Buy HDFC Bank; target of Rs 2000: Emkay Global Financial

Emkay Global Financial's research report on HDFC Bank

HDFC Bank has largely outperformed its large private peers in the recent past, primarily on account of its relatively better margin, asset quality outcomes amid rising asset quality noises in unsecured loans. Separately, the bank has adopted the strategy to securitize loans (Rs90bn in 2Q and Rs123bn in Dec, leading to ~82bps reduction in LDR and a reduced PSL requirement), apart from slowing down credit growth and accelerating deposit growth to bring down its LDR to pre-merger levels (less than 90% from 100%) in due course and thus avoid regulatory friction. Bank is also planning to launch IPO of its NBFC subsidiary – HDB Fin to the tune of Rs125bn (including OFS of Rs100bn) in line with regulatory requirement and also to unlock value. Amid tight liquidity conditions, the noise of easing liquidity via CRR cut is on the rise, which if implemented by the RBI, could ease the squeeze and should be positive for HDFCB (50bps CRR cut could lead to 2-3bps benefit on NIMs).

Outlook

We retain BUY with a TP of Rs 2,000 (valuing the bank at 2.2x Dec-26E ABV and subs valuation at Rs300/share).