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High growth, high profitability
Expect some moderation in commercial vehicles lending.
Infrastructure loans are around 5% of loan book. Given the growth in retail and working capital lending, it will by and
large remain at current levels.
Plans to keep adding 150-200 branches per year for at least the next five years.
CASA at current levels of 50% is unsustainable, more likely to sustain at 46-48%.
Cost/income ratio may not decline from here due to factors like wage inflation, talent acquisition, branch addition.
Comfortable with 47-48% ratio.
Exports, aviation, gems and jewellery continue to remain problem assets.
Valuation and risks
HDFC Bank is currently trading at 19x FY12e PE and 3.2x FY12e PB. The stock has underperformed the market since
Sep-10 by 20%, but only marginally compared to Bankex. We believe the stock’s valuation correlation with short term
interest rates has broken down temporarily as doubts arose over its ability to maintain margins (and CASA), which it has
now proved it can, and hence we expect the stock to outperform.
We value HDBK using a weighted average combination of PE (75%), PB (15%), and economic profit model (EPM, 10%).
Given the robust earnings and balance sheet growth expected, our target PE and PB multiples are 24x and 3.6x.
Downside risks: Slower than expected loan growth and worsening asset quality.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
High growth, high profitability
Expect some moderation in commercial vehicles lending.
Infrastructure loans are around 5% of loan book. Given the growth in retail and working capital lending, it will by and
large remain at current levels.
Plans to keep adding 150-200 branches per year for at least the next five years.
CASA at current levels of 50% is unsustainable, more likely to sustain at 46-48%.
Cost/income ratio may not decline from here due to factors like wage inflation, talent acquisition, branch addition.
Comfortable with 47-48% ratio.
Exports, aviation, gems and jewellery continue to remain problem assets.
Valuation and risks
HDFC Bank is currently trading at 19x FY12e PE and 3.2x FY12e PB. The stock has underperformed the market since
Sep-10 by 20%, but only marginally compared to Bankex. We believe the stock’s valuation correlation with short term
interest rates has broken down temporarily as doubts arose over its ability to maintain margins (and CASA), which it has
now proved it can, and hence we expect the stock to outperform.
We value HDBK using a weighted average combination of PE (75%), PB (15%), and economic profit model (EPM, 10%).
Given the robust earnings and balance sheet growth expected, our target PE and PB multiples are 24x and 3.6x.
Downside risks: Slower than expected loan growth and worsening asset quality.
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