Buy HDFC Bank; target of Rs 1850: Emkay Global Financial

Emkay Global Financial's report on HDFC Bank

HDFC Bank reported better-than-expected credit growth of 15% yoy/4% qoq (total loans at ~Rs12tn), mainly driven by re-acceleration in retail growth (up 13% yoy/5% qoq) and commercial & rural banking (up 28% yoy/7.5% qoq). However, corporate growth has moderated to 6% yoy/0.5% qoq. HDFCB retained a relatively higher housing portfolio of Rs71.3bn from HDFC Ltd (Rs30.6bn in Q2Y21; Rs55bn in Q1FY22). Adjusted for portfolio buyouts too, overall credit growth was 15% yoy/4% qoq. We believe that the acceleration in retail credit could be mainly contributed by VF, cards and housing portfolios. In a media interview, HDFCB's group head for commercial & rural banking had indicated better disbursements in transportation financing (CV/CE) during Jul-Aug'21. Deposit growth was healthy at 14% yoy/4% qoq, while CASA deposit growth was stronger at 29% yoy - a phenomenon likely to be seen across large banks, partly benefiting from the RBI's directive to maintain current accounts with the main lender only. The CASA ratio remains high and healthy at 47%, leading to better CoF. This, coupled with acceleration in retail loans, should lead to better margins qoq, which dipped to a low of 4.1% in Q1.

Outlook

Currently, we have a Buy rating on the stock with a TP of Rs1,850, given its proven track record in managing asset quality across cycles, strong franchise/capital profile and delivering superior return ratios.

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