ICICI Direct is bullish on HDFC Bank has recommended buy rating on the stock with a target price of Rs 2300 in its research report dated April 23, 2018.
ICICI Direct's research report on HDFC Bank
Earnings growth came in healthy at 20.3% YoY to Rs 2799 crore, on the back of steady topline growth. However, NII growth came in a tad lower compared to our estimate at Rs 10657.7 crore, up 17.7% YoY, led by lower growth in advances and higher growth in deposits Slippages came in higher than estimate at Rs 2790 crore, 1.72% of advances (Rs 2880 crore in Q3FY18 excluding steel account). Asset quality continued to remain stable QoQ with GNPA ratio at 1.3% Advances growth, though above industry, remained a tad lower than our estimate at 18.7% YoY to Rs 658334 crore. Retail book growth was healthy at 27.8% YoY while corporate portfolio moderated to 9.2% YoY. Among retail, auto, CV and two-wheelers are seeing a sharp pick-up growing 23%, 22% and 38%, respectively. Unsecured loans continued their strong growth at 44% and 39% YoY in personal loans and credit cards, respectively Consistent robust growth in fee income is commendable, growing 32% YoY to Rs 3329.7 crore, led by distribution of financial products and increase in digital transaction. As expected, treasury income remained muted with loss of Rs 22 crore, amid a decline in G-sec yield.
Outlook
Considering the healthy balance sheet growth, superior asset quality and management, the bank is well poised to deliver consistently with margin leadership and robust return ratios. Hence, the bank remains a portfolio stock with premium valuations. We broadly maintain our estimates at 19.7% CAGR in NII, 21.1% in PAT in FY18-20E. The recent QIP announced is expected to be BV accretive. We maintain our target price at Rs 2300 valuing at ~22x FY20E EPS (3.75x FY20E ABV) and add Rs 50 per share for HDB Financial Services. We maintain BUY recommendation.
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