Buy HDFC Bank; target of Rs 2000: Axis Direct

Axis Direct's research report on HDFC Bank

HDFC Bank's Q1FY18 PAT at Rs 38.9 bn was in line with our estimate, with higher-than-expected interest income largely set off by additional provisions – key impact from agri NPAs. Loan growth seems to be on a path of acceleration, climbing to 23.4% YoY after three quarters of below 20% YoY growth. Margin expanded to 4.4% (up 10 bps QoQ) largely benefitting from declining cost of funds.

Outlook

Q1 saw some deterioration in headline asset quality (GNPL ratio up by 19 bps QoQ to 1.24%). Of the total increase in GNPLs, 60% pertained to the agriculture sector, as recoveries were impacted due to farmers’ anticipation of farm loan waivers. We remain constructive on HDFC Bank's asset quality and do not foresee any significant deterioration either in retail or wholesale book.