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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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