Hold HDFC Bank; target of Rs 2400: ICICI Direct

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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.

Outlook

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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