Buy HDFC Bank; target of Rs 2371: Prabhudas Lilladher

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Prabhudas Lilladher's research report on HDFC Bank

HDFCB saw strong beat on PPOP of Rs107.8bn (PLe: Rs101.9bn) up 27.5% YoY on back of strong other income (fees/treasury/misc income) and slightly better than expected NII growth of 21.9% YoY. Overall earnings growth of 20.3% was in-line with estimate as better income was offset by higher contingent provisions of Rs3.35bn for stress emanating from Agri loan portfolio from last few quarters on external factors Business growth remained strong with all loan segments delivering strong, while CASA has been slower as bank continues to push granular retail deposit which provides better liquidity cushion but drag on NIMs.

Outlook

Bank continues to deliver 20% CAGR earnings with stable margins, low cost liabilities and strong asset quality which leads us to retain BUY rating but stock is currently trading at 3.3x Sep-20 ABV and recent outperformance restricts upside to 10-11% with TP of Rs2,371 (from Rs2,310) based on 3.7x Sep-20 ABV.

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