Emkay Global Financial's report on HDFC Bank
Despite low NIMs at 4.1% due to excess liquidity on B/sheet and low loan yields, HDFCB reported healthy 18% yoy growth in PAT at Rs75bn, mainly led by strong treasury gains. The stay on NPA tagging led to lower NPA formation, but the bank has still made adequate provisions on unrecognized NPAs and shored up the Covid-19-related provision buffer to 0.7% of loans. Collection trends are better with demand resolutions at 95% in Sep’20 and 97% in Oct’20 due to its superior customer profile and collection mechanism. The bank expects delinquency rates to not exceed the last peak of ~2%, with low restructuring. Overall asset quality trends at HDB Financial remain sub-par, reflecting weakness in the NBFC space. The deal pipeline in corporate remains strong and the bank guides for strong outlook on retail credit growth, led by healthy disbursement trends. Amid management transition, the bank is embarking on techno-banking to gain market share across business lines at a pace faster than the past 26 years at a far lower cost and thereby, deliver superior RoAs.
We retain Buy/OW stance in EAP and raise the TP to Rs1,500 (valuing core bank at a high multiple of 3.2x + subs value of Rs57), given the bank’s ability to recover faster, reflecting in growth/asset quality outlook, and deliver superior return ratios across cycles.