Buy HDFC Bank; target of Rs 1681: Geojit Financial Services

Geojit Financial Services' research report on HDFC Bank

Advances continued to increase at a strong pace of 19.4% YoY led by strong growth in domestic loan book (↑23.7% YoY). The domestic retail and wholesale loans grew by 26.6% YoY and 20.7% YoY, respectively (domestic loan mix between Retail and Wholesale stood at 53:47). The strong growth in both the segments was driven by a sustained geographical expansion, a differentiated product range, digital initiatives and improved turnaround times.

Outlook

Given the bank’s higher credit growth (20% CAGR over FY17-19E), best in-class asset quality (Gross NPA of 1.1% by FY19E) and superior return ratios (RoE of 19.5% and RoA of 2.1%), we expect the bank to continue to command premium valuation over its peers. Further, the bank is well-capitalised with a capital adequacy of 14.6% as of FY17 (tier 1 capital of 12.8%). Hence, we maintain a BUY rating on the stock with revised target price of Rs 1,681 (3.8x FY19E P/ABV).