ICICI Direct recommended hold rating on HDFC Bank with a target price of Rs 2400 in its research report dated July 22, 2019.
ICICI Direct's research report on HDFC Bank
HDFC Bank reported its performance above our estimates. Profit came in at Rs 5568 crore in spite of lower credit growth of 17% YoY & higher provisions of Rs 2614 crore. Operating profit came in at Rs 11147 crore, up 29% YoY on the back of strong NII growth of ~23% YoY at Rs 13294 crore & higher other income growth of 30% YoY at Rs 4970 crore. Margins came in at 4.3%, up 10 bps YoY & down 10 bps QoQ. Provisions came in higher largely due to higher provisions for agri book & increased rate of provisions on unsecured book. The bank has also made contingent provisions of Rs 165 crore & Rs 86 crore towards NBFC/HFCs, respectively. Overall asset quality marginally deteriorated with GNPA ratio at 1.40%, up 4 bps QoQ.
The current performance shows a mild moderation in business growth and asset quality. Going ahead, a cautious rise in forward provision provides marginal discomfort. The expected leadership change may remain an overhang on the stock keeping valuation subdued. We marginally cut our estimates to ~19% CAGR in NII, ~20% in PAT in FY19-21E. Accordingly, we downgrade our rating from BUY to HOLD with a target price of Rs 2400 (earlier Rs 2700) valuing bank at ~20x FY21E EPS (~3.2x FY21E ABV) and include Rs 150 per share for HDB Financial Services.
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