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HDFC Bank
Valuations/investment argument. We have cut our target PB to 3.6x FY13 book to
capture the near term risks thus revising out Mar-12 PT to Rs2600/share (Sep-11 PT
of Rs2900/share earlier). – Our target PB of 3.6x is inline with long-term averages.
HDFCB’s premium valuations do deter many investors, but we think it’s an
extremely safe option in an uncertain environment such as now – downside is limited
and strong upside participation is likely. We adjust earnings by 2% as we cut our
loan growth and margins but lower credit cost provides some net-off.
Margins: We expect some margin pressures for HDFCB, given the spike in cost of
funds recently. The bank has taken significant loan rate hikes, but given the lag in
retail asset repricing and its low share of floating rate loans, there will be ~10bps
pressures in the short term. We do not expect any further impact in the long term,
given the large share of fixed-rate loans.
Asset quality. We expect the downward momentum in credit costs to continue
(down ~100bps now over FY10E). Retail credit quality is in a sweet spot and we
expect that to sustain over the next 4-6 quarters at least – we do not see the economic
slowdown impacting this. The contraction in credit costs is expected to offset NIM
pressures.
Loan growth. We are cutting loan growth by ~ 200bp, mainly in deference to our
view of <8% GDP growth. HDFC Bank is still not very dependent on system growth
and can easily cover by market shares, but we see an adverse environment for pricing
in 2H FY12 – and HDFCB typically slows growth in such situations.
Credit cost normalization key risk. We assume that the sweet spot in retail asset
quality continues for some more time – we think it’s led by structural factors such as
credit bureau, rising urban incomes and greater discipline from lenders. If we are
wrong and this is cyclical, our near term numbers could be at risk.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HDFC Bank
Valuations/investment argument. We have cut our target PB to 3.6x FY13 book to
capture the near term risks thus revising out Mar-12 PT to Rs2600/share (Sep-11 PT
of Rs2900/share earlier). – Our target PB of 3.6x is inline with long-term averages.
HDFCB’s premium valuations do deter many investors, but we think it’s an
extremely safe option in an uncertain environment such as now – downside is limited
and strong upside participation is likely. We adjust earnings by 2% as we cut our
loan growth and margins but lower credit cost provides some net-off.
Margins: We expect some margin pressures for HDFCB, given the spike in cost of
funds recently. The bank has taken significant loan rate hikes, but given the lag in
retail asset repricing and its low share of floating rate loans, there will be ~10bps
pressures in the short term. We do not expect any further impact in the long term,
given the large share of fixed-rate loans.
Asset quality. We expect the downward momentum in credit costs to continue
(down ~100bps now over FY10E). Retail credit quality is in a sweet spot and we
expect that to sustain over the next 4-6 quarters at least – we do not see the economic
slowdown impacting this. The contraction in credit costs is expected to offset NIM
pressures.
Loan growth. We are cutting loan growth by ~ 200bp, mainly in deference to our
view of <8% GDP growth. HDFC Bank is still not very dependent on system growth
and can easily cover by market shares, but we see an adverse environment for pricing
in 2H FY12 – and HDFCB typically slows growth in such situations.
Credit cost normalization key risk. We assume that the sweet spot in retail asset
quality continues for some more time – we think it’s led by structural factors such as
credit bureau, rising urban incomes and greater discipline from lenders. If we are
wrong and this is cyclical, our near term numbers could be at risk.
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