Buy HDFC Bank; target of Rs 2000: JM Financial
JM Financial is bullish on HDFC Bank has recommended buy rating on the stock with a target price of Rs 2000 in its research report dated September 14, 2017.
September 18, 2017 / 04:13 PM IST
JM Financial's research report on HDFC Bank
We raise our target price for HDFC Bank from INR 1800 to INR 2000 as we build the valuation for HDB Financial Services and HDFC Securities in our target price. We value these companies at INR 132/share, contributing 7% of our target price for HDFC Bank (bank valued at 4x FY19E BVPS vs 3.9x earlier). Our recent meetings with the bank’s top management and various business heads give us further comfort that the bank remains in its usual solid shape with respect to growth, risk and profitability. Market share gains continue to accelerate on both corporate as well as retail loans aided by the bank’s pricing advantage, solid product suite and shift from the churn at its key corporate clients. In our view, the bank’s investments in technology and shift towards digital banking will come to fruition over the next 18-24 months and reflect in lower opex ratios; we forecast a cost-income ratio of<40% by FY20. Given the strong tailwinds on growth, HDFC Bank could look to raise capital in FY19E - in our scenario analysis, HDFC Bank’s CET1 could drop to sub 12% levels by 1HFY19, which could mean a capital raise over the next 12 months.Outlook
We marginally raise our earnings estimates for FY18/19, factoring lower opex and better loan growth. Under our scenario analysis (see Exhibit 15), HDFC Bank’s FY19E BVPS could increase by 10-12% depending on quantum and pricing of the capital issuance. HDFC Bank remains our top pick in the Indian banking space.
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