Buy HDFC Bank; target of Rs 2627: KR Choksey

KR Choksey is bullish on HDFC Bank has recommended buy rating on the stock with a target price of Rs 2627 in its research report dated July 23, 2018.

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September 18, 2018 / 14:22 IST

26 Aug, 2025 12:21

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KR Choksey's research report on HDFC Bank

Advances at INR 7086 bn grew 22% yoy/8% qoq, led by strong growth in retail (26% yoy) while growth in corporate advances was 18% yoy. NII growth lagged credit growth, growing 15% yoy to INR 108 bn. NIMs (calc) stood at 4.2%, contracting ~20 bps qoq. NIMs during the quarter were impacted by multiple headwinds – generally low yields on the investment book, lower support from CASA as TD grew at a higher pace and to some extent reversals on the agri portfolio on account of seasonally high NPAs due to loan waivers. Deposits book, which has grown at 21% yoy on average in last 2 quarters, has been acquired at higher rates leading to NIM compression. Non-interest income at INR 38.2 bn has lagged historical performance/growth rates (avg 23% yoy growth in 5 quarters up to Q4FY18) largely on account of INR 3.9 bn worth of MTM loss on the corporate bond portfolio (MD = 1.6). The bank has not opted for RBI’s dispensation of spreading of losses over multiple quarters. Opex at INR 59.8 bn grew by 11% yoy/-1% qoq, resulting in a stable cost structure. Credit costs at 63 bps were more or less in line with expectations. The bank reported a PAT of INR 46 bn, +18% yoy/-4% qoq. GNPAs, deteriorating slightly by 2 bps sequentially, remained within comfortable levels; impacted by agri slippages. We expect credit growth to remain strong, comfortably outpacing the industry average.

Outlook

We expect NII CAGR of 19% and earnings CAGR of 26% over FY18-20E and estimate ROE of 17-18% over FY19/20. Post factoring in capital raise of INR 240 bn in FY19 (of which INR 85 bn has been raised in July 2018), we value the bank at 4.4x FY20E ABV, translating into value per share of INR 2,627. Maintain BUY.

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