Buy HDFC Bank; target of Rs 2100: Emkay Global Financial

Emkay Global Financial's research report on HDFC Bank

HDFC Bank reported a slight miss (of 2%) on PAT, which came in at Rs167bn/1.8% RoA, primarily due to slower credit growth and higher provisions. Deposit growth remains healthy at 16% YoY/2.5% QoQ (up by Rs0.6trn QoQ), but credit growth fell to a new low of 3% YoY as the bank focused on LDR management (down by160bps QoQ to 98%). However, the bank managed to nearly maintain its NIM at 3.6% (down by 3bps QoQ) owing to better investment yields and other interest income. Though retail asset quality held up well, with GNPA ratio ex-agri flat QoQ at 1.2%, overall GNPA ratio inched up to 1.42%, due to seasonal stress in the KCC book. We expect the bank to remain focused on LDR moderation via credit portfolio sell-off and deposit acceleration, which may keep margins in check.

Outlook

The bank is in the process of listing NBFC – HDB Financial Services, but near term asset-quality stress could weigh on valuation; retain BUY on HDFC Bank with unchanged TP of Rs2,100, valuing the standalone bank at 2.4x Dec-26E ABV and subs at Rs275/share.