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HDFC Bank (HDBK.BO): Resilient franchise: Upgrade to Neutral
What happened
We remove HDFC Bank from the Sell list and upgrade to Neutral for its
high loan-growth v/s our coverage group, high margins and low NPLs.
The stock has 13% upside potential and on relative basis will likely
deliver far more resilient earnings growth and better asset quality in the
current economic environment. Since we downgraded HDFC Bank to
Sell on July 21, 2011, the stock has fallen 8.5% vs. -10.6% for BSE
Sensex (past 12-month -0.5% vs. Sensex -16.3%). Given concerns of
NPLs, HDFC Bank with its clean book, higher ROE and strong growth
likely outperformed the market vs. other banks in our view.
Current view
While we expect the system to witness slowdown in loan growth at 14%-
15% in FY12E-FY13E, we believe HDFC Bank can deliver better loan
growth of 20%-21% over the same period, mainly driven by the retail
segment at 21% CAGR. This along with stable NIMs (over FY13E-14E)
and lower NPL provisions ratio (the ratio is down, although the absolute
number will still grow 3% and 17% in FY12E and FY13E), we expect
earnings CAGR of 24% over FY11-FY14E versus an average of 22% for
the private banks in our coverage universe. We believe the bank will
likely continue to trade at a premium on the back of higher credit growth
and earnings in a difficult environment (our 12-month target price
implies 4.1X 12-month forward P/B book).
Valuation
HDFC Bank is trading at 17.3X PER and 3X P/B FY13 v/s ROA of 1.66%
and CAGR earnings growth of 21% FY12-14E. Our unchanged 12-month
target price of Rs520 is derived using our 3-stage Camelot model and
indicates modest upside of 16% from current levels (including
dividends).
Risks
Upside: Sharp and aggressive rate cuts by RBI; Downside: higher
competition in retail loans from PSU banks, pick up in credit costs.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
Sector report
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HDFC Bank (HDBK.BO): Resilient franchise: Upgrade to Neutral
What happened
We remove HDFC Bank from the Sell list and upgrade to Neutral for its
high loan-growth v/s our coverage group, high margins and low NPLs.
The stock has 13% upside potential and on relative basis will likely
deliver far more resilient earnings growth and better asset quality in the
current economic environment. Since we downgraded HDFC Bank to
Sell on July 21, 2011, the stock has fallen 8.5% vs. -10.6% for BSE
Sensex (past 12-month -0.5% vs. Sensex -16.3%). Given concerns of
NPLs, HDFC Bank with its clean book, higher ROE and strong growth
likely outperformed the market vs. other banks in our view.
Current view
While we expect the system to witness slowdown in loan growth at 14%-
15% in FY12E-FY13E, we believe HDFC Bank can deliver better loan
growth of 20%-21% over the same period, mainly driven by the retail
segment at 21% CAGR. This along with stable NIMs (over FY13E-14E)
and lower NPL provisions ratio (the ratio is down, although the absolute
number will still grow 3% and 17% in FY12E and FY13E), we expect
earnings CAGR of 24% over FY11-FY14E versus an average of 22% for
the private banks in our coverage universe. We believe the bank will
likely continue to trade at a premium on the back of higher credit growth
and earnings in a difficult environment (our 12-month target price
implies 4.1X 12-month forward P/B book).
Valuation
HDFC Bank is trading at 17.3X PER and 3X P/B FY13 v/s ROA of 1.66%
and CAGR earnings growth of 21% FY12-14E. Our unchanged 12-month
target price of Rs520 is derived using our 3-stage Camelot model and
indicates modest upside of 16% from current levels (including
dividends).
Risks
Upside: Sharp and aggressive rate cuts by RBI; Downside: higher
competition in retail loans from PSU banks, pick up in credit costs.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
Sector report
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