Best placed despite challenging environment Analysis of HDFCB’s 20F filings show (i) Quality retail franchise built-up in both liabilities and assets (ii) Early stress levels & delinquencies have risen in retail with increased credit costs & write-offs and (iii) bank remarkably maintains its track record of low concentration to single group Top 10 accounts. We slightly increase our credit cost estimates and lower other income for FY20/FY21. We reduce our target multiple to 3.7x from 3.95x given the uncertain environment and roll forward of our target to Sep-21 ABV. Retain BUY with revised TP of Rs2,732 (from Rs2700).
Outlook & Valuation: We believe the bank is well positioned to deliver healthy growth even in the current weak environment. Its strong capital position, improving operating efficiency and impeccable asset quality performance across cycles should continue to aid return ratios with RoA/RoE pegged at 1.9%/16% for FY21E. At CMP, the stock trades at multiple of 3.4x FY21E. Marginally tweaking our earnings estimates for FY20E/FY21E, we maintain our BUY recommendation on the stock with an SOTP-based Target Price of Rs2,650 (based on 3.7x FY21E adjusted PBV and the value of its subsidiaries, implying a FY21 P/ABV of 3.8x).
Outlook & Valuation: Credit growth beat the industry growth rate driven by strong retail business. The strong liability franchise and healthy capitalisation provides earnings visibility. We value HDFC Bank using SOTP method, valuing standalone banking business at 3.5x of FY21 ABV and its two subsidiaries at 147/share. We recommend a Buy on the stock, with a target price of 2,620/ share.
The current performance shows a mild moderation in business growth and asset quality. Going ahead, a cautious rise in forward provision provides marginal discomfort. The expected leadership change may remain an overhang on the stock keeping valuation subdued. We marginally cut our estimates to ~19% CAGR in NII, ~20% in PAT in FY19-21E. Accordingly, we downgrade our rating from BUY to HOLD with a target price of Rs 2400 (earlier Rs 2700) valuing bank at ~20x FY21E EPS (~3.2x FY21E ABV) and include Rs 150 per share for HDB Financial Services.
HDFC Bank currently trades at 3.3x its FY2021E BVPS, which we believe is attractive for a bank with its strengths and consistency. While a cautious stance with rise in forward provision resulted in marginal impact for Q1, we believe management’s decision to be pragmatic is positive considering present times. HDFC Bank’s prudential provisioning will help facilitate a steady earnings growth trajectory, which will be positive. We maintain our Buy rating on the stock with an unchanged PT of Rs. 2,750.
HDFCB'soperatingperformanceremainsstrong,although business growth has shown moderation, reflecting weakness in the consumption-linked lending segments and cautious stance on unsecured loans. We lower our growth estimates marginally - expect the bank to deliver 19%/20% loan book/PAT CAGR over FY19-21, led by stable margins and a continued improvement in operating leverage. Maintain Buy with a target price of INR2,750 (3.8x FY21E ABV for the bank).
HDFC Bank shares are currently trading at a P/B multiple of 3.8x/3.4x on adj: FY20E/FY21E book value and we expect the premium valuation of the bank to continue on back of its high ROE, industry leading asset quality metrics and expanding retail franchisee which supports high margin lending opportunities along with benefits of low funding costs. We apply a P/B multiple of ~4.52x to the FY20 adj. BVPS of INR 593 to arrive at a target price of INR 2,683 per share, an upside of 16.8% over the CMP. Accordingly, we reiterate our “Buy” rating.
Business growth was slower both from retail & wholesale with some segments slowed cautiously, while some on back of slowing economy. Bank continues to deliver on most of its core operating metrics with well managed portfolio mix. With 20% CAGR earnings, 20% constant dividend payout (250% of FV special dividend announced as well) and 17% ROEs remains torch bearer for the industry and hence HDFCB remains our most preferred pick in banking universe. Retain BUY with TP of Rs2,700 (unchanged) based on 3.9x Mar-21 ABV.
We have revised our NII estimates by -1.1%/-1.6%, revised our PPOP estimates by -1.3%/-1.9% and PAT estimates by -1.5%/-1.9% for FY20/FY21, respectively. We have retained Accumulate rating on HBL and revised our target price to Rs2,576 (from Rs2,719 earlier), valuing the stock at 3.0 FY21E P/BV.
Despite softening growth we expect the bank to clock >23% earnings CAGR over FY19–21E and sustain superior return ratios (RoA of 2%) led by: i) best-in-class liability franchise; ii) productivity improvement from digital focus; and iii) marginal stress baggage. We maintain ‘BUY/SO’.Maintain ‘BUY’ with INR2,785 TP.
HDFCB has been consistently gaining market share across retail product segments. The bank’s strong capitalization and liquidity levels are likely to help it sustain this growth momentum. We expect HDFCBK to deliver 22%/22% loan book/PAT CAGR over FY19-21. Margins are likely to remain stable, while strong control on operating leverage is likely to result in steady return ratios (RoA/RoE of 1.9%/17.2% in FY21E). We maintain our Buy rating with a target price of INR2,780 (3.8x FY21E ABV).