Buy HDFC Bank; target of Rs 2050: Axis Securities

Axis Securities' research report on HDFC Bank

Given Q1 is a seasonally soft quarter, HDFCB’s advances growth was flat QoQ (+1% QoQ). Credit growth was driven by the Retail (+18%/4% YoY/QoQ) and the CRB (29%/3% YoY/QoQ) segment, while the corporate book de-grew by 1% QoQ. As a merged entity, HDFCB’s advances grew by ~16% YoY. NII grew by 21%/1% YoY/QoQ and NIMs (reported) remained stable QoQ at ~4.1%. Fee income and treasury gain drove non-interest income growth of +44%/6% YoY/QoQ. Opex growth continued to remain elevated, growing at 34/4% YoY/QoQ and dragging PPOP growth. The C-I Ratio inched up to 42.8% from 40.6%/42.0% YoY/QoQ. PPOP grew by 22% YoY and remained flat QoQ. Stable credit costs of ~70bps aided earnings growth of 30% YoY, flat QoQ. Despite seasonally higher slippages from the agri book, asset quality remains steady at 1.17% vs. 1.12% QoQ. The restructured book tapered to 27bps vs. 32bps QoQ.

Outlook

We value the core book at 2.9x FY25E ABV vs. its current valuation of 2.6x FY25E ABV and assign a value of Rs 165/share to subsidiaries of the merged entity, thereby arriving at a target price of Rs 2,050/share, implying an upside of 22% from the CMP.