Brokerages give thumbs up to HDFC Bank Q2 show; should you buy, sell or hold?

Brokerages have been upbeat about HDFC Bank’s performance in the September quarter and highlighted the steady asset quality at the bank as well. They largely maintained their positive rating on the stock, with Edelweiss and JPMorgan seeing an upside of 22-25 percent.

HDFC Bank reported a healthy 20.6 percent year-on-year growth in Q2 FY19 profit to Rs 5,005.73 crore, driven by net interest income (NII), other income and operating income. However, higher provisions limited the bank's profitability.

Profit in the year-ago period stood at Rs 4,151 crore.

NII, the difference between interest earned and interest expended, grew 20.6 percent to Rs 11,763.41 crore compared to the same quarter last year. "NII growth was driven by average asset growth of 22.9 percent and a net interest margin of 4.3 percent," the bank said.

Loan book grew 24.1 percent YoY to Rs 7.50 lakh crore, while deposits growth was 20.9 percent at Rs 8.33 lakh crore in the September quarter.

The lender said that current account savings account (CASA) deposits, which contributed 42 percent to total deposits, grew at 18.3 percent, with savings and current account deposits rose 18.7 percent and 17.7 percent, respectively. "The focus on deposits has helped us maintain liquidity coverage ratio at 118 percent, much above the regulatory requirement," the bank said in an exchange filing.

Asset quality was stable as gross non-performing assets (NPAs) stood flat at 1.33 percent sequentially. Net NPA fell to 0.4 percent in Q2 as against 0.41 percent in the June quarter.

At 9:30 am, the stock was trading about 2 percent higher on BSE at Rs 2,000.20.

Here’s a look at what local and global brokerages are saying about the bank’s Q2 show.

Brokerage: Credit Suisse | Rating: Outperform | Target Rs2,500

The global research firm observed that the lender will continue to gain market share ahead. It sees the pre-provision operating profit RoA growth to be strong at 3.4 percent in FY20 and sees return on equity to improve to 18 percent. The lender is better-placed than most private sector peers.

Brokerage: Citi | Rating: Buy | Target: Rs 2,500

Citi said that the lender’s recent capital raise should support heathy loan growth. Cost optimisation should drive profitability and support premium valuations.

Brokerage: Morgan Stanley | Rating: Overweight | Target: Rs 2,550

Morgan Stanley observed that HDFC Bank’s profit growth (PAT) was broadly in line with estimates. The profit before tax, ex-treasury impact, grew 30 percent year on year. Meanwhile, core PPoP grew 28% YoY, which was helped by strong revenue growth. The overall asset quality was steady, the company observed.

Brokerage: IDFC Securities | Rating: Outperform | Target: Rs 2,515

The brokerage house said that at 3.2xPBV FY20, the stock offers good risk reward. Further, it believes that the bank is a valuable combination of strong profitability and liquidity.

Brokerage: JPMorgan | Rating: Overweight | Target: Rs 2,400

The global research firm observed that the September quarter show by the bank was a steady performance with 21 percent profit growth and maintained asset quality. It continued to gain market share on both assets and deposit side.

There was robust loan growth of 24% led by all round performance as well. It sees a potential upside of 22 percent.

Brokerage: Edelweiss | Rating: Buy | Target: Rs 2,454

Edelweiss observed that the bank had yet another consistent quarter with improved traction in core operating profitability. Its sound fundamentals were bolstering market share and spurring loan growth.

The asset quality was steady and there was a stable outlook as well. It sees an upside of 25 percent on the stock.