Buy HDFC Bank; target of Rs 1260:KRChoksey

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26 Aug, 2025 12:21

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KRChoksey's research report on HDFC BankIn another steady state quarterly earnings, HDFC Bank reported in-line net profit of INR 33.6 bn (our estimate INR 33.9 bn) growing 20.1% Y-o-Y supported by strong NII growth and healthy core fee income. Key highlights: 1) NII grew by 24.0% Y-o-Y on the back of healthy loan expansion. Margins reported an increase of tad 10 bps Q-o-Q at 4.3% primarily due to the reduction in cost of deposits. 2) Non-interest income turned out to be stable; up 13.3% Y-o-Y, 12.6% Q-o-Q attributable to increased core fee (11.0% y/y) and treasury gains (23.5% y/y). 3) Employee costs and non-operating expenses spiked 26.4% Y-o-Y and 19.4% Y-o-Y respectively due to continued branch expansion (added 54 branches) during the quarter. 4) Asset quality improved during the quarter with GNPA and NNPA ratios at 0.97% and 0.29% respectively; on sequential basis they deteriorated. Provisions stood on the higher side; up 16.7% Y-o-Y; but down 4.0% Q-o-Q. 5) CASA ratio stood at 39.9%; however, exceeding CASA growth, term deposits grew at a higher pace; up 28.5% Y-o-Y 6) Advances and deposits grew healthy by 25.7% and 26.5% Y-o-Y respectively.Despite the macro challenges, HDFC Bank continues to report staunch retail loan growth, above industry loan growth, healthy fee income and stable asset quality which reinforces our belief in its sustainable earnings. While stable margins are here to stay with least impact coming from the new base rate calculations based out of marginal costs of funds; we continue to closely monitor asset quality trends. That said, historical trends only reveal robust asset quality, but higher provisions stand imminent, but these should be rightly offset with healthy loan growth traction and strong fee income in the quarters ahead. Against this backdrop, we maintain our target price at INR 1,260 valuing the bank at 3.8x P/ABV FY17E and 3.2x P/ABV FY18E. Currently, the stock trades at 3.1x P/ABV FY17E and 2.6x P/ABV FY18E. Maintain BUY.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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