Motilal Oswal is bullish on HDFC Bank has recommended buy rating on the stock with a target price of Rs 2750 in its research report dated July 20, 2019.
Motilal Oswal's research report on HDFC Bank
HDFCB reported 1QFY20 PAT of INR55.7b (+21% YoY, in-line). The bank stepped up provisions on the unsecured book, created a contingent provision of INR1.6b and additional general provision of INR0.9b toward the NBFC/HFC sector. NII grew 23% YoY to INR132.9b (in-line), while margins contracted 10bp QoQ to 4.3%. Core fee income grew 12% YoY to INR35.5b; treasury gain of INR2.1b boosted other income growth to 30% YoY. Opex grew ~19% YoY (flat QoQ) despite higher PSLC cost, resulting in healthy PPoP growth of ~29% YoY (core PPoP up 22% YoY). C/I ratio declined ~70bp QoQ to 39% (70bp improvement in the cost/core income ratio). Loan growth moderated to 17% YoY (+1% QoQ) to INR8.3t due to slowdown in auto segment (8.5% YoY v/s 21.1% in 1QFY19). Corporate segment grew by 18% YoY (flat QoQ), whereas retail segment growth slowed down to 16.5% YoY. Deposits growth of 18.5% YoY (+3.4% QoQ) was led by 22.5% YoY growth in term deposits, while CASA grew at 13% YoY (-3% QoQ). CASA mix declined 270bp QoQ to 39.7% (42.4% in 4QFY19).
HDFCB's operating performance remains strong, although business growth has shown moderation, reflecting weakness in the consumption-linked lending segments and cautious stance on unsecured loans. We lower our growth estimates marginally - expect the bank to deliver 19%/20% loan book/PAT CAGR over FY19-21, led by stable margins and a continued improvement in operating leverage. Maintain Buy with a target price of INR2,750 (3.8x FY21E ABV for the bank).
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