Buy HDFC Bank; target of Rs 1350: Prabhudas Lilladher

Prabhudas Lilladher research report on HDFC BankHDFCB reported another steady quarter of earnings growth at 20% YoY with strong core performance as loan growth continues to be strong along with sequential improvement in margins of 10bps. Loan growth continues to be led by retail in all segments, while wholesale & business banking showed some softness. Overall asset quality saw slight deterioration mainly from business banking. Bank has geared up for the maturity of FCNR deposits and is unlikely to get majorly impacted on loan growth traction, while HDFCB continues to deliver on all counts by gaining market share on both assets & liabilities and remains leader across product lines. We maintain ‘BUY’ with a PT of Rs1,350 based on 3.6x Mar‐18E ABV.

Operating profit trajectory remains robust: Operating performance remained robust as HDFCB continued to deliver strong NII of 21% YoY (though miss by 1.7% from PLe), while better treasury (+100% YoY increase) and lower opex led to 20% YoY growth in PPOP. Fee income profile was softer in Q1FY17 as TPPD & Fx fees were weak and continued to maintain fee income guidance in mid‐teens. While on margins, better asset mix in retail and stable CASA growth helped improve margins further to 4.4% (up 5‐6 bps QoQ), but maintained guidance range of 4.1‐4.4% in FY17.