HDFC bank started process for raising capital of Rs 100 bn …. Positive over long term… :: IndiaNivesh

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HDFC bank started process for raising capital of Rs 100 bn ….
Positive over long term… continue to maintain hold with target
price of Rs 910…
HDFC bank has started process of share sale for raising capital of Rs 100 bn and
appointed Bank of America-Merrill Lynch as the lead banker. As per media, Out of
the Rs 100 bn, ~Rs 76 bn will be raised from foreign investors and remaining ~Rs 24
bn from domestic institutional investors. On 19th December 2014, Foreign
Investment Promotion Board (FIPB) had 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.
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 higher the regulatory requirement of 11.5% which
the banks have to reach by FY19 as per Basel III norms. Post this capital, we are
expecting capital adequacy ratio for HDFC bank to increase to 16.9% and tier I capital
to 13.4% for FY15E after raising capital of Rs 100 bn assuming it raise capital at
current market price of Rs 945.
At CMP of Rs 945, 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.