Buy HDFC Bank; target of Rs 1925: Emkay Global Financial

Emkay Global Financial's research report on HDFC Bank

HDFCB reported moderate credit growth at 20% YoY/2% QoQ, mainly due to de-growth in the corporate book which, coupled with flattish margin and elevated opex, led to moderate PPoP growth at 13%. However, lower than expected provisions led to a beat on earnings at Rs123bn (vs expectations of Rs119bn) up 18.5% YoY. HDFC Bank remains one of the few banks to clock a strong deposit growth amid rising competition for deposits, given its robust franchisee. On the credit front, HDFC Bank remains opportunistic on the corporate side; thus, we are not too worried about the 3Q growth moderation. Bank continues to clock strong growth in the retail/SME segment which we believe should support its margins amid rising cost pressure. The merger process is on the fast track, with shareholder approval now in place; the bank is hopeful of it being completed earlier than guided. That said, clarity on the stake of HDFC Life and other subsidiaries as well as on the merger structure by the RBI remains elusive. Notwithstanding the merger-related regulatory overhang, we believe HDFCB offers the best play on India’s consumption story and is also a good defensive bet in current choppy waters. The stock is trading at reasonable valuations, at 2.6x FY24E ABV.

Outlook

We retain our long-term BUY, with a revised TP of Rs1,925/sh (valuing the core bank at 2.8x Dec-24E ABV) and a subs valuation of Rs78/sh.

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