Buy HDFC Bank target of Rs 1870: Prabhudas Lilladher

Prabhudas Lilladher's research report on HDFC Bank

HDFCB’s earnings profile of Rs77.3bn was lower than estimates (PLe: Rs79.8bn) led by a much weaker than expected NII growth of 9% YoY despite a loan growth of 14% YoY. NII profile has remained weaker than loan growth for some time now but unfavorable mix on high liquidity & non-retail focus is reflecting much higher. In our view, HDFCB will continue to face near term setbacks with difficult operating environment leading to weaker cross cycle NII of 12% YoY, higher slippages of 200bps and volatile earnings of 17-18%. Although, bank has a strong balance sheet with PCR of 67-70% and ability to absorb higher credit losses, 60bps of contingency provisions and restructuring <1%.

Outlook

HDFCB earnings should improve as visibility remains high post pandemic leading to superior ROEs of 17-18% over FY23-FY24E and is best in the industry. We retain BUY with revised TP of Rs1,872 (from Rs1,735) as we roll over to Sep-23 ABV and retain our multiple of 3.6x.