Motilal Oswal is bullish on HDFC Bank recommended buy rating on the stock with a target price of Rs 1250 in its research report dated June 29, 2020.
Motilal Oswal 's research report on HDFC Bank
HDFCB's Annual Report underscores structural improvement in the bank's profitability, driven by a 20bp increase in RoRWA, higher than a 7bp improvement witnessed in RoA. For FY20, NII/PPoP grew by 17%/23% while PAT grew by 25% YoY to INR263b with the bank reporting a RoE of 16.4%. - The bank has gained market share across multiple digital channels, with 17% market share in POS terminals, ~8%/~29% share in debit/credit card spend, and a credit card base of 14.5m (25.1% share). ~95% of transactions happen digitally, owing to which the bank has shown continuous improvement in its cost ratios. - On the asset quality front, agri slippages stood elevated and segmental GNPA in the priority sector increased to 4.3% v/s 1.3% for the bank. The bank further witnessed a GNPA increase in the Services segment at 1.4% v/s 1.1% in FY19. Furthermore, the concentration of the top four NPA accounts increased to ~10% v/s 6.5% in FY19. - In FY20, RWA density improved 560bp, driven by a reduction in risk weights on personal loans (to 100% from 125%) and focused lending to better rated corporate/retail customers. The concentration of the top 20 advances increased 100bp to 11.6% on higher growth in wholesale assets, and the concentration of the top 20 depositors improved ~210bp to 4%. - We note that attrition among the top employees (salaries of >INR10m) has increased over the past two years, with ~10% of such employees leaving the bank in FY20 after an average of ~14 years of service. This remains a key monitorable as the bank would also soon witness a CEO change. -
Outlook
We expect HDFCB to deliver strong business growth, led by improved digital offerings. On the asset quality front, although slippages are likely to remain elevated, impacted by COVID-19, strong provisioning buffers should limit the overall impact on earnings. The CEO's succession remains an important observable in the near term. Maintain Buy, with TP of INR1,250 (3.0x FY22E ABV).
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