Nalanda Securities is bullish on HDFC Bank recommended buy rating on the stock with a target price of Rs 2635 in its research report dated April 22, 2019.
Nalanda Securities' research report on HDFC Bank
HDFC Bank reported a consistent set of performance for the 4th quarter as well as for FY19. Its NII grew by ~23% in Q4FY19 led by healthy loan growth (+24.5% YoY) and an improvement in the Net Interest Margins (+10bps YoY to 4.4% in Q4FY19). The non-interest income reported a growth of ~15% YoY in Q4FY19 majorly led by 1) 11% YoY growth in the fee income and 2) the treasury has reported a profit of Rs. 229 crores in Q4FY19 vs. a loss of Rs. 22 crores in Q4FY18. The bank has among the lowest cost to income ratio and has been able to consistently reduce it further. In Q4FY19, the cost to income declined by 50bps YoY to 40.1%. The operating expense growth was lower than the growth reported in total income. HDFC Bank has the industry leading margins – which is further improved by 10bps QoQ to 4.4% in Q4FY19 – remained at the higher end of the guidance. This was driven by 20bps QoQ decline in the cost of funds to 5.25%; offset by a decline of 10bps QoQ in the yield on average advances to 10.51%. The bank’s GNPAs and NNPAs on a QoQ basis remain almost stable at 1.4% and 0.4% respectively. The Capital adequacy ratio is at a healthy level of 17.1%. Overall, the bank has reported a healthier performance, which were a little higher than the expectation and sustained the earnings momentum of 20%+ growth.
At a CMP of 2,290, the stock is trading at FY21E adjusted P/BV of 3.3x. HDFC Bank use to trade at 3.7x of its last two years forward Adj. P/BV, we have assigned similar earning multiple (and valued subsidiaries separately) looking at its consistent financial performance over the years, strong risk management capabilities and gaining market share in almost all the products. The lower cost and faster speed remain the USP for HDFC Bank. HDFC Bank to deliver loans CAGR of 20% and PAT at CAGR of 24% FY19-FY21E. We strongly recommend to buy HDFC Bank for a fair value of 2,635 a piece, seeking an upside of 15.1%.
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