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Buy HDFC Bank Ltd For Target Rs.1,800

Business growth steady; CASA seeing strong traction

HDFC Bank released its quarterly update highlighting the key business numbers for 4QFY21. The following are the takeaways:

* Total advances grew ~13.9% YoY (+4.6% QoQ) to ~INR11.3t. Growth was balanced between the Retail and Wholesale segments. Growth in domestic retail loans picked up to ~7.5% YoY / 5% QoQ; this is encouraging given the RBI restrictions on the Credit Card business. Domestic wholesale advances grew ~21.0% YoY / 4.5% QoQ.

* The bank’s deposit base increased 16.3% YoY / 5.0% QoQ to ~INR13.4t.

* HDFCB reported strong growth of 12.6% QoQ (+27% YoY) in CASA deposits; incremental CASA deposits over 4QFY21 comprised ~53% of the total CASA deposits garnered in FY21. Thus, the CASA ratio expanded by 300bp QoQ (+380bp YoY) to 46%. Term deposits, on the other hand, edged down ~1% QoQ (+8.5% YoY). We expect HDFCB to maintain a positive margin trajectory, aided by an improving CASA mix and healthy loan growth trends.

* During the quarter, the bank purchased loans aggregating to INR75.0b (INR70.8b in 3QFY21 and INR54.8b in 4QFY20) through the direct assignment route from HDFC.

Valuation and view: HDFCB continues to deliver healthy growth in advances, led by an uptick in retail loans; this is likely to further support fee income. Growth in the wholesale book remains steady. The bank reported strong deposit trends, led by robust traction in CASA, which would support the margin trajectory. In terms of asset quality, controlled restructuring / proforma slippages, along with a high provision buffer, would keep credit cost in check and limit the impact on profitability. Maintain Buy, with TP of INR1,800/share (3.6x FY23E ABV).

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