Buy HDFC Bank; target of Rs 1300: Emkay Global Financial

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Emkay Global Financial's report on HDFC Bank

HDFCB has built a strong retail-cum-corporate bank with market share gain across businesses, which the designate MD intends to strengthen by focusing on techno-banking, capturing B2B/B2C ecosystem and gaining market share at a pace faster than the past. The retail business is now at 80% of the pre-Covid level and should benefit from its strong rurban presence with agri doing well. The bank has a high share of the corporate book built around working capital and >AA corporates, where the deal pipeline is also building up well. The bank is well-capitalized, courtesy of higher internal returns v/s RWA growth. Retail collection efficiency is ~80-90% across products. The bank believes that NPAs may not cross the peak seen post-GFC at 2% (2010). Reducing cost ratios and better operating level should continue to support superior RoAs of 1.8-2%.

Outlook

We retain Buy/OW stance in EAP with a TP of Rs1,300 (based on 2.8x core bank Sep P/ABV + Subs value of Rs53), given its strong stress management capability and superior return ratios. Amid a spate of recent management churn and events, new top management will have an uphill task maintaining its historic management premium.

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