Prabhudas Lilladher's research report on HDFC Bank
RBI provided certain key relaxations and clarifications to HDFCB related to the merger; which were 1) HDFCB (merged) can hold more than 50% stake in HDFC Life and HDFC ERGO. This removes the overhang of RoE dilution in the merged entity. 2) For PSL, RBI permitted ANBC to be computed on 1/3rd of loans of HDFC Ltd. in the 1st year post merger with the remaining 2/3rd being considered over next 2 years equally. Hence merged entity would not incur any PSL cost in FY25E resulting in core PAT upgrade of 2%. 3) Bank has to comply with CRR, SLR and LCR requirements. Hence, dispensation in terms affordable housing bonds may not be available, which would increase CRR, SLR needs albeit minimally. NIM impact would be insignificant.
Outlook
Basis existing valuation of 2.6x core FY25E ABV, stock trades at a 13% premium to ICICIB. We remain constructive on HDFCB; maintain multiple at 3.0x with SOTP based TP at Rs1925. Retain ‘BUY’.
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