Buy HDFC Bank; target of Rs 2150: Axis Direct

Axis Direct's research report on HDFC Bank

HDFC Bank's Q2FY18 PAT at Rs 41.5 bn was marginally ahead of our estimate, backed by strong NII growth and well managed operating expenses. GNPA ratio was stable at 1.3% but on receiving certain observations by RBI, the bank prudently created contingent provision worth ~Rs 7 bn towards a project loan that was restructured under 5:25 earlier. The account remains standard with HDFCB.

Outlook

HDFC Bank is one of our preferred picks among banks. We raise our target multiple to 4.6x (4.3x earlier) to arrive at revised TP of Rs 2,150 (Rs 2,000 earlier) to factor in high growth rate, conservative stance on bad assets, no legacy issues and top quartile return ratios. Expansion in fee income will be a driver for return ratios while gaining market share along with significant retail presence. At CMP of Rs 1,865, the stock trades at 4.7/4x FY18E/FY19E P/ABV of Rs 396/Rs 463.