Buy HDFC Bank - BRICS Research

HDFC Bank (CMP Rs485, BUY)

Time to look at the longer-term strategy

HDFC Bank (HDFCB) reported another spotless quarter of 30%+ PAT growth, supported by NII and fee income growth, the latter driven by strong FX income. Credit costs continue to be sanguine over the last several quarters and we believe that the delta in the risk-adjusted profits thus generated is being plowed back to expand geographical reach. This will provide the next level of growth drivers – liability followed by retail asset acquisition – that are likely to sustain the 30%+ PAT growth. Tweak estimates marginally and retain Buy with a target of Rs565. While it is easy to be wary of premium valuation, we like its defensive quality and its longer-term growth strategy.

Valuation: The stock trades at 3.3x Q3FY13 book value and 17.8x 12-month rolling EPS. This compares with a 2-year average forward P/B multiple and forward P/E of 3.6x and 21.1x, respectively. Our 12-month forward target of Rs565 implies a forward book and earnings multiple of 3.9x and 20.7x, respectively.

The HDFC Bank stock was trading at Rs.486.65, up by Rs.1.65 or 0.34%. The stock hit an intraday high of Rs.491.80 and low of Rs.470.

The total traded quantity was 1.68 lakhs compared to 2 week average of 1.44 lakhs.

Source : Equity Bulls

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