Motilal Oswal's report on HDFC Bank
"HDFC Bank's (HDFCB) 2QFY15 PAT grew 20% YoY (in-line) to INR23.8b. A 10bp QoQ improvement in NIM was to an extent compensated by lower-than-expected other income (+11% YoY) and higher opex (+19% YoY), resulting in in-line PAT.
Post six quarters of ~10% YoY growth, the bank reported some traction in fee income (+13% YoY) on account of a pickup in third party business, higher retail liability fees and good traction in transactional banking fees.
Post an average ~5% growth over the last four quarters, opex grew 19% YoY, led by 23% YoY growth in other operating expenses on account of higher DSA commissions (traction in retail disbursements and strong branch additions). Cost to core income ratio increased to 46.9% from 45.4% in 1QFY15.
Other highlights: (1) net stressed loans declined 12bp QoQ led by a 10bp reduction in restructured loans, (2) ex-FCNR deposits raised in 3QFY14, core loan and deposits growth stood at 18.8% and 18.4% respectively, (3) CV/CE QoQ growth (+4% QoQ) turned positive after three quarters of continuous decline and (4) CASA deposits grew 20% YoY (+5% QoQ). CASA ratio rose +20bp QoQ to 43.2%.
Valuation and view: HDFCB is best-placed in the current environment, with a CASA ratio of ~43%, growth outlook of at least 1.3x industry, least asset quality risk and healthy CET1 of 11%+. While restriction on FII limit remains an overhang, we believe valuations are reasonable. Comfort on earnings (23%+ CAGR) remains high. RoE is likely to be 23%+. Maintain Buy with a target price of Rs 1025", says Motilal Oswal research report.
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