Buy HDFC Bank Ltd For Target Rs.1750 - ICICI Direct
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Growth momentum continues to remain strong
About the stock: HDFC Bank is a leading private sector bank with consistent growth and operational performance over various cycles. The bank has maintained superior return ratios compared to its peers resulting in premium valuations.
* Largest private sector bank with loan book of | 14.8 lakh crore
* Consistent performance with +4% NIM and +15% RoE in past many years
Q2FY23 Results: Strong business growth; improvement in asset quality.
* Strong loan growth at 23.4% YoY to | 14.8 lakh crore; deposits up 19.0%
* NII up 18.9% YoY, NIMs up QoQ at 4.1%, C/I at 39.2% vs. 40.6% QoQ
* Credit cost at 0.87%, PAT up 20.1% YoY at | 10605 crore
* GNPA down 5 bps to 1.23% and NNPA down 2 bps to 0.33% QoQ
What should investors do: HDFC Bank’s share price has grown more than 50% in the past five years. Building of distribution capabilities and business growth to remain buoyant though clarity related to merger still remains near term overhang.
* We remain positive and retain our BUY rating on the stock
Target Price and Valuation: HDFC Bank is expected to deliver higher than industry growth along with RoA of ~2% in FY24E. Thus, we value HDFC Bank at ~3.1x FY24E ABV & | 50 for subsidiaries and revise our target price from | 1650 to | 1750/share.
Key triggers for future price performance:
* Continued focus on towards CRB & retail and further rate transmission to aid margins
* Deposits accretion will be supported by branch expansion and relationship building, though it will keep opex elevated in the near term
* Steady asset quality, adequate provision with contingent provision positive. No substantial impact of regularisation of moratorium book
Alternate Stock Idea: Apart from HDFC Bank, we also like Axis Bank
* Strong liabilities franchise, adequate capitalisation and healthy provision buffer to aid business growth as well as earnings trajectory
* BUY with a target price of | 970
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