Buy HDFC Bank; target of Rs 2500: JM Financial

JM Financial's research report on HDFC Bank

HDFCB reported a net profit of INR 46.0bn in 1QFY19 (+18.2% YoY), 2.2% below our estimates. Core PPoP growth was strong at +24% YoY. Profit miss was largely led by softer than expected NII growth (+15.4% YoY). The topline moderated as margins contracted 10bps QoQ led by faster growth in term deposits (+25% YoY), lower yields on investments and higher growth in low yielding corporate and home loan segments. HDFCB’s bottomline was also impacted by MTM provisions on the AFS investment book (INR 3.9bn, 4.4% of core PPoP), which was fully recognised in the quarter. Slippage was slightly elevated for the quarter at INR 35.5 bn (2.1% annualised), primarily due to pressure on the agri loan book (~20% of slippages). Loan growth was strong at 22% YoY, led by retail loans (+26% YoY). Retail loan book witnessed secular loan growth across personal loans (+40% YoY), credit cards (+33% YoY) and business banking (+24%YoY).

Outlook

We continue to like HDFCB for its top-notch asset quality, robust retail franchise, strong balance sheet growth and best-in-class management pedigree. Maintain BUY with unchanged TP.