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Healthy revival; shifting gears to accelerate growth…

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 ~| 12 lakh crore

* Consistent performance with +4% NIM and +15% RoE in past many years

Q2FY22 Results: Performance broadly in line with expectations.

* Advances up 15.5% YoY at | 11.9 lakh crore, with deposits up 14.4% YoY

* NII up 12.1% YoY, NIM stable QoQ at 4.1%, C/I up QoQ to 37%

* GNPA improved 12 bps QoQ to 1.35%, R/s up ~90 bps QoQ to ~1.7%

* Gross stage 3 assets for HDB Financial at 6.1% v/s 7.7% QoQ

What should investors do? HDFC Bank’s share price has grown by ~2.7x over the past five years.

* We remain positive and retain our BUY rating on the stock

Target Price and Valuation: We value HDFC Bank at ~3.7x FY24E ABV and | 50 for subsidiaries to arrive at a revised target price of | 2000, from |1800 earlier.

Key triggers for future price performance:

* Higher specific provision & contingency buffer of 77 bps provide comfort

* Credit demand near pre-Covid level; MSME & retail segment to drive growth

* Strategy to identify and expand segment & geography to aid momentum

* Building up of physical/ digital infra to drive growth led by competitive edge

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 target price of | 900

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