Buy HDFC Bank, target Rs 2,301: Nirmal Bang Securities

Nirmal Bang Securities has a buy call on HDFC Bank with a target price of Rs 2,301.

The current market price of HDFC Bank is Rs 1,925.70.

Time period given by the brokerage is one year when HDFC Bank price can reach the defined target.


Investment rationale by Nirmal Bang Securities
Retail engine continues to chug on robustly: Overall loan book growth of 19 per cent YoY was driven primarily by retail loan growth of 30 per cent YoY. Corporate loan growth was 8 per cent YoY due to high base. With retail now forming 70 per cent of total loans (share up nearly 400bps YoY), HBL reinforces itself as the most retailised large-cap bank on the asset side. Within retail loans, the largest component, secured business banking (25 per cent of retail) also grew the fastest at 54 per cent YoY. Automobile loans (19 per cent share) and personal loans (16 per cent share) also witnessed good traction at 23 per cent and 43 per cent growth YoY, respectively.

Fee income growth strongest in the past 8 quarters: HBL’s core fee income grew 32 per cent YoY led by distribution fees (especially from mutual funds and insurance products), retail assets fees, and increasing credit card spends (aided by the push to cashless spending due to demonetisation).

Deposit traction was particularly strong during the quarter: HDFC Bank’s deposits grew 22.5 per cent YoY to Rs7.89bn on the back of a strong CASA and term deposit growth of 11 per cent and 33 per cent YoY, respectively. CASA ratio stood at 43.5 per cent as of 4QFY18. Deposits played catch up with loans that had sped ahead of deposits during previous quarters.

Stable asset quality with no impact from revised rules for stress recognition: The bank’s gross NPA ratio stood at 1.3 per cent and net NPA ratio was 0.4 per cent of the loan book. Slippage ratio for the quarter were contained at 0.44 per cent (Rs27,900mn) of the loan book. The bank did not have any impact from the RBI’s revised norms for stress resolution.

Valuation and outlook: We have marginally modified our estimates for FY19/FY20 and have retained a Buy rating on HBL, retained our target price of Rs2,301 valuing the stock at 4.1x FY20E P/BV.