Published on 18/01/2021 10:50:41 AM | Source: Yes Securities Ltd

Buy HDFC Bank Ltd For Taget Rs.1,870 - Yes Securities

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Upgrading earnings estimates again, now building 20% CAGR over FY20‐ 23 ‐ Valuation will get a lift; upgrade 12m TP to Rs1,870  

We are revising FY21/22/23 earnings estimates by 10%/3%/4% respectively and ABV estimates by 1.5‐2% for these years, after having upgraded these numbers even towards the end of November in our collection feedback report. Earnings revisions thus could be sharper for the consensus. The stand‐alone bank trades at 2.8x P/ABV and 16x P/E on FY23 estimates, adjusted for the valuation of its holdings in HDB Financial and HDFC Securities. Valuation is palatable and can move higher as it stands just above the long‐term mean on 1‐yr rolling fwd. basis and the probability of 20% earnings CAGR over FY20‐23 has improved substantially. Also, the bank trades at significant discount to KMB despite better growth delivery.


Multiple positives to take home  

Multiple positives to pay heed to viz. a) loan growth momentum near normalized (across products), b) persistent substantial SA accretion aiding margins, c) fee trajectory back on track, d) core PPOP margin at multi‐quarter high, e) lower‐than‐expected Covid stress (restructuring + proforma NPL) and f) lower credit cost run‐rate than H1 FY21. Management is confident of sustaining growth (gradual market share gains) in retail, SME and Corp. segments and the risk profile of the new acquisitions across products is significantly better than the industry; pointing towards robust asset quality performance even in future. For the bank, the impact of Covid is behind, there is no new risk on the anvil and the balance sheet is stronger than ever with high capitalization (16.8% Tier‐1 ratio) and provisioning buffer (90‐100 bps of advances). The only monitorable remains the performance of HDB Financial which reported a small loss in the quarter due to spike in delinquencies (GNPL at 5.9%) and upfront provisions taken.


Management Commentary

Retail Assets growth

* Strong growth momentum in Q3 FY21 with disbursements up 40% qoq – bank confident of continuing traction in Q4.

* Q3 FY21 disbursements surpassed pre‐Covid run‐rate, and in December it was 20% higher yoy.  

* HL, Auto, Gold Loan, LAP, Unsecured and WC (Retail SME) driving growth.   

* Card sales was up 20%+ qoq and spends were much higher.

* In auto and 2w, the bank is ahead of pre‐Covid traction ‐ PL is on same level ‐ BL and others are lagging as market not conducive and bank’s caution


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