Buy HDFC Bank; target of Rs 1500: ICICI Direct

ICICI Direct's research report on HDFC Bank

HDFC Bank has been able to maintain its relatively superior performance in terms of asset quality (stress assets ratio below 1.3%) and margins (4% levels) along with clocking healthy business growth (20% YoY). Going ahead, we believe that with a revival in the economy and capex cycle, the bank may see a higher than expected trajectory in corporate book, which is 44% of loan at Rs 470623 crore as on Q1FY17. Retail traction would continue to remain strong driven by personal loans, credit cards, auto and home loans. This would enable the bank to gain market share. Further, investment in technology would help lower the cost-to-income ratio from the current 44% levels to sub 42% levels by FY19E, as digital transactions cost much lower than transaction done on physical channels. Already, 20% of incremental personal loans and 10% of auto loans are sourced digitally.

We observe HDFC Bank has strategised to dig deep in the rural belt to expand markets with 900 branches opened in the last two years and 600 in rural areas of Punjab, Gujarat and other states. The bank has a strong liability franchise with CASA of 43% (in FY05-16) and retail term deposit comprising 85% of total deposit of Rs 546424 crore as on FY16. CASA and fee based income from cross-selling continues to grow on a rising presence in remote locations. This has led cost of funds to remain less volatile, thereby enabling lucrative NIM 4% consistently. We expect NIM at 4.3-4.5%, going ahead.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.