HDFC Bank Hold Target Price: Rs580 ::Centrum

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��

HDFC Bank

Hold

Target Price: Rs580

CMP: Rs538             

Upside: 7.8%

Consistently consistent but limited upside  

HDFC Bank’s Q4FY12 performance was in line with our expectations (PAT at Rs14.5bn). The bottom-line performance was primarily driven by healthy growth in NII while higher opex was offset by lower provisioning during the quarter. Asset quality held up well with stable %GNPA, restructuring & PCR. While consistent performance and strong asset quality have made the stock one of the safest bets in banking sector, limited upside (8%) to our fair value estimate leads us to maintain our Hold recommendation.

m  NIM stable QoQ, Loan growth @ 22%: NII grew by a moderate 19.3% yoy     (in-line) to Rs33.9bn led by a healthy credit growth (22% yoy) while the reported NIM was stable sequentially at 4.2%. Loan yields benefitted from higher share of retail business (incremental growth skewed towards unsecured/high yield products). However, this was offset by increase in cost of funds leading to QoQ flattish NIM (reported) at 4.2%.

m  Asset quality holds up well: Asset quality continued to remain strong with GNPA stable in both absolute and relative terms. Restructured loans (including applications received and under process) were stable at 0.4% of gross advances. Despite lower provisions sequentially, PCR improved to 82.4% (from 80.3% in Q3FY12). While the slippage rate for FY12 came in at an enviable 1%, we expect this to inch up in FY13 to 1.3% led by 1) higher share of unsecured/high yield products and 2) impact of general deterioration in credit quality due to moderation.

m  Healthy credit growth, CASA ratio up QoQ: The advances book grew by a healthy 22% yoy to Rs1,954bn primarily driven by the retail segment (33.7% YoY with strong growth in unsecured/high yielding products). For FY13, the share of retail segment may come off a bit due to weaker demand in key segments (auto & housing) though anticipated improvement in corporate segment should help maintain a healthy growth of 20.6% YoY. Meanwhile, deposits grew by 18.3% yoy and 6% QoQ to Rs2,467bn with CASA improving sequentially to 48.4%.

m  Lower provisions offset by higher opex: Operating expenses surprised negatively with a 14% QoQ jump led by aggressive branch and ATM additions during Q4FY12. This led to a 50bps QoQ expansion in cost-income ratio (excluding one off of Rs1200mn). However, higher opex was offset by lower than estimated provisions (down 9% QoQ). Given the aggressive branch and ATM additions in FY12, incremental expansion of retail franchisee is likely to revert to normal level in FY13.

m  Maintain Hold on limited upside: HDFC Bank continues its streak of consistent performance and remains one of the safest bets in the banking sector. However, we believe that its 30-33% bottom-line growth may come under threat led by uptick in slippages and credit costs. At current market price of Rs537, the stock trades at 14.8x FY2014E EPS and 3.1x FY2014E ABVPS and leaves limited upside to our revised target price of Rs580 (3.3x FY14E ABVPS). In line, we maintain our Hold recommendation. Investors can consider re-entering the stock at lower levels (Rs500-525).