HDFC Bank Q3 FY21 - 'Stellar Show' - Retain BUY and raise 12m PT to Rs1870 - YES Securities

Mr. Rajiv Mehta, Lead Analyst - Institutional Equities, YES SECURITIES

Multiple positives to take home

Multiple positives to pay heed to viz. a) loan growth momentum near normalized (across products), b) persistent substantial SA accretion aiding margins, c) fee trajectory back on track, d) core PPOP margin at multi-quarter high, e) lower-than-expected Covid stress (restructuring + proforma NPL) and f) lower credit cost run-rate than H1 FY21. Management is confident of sustaining growth (gradual market share gains) in retail, SME and Corp. segments and the risk profile of the new acquisitions across products is significantly better than the industry; pointing towards robust asset quality performance even in future. For the bank, the impact of Covid is behind, there is no new risk on the anvil and the balance sheet is stronger than ever with high capitalization (16.8% Tier-1 ratio) and provisioning buffer (90-100 bps of advances). The only monitorable remains the performance of HDB Financial which reported a small loss in the quarter due to spike in delinquencies (GNPL at 5.9%) and upfront provisions taken.

Upgrading earnings estimates again, now building 20% CAGR over FY20-23 - Valuation will get a lift

We are revising FY21/22/23 earnings estimates by 10%/3%/4% respectively and ABV estimates by 1.5-2% for these years, after having upgraded these numbers even towards the end of November in our collection feedback report. Earnings revisions thus could be sharper for the consensus. The stand-alone bank trades at 2.8x P/ABV and 16x P/E on FY23 estimates, adjusted for the valuation of its holdings in HDB Financial and HDFC Securities. Valuation is palatable and can move higher as it stands just above the long-term mean on 1-yr rolling fwd. basis and the probability of 20% earnings CAGR over FY20-23 has improved substantially. Also, the bank trades at significant discount to KMB despite better growth delivery.

Shares of HDFC Bank Ltd was last trading in BSE at Rs.1467.95 as compared to the previous close of Rs. 1468.05. The total number of shares traded during the day was 236472 in over 8195 trades.

The stock hit an intraday high of Rs. 1474 and intraday low of 1445.5. The net turnover during the day was Rs. 344803524.

Source : Equity Bulls

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