Buy HDFC Bank; target of Rs 1870: Prabhudas Lilladher

Prabhudas Lilladher's research report on HDFC Bank

HDFCB’s PAT at Rs103.42bn was marginally higher than estimate (PLe: R101.53bn), led by a better than expected NII growth of 13% YoY on the back of healthy loan growth of 16.5% YoY. NII traction remained lower than loan growth for some time now due to high B/S liquidity & non-retail focus. In our view, HDFCB has faced challenges in maintaining loan growth momentum leading to slower NII growth. Said that, improving traction in retail and commercial & rural banking is expected to improve loan & fees coupled with contained slippages will lead to improvement in overall earnings.

Outlook

We believe that bank has a strong balance sheet with PCR of 70% and ability to absorb higher credit losses, comfortable contingency provisions and restructured stock at <1.5%. With higher earnings visibility leading to superior ROEs of 17-18% over FY23-FY24E, HDFCB stands as one of the best placed in the industry. We reiterate BUY with unchanged TP of Rs1,870 retaining our target multiple at 3.6x Sep-23 ABV.