity and the value of its subsidiaries, implying 3.4x of FY22E P/ABV. The stock currently trades at 2.7x FY22E ABV.

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