KR Choksey is bullish on HDFC Bank has recommended buy rating on the stock with a target price of Rs 2683 in its research report dated July 22, 2019.
KR Choksey's research report on HDFC Bank
Advances grew 17.1% YoY (+1.3% QoQ) in line with our expectations. Vehicle loans increased just 8.3% YoY due to low auto sales volumes. NII at INR 13,294 Cr. is up 22.9% YoY/ (+1.6% QoQ). NIMs estimated at 4.42% have expanded by 22 bps YoY/ (down 11 bps sequentially) while Non-Interest Income was 2% higher on sequential basis (+30.2% YoY). Deposit mobilization was however buoyant with growth of 18.5% YoY/3.4% QoQ. CASA at 39.7% has declined 267 bps sequentially (down 199 bps YoY). Overall, C/D ratio has improved to 86.9% in Q1FY20. PPOP at INR 11,147 Cr. increased by 28.9% YoY/2.8% QoQ on back of NIM expansion and control over operating expenses. C/I ratio improved to 39% in Q1FY20 (vs. 40.9% same quarter last year and 39.6% in Q4FY19). Overall, the bank has posted a steady balance sheet growth with slight deterioration in their asset quality metrics. Board declared a special interim dividend of INR 5.0 per share to commemorate 25 years of bank operations.
HDFC Bank shares are currently trading at a P/B multiple of 3.8x/3.4x on adj: FY20E/FY21E book value and we expect the premium valuation of the bank to continue on back of its high ROE, industry leading asset quality metrics and expanding retail franchisee which supports high margin lending opportunities along with benefits of low funding costs. We apply a P/B multiple of 4.5x to the FY20 adj. BVPS of INR 593 to arrive at a target price of INR 2,683 per share, an upside of 16.8% over the CMP. Accordingly, we reiterate our “Buy” rating.
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