Buy HDFC Bank; target of Rs 1920: Sharekhan

Sharekhan's research report on HDFC Bank

HDFC Bank reported strong numbers for Q3FY23 with a PAT of Rs. 12,259 crore (up 18.5% y-o-y/ 15.6% q-o-q) led by 13.4% y-o-y growth in operating profit and 6.3% y-o-y decline in provisions. Net interest income (NII) grew robustly by 24.6% y-o-y / 9.4% q-o-q while core fee income growth also remained strong (19.3% y-o-y/ 4.3% q-o-q) however opex growth was higher (26.5% y-o-y/ 11.0% q-o-q) due to continued accelerated investments which led to operating profits grew by 13.4% y-o-y/ 9.4% q-o-q. Annualized slippages ratio (calc. as % of 12M trailing advances) was higher at 2.1% vs 1.9% in last quarter due to higher seasonally Agri slippages. Annualized credit cost (% of Avg. advances) stood at 75 bps versus 90 bps last quarter. GNPA/NNPA ratios were stable at 1.23%/0.33%. PCR remained stable at ~73%, while restructured book stood at Rs. 6,400 crore (0.42% of loans versus 0.53% in last quarter).

Outlook

We remain positive on bank however the near-term focus would continue to be on the various dispensations needed for a smooth transition. Stock trades at 3.0x/2.6x/2.2x its FY2023E/24E/25E core BV estimates. We maintain our buy rating with a revised PT of Rs. 1920.