Buy HDFC Bank; target of Rs 1375: ICICI Direct

HDFC Bank, India’s second largest private bank, has grown its balance  sheet at 23% CAGR to Rs 400000 crore over FY07-13 maintaining its profit  growth of 30% CAGR to Rs 6726 crore. PAT growth had moderated to 20% at Rs 12297 crore in FY16. Going forward, we expect PAT to grow at 21.4% CAGR over FY16-18E to Rs 18117 crore. It has 49.5% retail (Rs 233060 crore)  and 44% wholesale loan book (Rs 206972  crore) in loan book of Rs 470623  crore as on Q1FY17. Within retail (24% YoY growth), personal loans, credit cards and home loans grew higher at 40%, 26% and 25%, respectively.  Retail has 22% in auto, 7% in CV/CE, 17% personal loans, 14% home loans (acquired) and 11% in business banking. It enjoys largest market share in credit cards in industry at Rs 21255 crore book, which generally fetches higher margins and returns for a bank. Its acquisition of Centurion Bank in FY08 also helped strengthen its retail book. We expect it to continue with higher credit growth than industry at 21% over FY16-18E to  Rs 680211 crore and profit to sustain  similar trend with 21.4% growth.    

We have largely maintained our estimates. Considering the superior quality of balance sheet & stable management, we factor in 18.3% CAGR in NII, 21.4% in PAT in FY16-18E to Rs 18117 crore. RoA at 1.9% is one of the best in class. The bank remains a portfolio stock & premium valuation may continue due to consistency in performance. We revise our TP higher to Rs 1375 (earlier Rs 1225) (3.7x FY18E ABV). Maintain BUY. We believe investors would continue to prefer high quality retail private banks owing to their strong visibility & consistency in earnings. 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.