Motilal Oswal has given a buy rating to HDFC Bank with a target price of Rs 1,250. The share price moved down by -0.38 per cent from its previous close of Rs 1076.05. The stock’s last traded price is Rs 1,072.

According to the brokerage, the bank’s annual report underscores structural improvement in the bank’s profitability, driven by a 20bp increase in RoRWA, higher than a 7bp improvement witnessed in RoA. For FY20, net interest income/ pre-provision operating profit grew by 17 per cent/23 per cent while PAT grew by 25 per cent year on year to Rs 263 billion with the bank reporting a RoE of 16.4 per cent. The bank has gained market share across multiple digital channels, with 17 per cent market share in POS terminals, 8 per cent/29 per cent share in debit/credit card spend, and a credit card base of 14.5m (25.1 per cent share). About 95 per cent of transactions happen digitally, owing to which the bank has shown continuous improvement in its cost ratios.

Investment Rationale

According to Motilal Oswal, HDFC Bank has delivered strong growth despite economic activity being impacted due to the Covid-19 outbreak. Moderation in retail credit due to consumption slowdown is being compensated well by the wholesale segment, which is driving overall loan growth.

On the asset quality front, slippages are likely to remain elevated due to the Covid-19 disruption, which could keep credit cost higher; however, higher provisioning buffers should limit the overall impact on earnings. Furthermore, a strong liability franchise would support margins, while higher liquidity levels would enable the bank to ride the current crisis and gain higher market share.

The brokerage estimates the loan book / PAT to grow at a CAGR of 16 per cent/9 per cent over FY20–22. The CEO’s succession, though, remains an important event in the near term. It maintains buy rating with a target price of Rs 1,250 (3.0 times FY22E ABV).

HDFC Bank-MotilalOswalJune302020

Source: Motilal Oswal


For the quarter ended March 31, 2020, the company reported consolidated interest income of Rs 25919.24 crore, up 2.59 per cent from last quarter interest income of Rs 25265.90 crore and up 14.04 per cent from last year’s same quarter interest income of Rs 22727.60 crore. The bank reported net profit after tax of Rs 7296.71 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 21.2 per cent stake in the company as of the financial year ending March 31, 2020, while FIIs held 48.6 per cent, DIIs 17.9 per cent and public & others 12.4 per cent.

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