HDFC bank…FIPB clears HDFC Bank’s fund raising proposal… positive over long term… :: IndiaNivesh

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FIPB clears HDFC Bank’s fund raising proposal… positive over long term…
On 19th December 2014, Foreign Investment Promotion Board (FIPB) has
given clearance to HDFC Bank’s fund raising plan of Rs 100 bn. HDFC bank’s
board has already given approval for raising Rs 100 bn in its board meeting
held in May 2014. HDFC bank requires FIPB approval for raising funds by
equity before taking into Cabinet committee as foreign investment in bank
is already close to 74% if we include parent HDFC’s holding as foreign. In
November 2014, FIPB has cleared the revised proposal by HDFC bank for
increasing foreign ownership in bank to 74% which was pending for long.
Our take and Valuation
Currently HDFC bank’s capital adequacy ratio is at 15.7% as per Basel III
norms with Tier I capital of 11.8% which is much higher the regulatory
requirement of 11.5% which the banks have to reach by FY19. However
raising capital by equity will be positive as bank will be able to raise capital
by selling its shares at higher rates due to favorable market conditions.
However it is yet to get cabinet approval for same. We are expecting capital
adequacy ratio for HDFC bank to remain strong at 14.9% and tier I capital of
11.3% for FY15E. Further as per our calculations, capital adequacy of the
bank is likely to increase to 16.9% with tier I capital of 13.4% for FY15E after
raising capital of Rs 100 bn assuming it raise capital at current market price
of Rs 941.
At CMP of Rs 941, stock is trading at P/ABV of 4.5x and 3.8x for FY15E and
FY16E respectively. We have hold rating on the stock with target price of Rs
910.