Buy HDFC Bank; target of Rs 2492: Prabhudas Lilladher

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Prabhudas Lilladher's research report on HDFC Bank

HDFCB saw a marginal blip in earnings growing at only 18% YoY to Rs46.0bn (PLe: Rs47.1bn) mainly on back of margin pressure which fell by 20bps QoQ and MTM loss on investments. While margin pressure is being faced by all BFSI companies as yields rising with a lag in increase of cost of funds, HDFC bank has been able to continue its good fee income growth and strong opex control which grew by mere 11.5% YoY. Bank in the last few years has continued to invest in technology and improve productivity and efficiency (by TAT) which has led to C/I reducing to 40% in Q1FY19 from 45% in Q1FY17. Bank has already raised capital of Rs85.0bn from its promoter bank HDFC Ltd and will shortly do Rs150bn preferential allotments which help further augment capital for loan growth of 20-22% and improve liquidity for the bank.

Outlook
We have factored the capital raise of Rs250.0bn in our estimates for FY19E, which has led to increase in ABV by 18/15% for FY19/FY20E. Retain BUY with increased TP of Rs2,492 (from Rs2,251) based on 4.2x Mar-20 ABV.

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