27 October 2020
Company Update | Sector: Financials
HDFC Bank
BSE SENSEX
40,522
S&P CNX
11,889
CMP: INR1,233 TP: INR1,500 (+22%)
Business trends undergoing swift normalization
Margins to stabilize; collection trends near pre-COVID levels
Buy
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
Financials Snapshot (INR b)
Y/E MARCH
FY20 FY21E
NII
561.9 648.1
OP
487.5 565.5
NP
262.6 300.9
NIM (%)
4.2
4.1
EPS (INR)
48.0 54.9
EPS Gr. (%)
21.2 14.2
BV/Sh. (INR) 311.8 357.1
ABV/Sh. (INR) 300.3 342.3
Ratios
RoE (%)
16.4 16.4
RoA (%)
1.9
1.8
Payout (%)
24.8 17.5
Valuations
P/E(X)
25.7 22.5
P/BV (X)
4.0
3.5
P/ABV (X)
4.1
3.6
Div. Yield (%)
1.0
0.8
HDFCB IN
5,504
6787.7 / 90.6
1304 / 739
10/5/-4
14449
78.8
FY22E
740.8
663.8
364.7
4.1
66.5
21.2
413.4
394.1
17.3
1.9
15.4
18.5
3.0
3.1
0.8
FY23E
864.8
778.5
437.7
4.2
79.8
20.0
482.3
460.5
17.8
2.0
13.6
15.4
2.6
2.7
0.9
HDFC Bank (HDFCB) has built an exceptional banking franchise, powered by flawless
execution. It consistently challenges the status quo – as reflected in its product and
digital innovation – and yet persistently adheres to the basics of banking with regard
to underwriting standards. The bank has reported remarkable improvement in
collection efficiency, to 97% of pre-COVID levels, and is well-placed to gain
incremental market share on both the asset and liability fronts.
The bank is seeing improving trends across key business verticals, with some
segments like Credit Cards showing strong buoyancy. The Credit Cards segment grew
6% QoQ, with spends also back at pre-COVID levels. Corporate growth remains
robust, and the bank continues to focus on high-rated borrowers, which has aided
decline in RWA / total assets to ~65% (v/s 75% in FY19). HDFCB has prudently made
contingent + floating provisions of ~INR77.6b, which would allow the bank to absorb
any asset quality issues as business trends normalize fully.
We estimate HDFCB to deliver a ~19% PAT CAGR over FY20–FY23E, with ROA/ROE at
2.0%/17.8% for FY23E. Maintain Buy, with revised TP of INR1,500 (3.3x Sep’22E ABV).
Retail cycle holding well; strengthening distribution in rural/semi-urban
markets to aid growth
HDFCB is the largest private bank, with a market leadership position across various
retail products (Vehicle, Personal Loans, Credit Cards, etc.). Hence, its performance
is the yardstick for assessing the health of the overall retail cycle. The bank has
reported a ~97% collection efficiency, which has assuaged concerns not only on the
asset quality outlook for the bank but also the broader retail cycle. HDFCB is well-
placed to gain incremental market share as recovery strengthens. Meanwhile, a
strong geographical reach in the rural and semi-urban markets – which have proved
to be more resilient amid the pandemic – provides a strong growth engine for the
bank.
Shareholding pattern (%)
As On
Sep-20 Jun-20 Sep-19
Promoter
21.2
21.2
21.3
DII
18.6
18.0
17.3
FII
49.1
48.8
49.4
Others
11.1
12.0
12.1
FII Includes depository receipts
Stock Performance (1-year)
HDFC Bank
Sensex - Rebased
1,375
1,150
925
700
Corporate segment continues to drive growth; expect balanced
contribution as Retail makes a comeback
HDFC Bank has shown robust traction in the corporate portfolio, thus compensating
for the softness in retail lending. The Corporate segment reported 26.5% YoY
growth in 2QFY21, while Retail loans grew at a tepid ~5% YoY (~7% YoY in 1QFY21).
In 1HFY21, the Corporate segment entirely contributed to overall loan growth,
raising the segment’s share to 52% of total loans. As per strategy, the bank
continues to focus on lending to high-rated corporates, which has enabled steep
decline in RWA / total assets to ~65% (v/s 75% in FY19). However, with early signs
of recovery seen across several retail verticals, we expect a more balanced growth
outlook, even as we estimate HDFCB to deliver a 15% loan growth CAGR over FY20–
23E.
Research Analyst: Nitin Aggarwal
(Nitin.Aggarwal@MotilalOswal.com) |
Himanshu Taluja
(Himanshu.Taluja@motilaloswal.com)
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com);
Yash Agarwal
(Yash.Agarwal@motilaloswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.