Buy HDFC Bank; target of Rs 2300: Sharekhan

Sharekhan's research report on HDFC Bank

The operational performance of HDFC Bank was yet again strong and in line with expectations in Q3FY18. Net interest income (NII) grew by 24% YoY to Rs.10,314 crore,  while non-interest income jumped by 23% YoY to  Rs.3,869 crore. Healthy growth in non-interest income (OI) was fueled by robust 30% YoY uptick in core fee income (74.2% of OI) and 43% YoY growth in trading and Forex profit. HDFC Bank saw robust 27.5% YoY and 4.4% QoQ growth in its advances  led by Personal loans (10.6% of Advances, up 43.8%  YoY), credit cards (5.3% of Adances, up 42% YoY) and  auto loans (11.6% of Advances, up 25% YoY). Loan mix between retail and wholesale was maintained at 55% and 45%, respectively. Deposits increased by 10.1% YoY, with CASA deposits comprising 43.9% of the deposits. Core Net interest margin (NIM) during Q3FY2018 was stable sequentially at 4.3%.  HDFC Bank provisions, however, surged by 89% YoY during the quarter, but were down 8% on sequential basis. As the bank had taken full provision for NPAs (due to the divergence) in Q2 FY18 itself, there was no residual provision requirement on the same.  Consequently, net profit increased by 20.1% YoY during the quarter to Rs.4,652 crore, in line with our  estimates.

Outlook
At 3.3x FY2020E and 3.8x FY2019E ABV, we find valuation for HDFC Bank reasonable for a bank that has been consistent, well managed in  difficult times and has bright growth prospects. We maintain our Buy rating on HDFC Bank with a revised  price target of Rs.2,300.

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