ICICI Direct's research report on HDFC Bank
On the asset quality front, GNPA increased 23% QoQ to Rs 7243 crore after a surge of 12% QoQ already seen in Q4FY17, primarily on account of agricultural NPA (60% of fresh addition) led by farm loan waivers. GNPA ratio surged 19 bps to 1.24% vs. 1.05%. Net non performing assets (NNPA) were at 0.44%. Accordingly, provisions increased to Rs 1559 crore, up 80% YoY and 23% QoQ. The bank has enhanced specific provision coverage for its agricultural NPA book Advances increased 23.4% to Rs 580,976 crore vs. expected 20% YoY led by higher than systemic growth with domestic retail, wholesale book growing at 30%, 27% YoY, respectively. The loan mix between retail: wholesale was 54:46. Deposits grew 17% YoY Healthy traction was maintained with NII growth at 20% YoY to Rs 9370 crore, led by strong credit growth and margins improving 10 bps to 4.4% better than estimates. CASA ratio was at 44% PAT grew 20.2% YoY to Rs 3893 crore, in line with our estimate, on the back of a higher other income and consistent strong NII.
Outlook
Considering the healthy balance sheet growth, superior asset quality and management, the bank is well placed to deliver consistently with margin leadership and robust return ratios. Hence, the bank remains a portfolio stock with premium valuations. We factor in 19.9% CAGR in NII, 22% in PAT in FY17-19E. We revise our target price upwards at Rs 1840 (earlier Rs 1700) valuing the stock at 4.2x FY19E ABV and add Rs 50 per share for HDB financial services. We revise our rating from BUY to HOLD.
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