Buy HDFC Bank; target of Rs 2050: ICICI Direct

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ICICI Direct's research report on HDFC Bank

We observe that HDFC Bank has strategised to dig deep in the rural belt to expand markets with >900 branches opened in the last two years and >600 in rural areas of Punjab, Gujarat and other states. The bank has a strong liability franchise with CASA of 48% (in FY05-17) (Q2FY18 at 43%) and retail term deposit comprising 85% of total deposit of Rs 554568 crore as on FY17.

Outlook

Considering the healthy balance sheet growth, superior asset quality and management, the bank is well poised to deliver consistently with margin leadership and robust return ratios. Hence, the bank remains a portfolio stock with premium valuations. We maintain estimates of 21% CAGR in NII, 23.6% in PAT in FY17-19E. We revise our TP upwards to Rs 2050 (earlier Rs 1840) valuing it at 23x FY19E EPS (4.7x FY19E ABV) and adding Rs 50 per share for HDB Financial Services. We revise our rating from HOLD to BUY.

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