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‘Outperform’ rating on HDFC Bank shares; target price Rs 1,150: Cholamandalam

HDFC Bank’s growth in retail advances driven by credit cards (31.2%YoY, 9.7%QoQ), personal loans (23.5%YoY, 7.2%QoQ), home loans (23.9%YoY)…

HDFC bank
HDFC pack including Housing Development Finance Corporation, HDFC Bank and Gruh Finance shares hit their fresh 52-week high of Rs 1,386.40, Rs 1,238.50 and Rs 306.40, respectively, on Monday (PTI)

HDFC Bank stock: Stable growth; NIM and asset quality intact
Rating: Outperform
Target price: Rs 1150

* HDFC Bank’s advances growth moderated (17.0%YoY Vs 21.8% in 2QFY15) to INR 3.47tn in the 3QFY15. Growth in advances was led by corporate loans 22%YoY, while retails advances growth slowed to 12%YoY). Consequently, the loan mix stood at 52.5% and 47.5% respectively.

* Mix between working capital and term loans remains the same at 80:20 in the wholesale segment. International loans comprise 7% of total loans.
* Growth in retail advances was driven by credit cards (31.2%YoY, 9.7%QoQ), personal loans (23.5%YoY, 7.2%QoQ), home loans (23.9%YoY), 2W (21.4%YoY, 9.2%QoQ) and car loans (16.2%YoY, 8.6%QoQ). However, CV/CE (21.1%YoY), SME (19.8%YoY, 2.8%QoQ) and gold loans (5.1%YoY) witnessed contraction.

* Valuation: The stock trades at 3.3X FY17E P/BV and 16.9X P/E FY17E. Given, stable core performances, excellent asset quality and high return ratios, rolling over to FY17E, we assign a 3.6X P/BV target multiple to FY17E, implying a target price of INR 1150. We retain our OUTPERFORMER rating on the stock.

* Risks: Weakness in asset quality in the corporate segment, continued slowdown in fee income growth, executing growth in semi-urban / rural areas and increase in cost of savings deposits.

– By Cholamandalam

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