Hold HDFC Bank; target of Rs 2315: Arihant Capital

Arihant Capital's research report on HDFC Bank

HDFC Bank reported strong set of numbers in Q3FY19. (a) Profitability growth of 20% YoY at Rs. 5586 cr despite higher provision (including contingent provision of Rs. 322 cr) made during the quarter supported by higher core fee income of 27% at Rs. 3647 cr. (b) Bank’s total advances as on December, 2018 stood at Rs. 780,951 cr, registering a growth of 24% YoY which led to 22% growth in NII at Rs. 12577 cr. while margins remained stable at 4.3%. The domestic loan mix between retail to wholesale composition stood flat at 55:45 QoQ. (c) Operating performance of the bank remained healthy. Operating profit for the quarter grew by 28% at Rs. 10778 cr while OPEX grew by 17%. Cost-income ratio improved by 150bps QoQ to 38.4%. (d) Deposits growth of 22% YoY was largely supported by growth in term deposits at 29% YoY while CASA growth was slower at 13% YoY. CASA ratio for the quarter reduced to 40.71% vs 41.96% in Q2FY19.

Outlook

We have valued the stock on P/ABV of 4.6(x) to its FY20E ABV of Rs 503 per share and arrived at a fair value of Rs. 2315. We have ‘HOLD’ rating on the stock.