Buy HDFC Bank; target of Rs 2150: Motilal Oswal
Motilal Oswal is bullish on HDFC Bank has recommended buy rating on the stock with a target price of Rs 2150 in its research report dated October 24, 2017.
October 26, 2017 / 03:14 PM IST
Motilal Oswal's research report on HDFC Bank
HDFC Bank (HDFCB) reported strong 30% YoY growth in PPoP (~4% beat), led by steady revenue growth and controlled opex. However, higher provisions (HDFCB made contingent provisions toward one large account that underwent 5:25 restructuring in Feb-16) resulted in 20% YoY growth in PAT. Loans grew 22% YoY/4% QoQ to INR6.05t. Incremental growth in the quarter was driven by retail loans (+29% YoY/7% QoQ), resulting in an increase in its loan mix share to 55%. Business banking, personal loans and credit card continue to report strong growth within the retail segment. Fee income growth stood at 24% YoY, which coupled with strong FX income and treasury gains of INR3.84b, resulted in 24% YoY growth in other income. CASA deposits held flat on a sequential basis, while term deposits grew 4.7% QoQ. CASA ratio thus moderated 110bp QoQ to 42.9% (48% in 4QFY17 - after demonetization). Asset quality remained largely stable; however, the bank made contingent provisions of INR4b toward an account that underwent restructuring in Feb-16 and remains standard in the books. Provisioning coverage ratio thus improved 119bp QoQ to 66.3%.
HDFCB has been consistently gaining market share across most products in the retail segment (personal loans, business banking, credit cards and auto loans), and appears well poised to maintain this traction. Operating expenses have been under control and resulted in a consistent decline in the C/I ratio to ~42%. With Tier-1 capital of 13.3%, strong sourcing/distribution capability and significant digitization initiatives, the bank is well placed to benefit from the expected pick-up in the economic growth cycle. We arrive at an SOTP based valuation of INR2,150 for the bank (4.4x Sept-19E BV for the bank at INR2,050 compared to our earlier valuation of INR1.900 for the standalone bank at 4x Jun-19E BV, and INR100 for subsidiaries) and maintain Buy.
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