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Multi Baggers

Ventura Securities

12.00 AM Jun 5th

HDFC Bank

BSE ID : 500180     NSE ID : HDFCBANK

RECOMMENDED PRICE 1635.80

PEAK FROM RECO 1887.45 15.38%

CURRENT PRICE 1877.95 14.80%

We initiate a coverage on HDFC Bank with a BUY with a price objective of Rs 2174 representing a potential upside of 33.1% over in the next 30 months.

HDFC Bank

HDFC Bank has demonstrated an exemplary performance of high growth spanning two decades driven by an enviable AUM growth (CAGR of 29.1%), a pan India presence, product innovation, best in class asset quality and consistently high RoE aided by a strong management team with a pool of capable talent. Post the global melt down of 2008, while the Indian economy and particularly its peers have faced many challenges, the Bank has escaped the NPL imbroglio unscathed. Going forth as the Indian economy growth accelerates, we believe that HDFC Bank should be the biggest beneficiary and report numbers consistent with its historical performance.

HDFC Bank is our top pick in the banking space given that:

Loan book is all set to double over the period FY2017-21 (CAGR of 19.2%). Over the forecast period of FY17-20 we expect total credit to grow to Rs 9,98,277 crore driven by a 17.7% CAGR growth of its corporate book to Rs 4,59,207.5 crore and 21% CAGR growth of its retail book to Rs 5,39,070 crore. HDFC Bank is uniquely positioned to grab market share from its peers in the corporate lending space driven by its lower NPA levels and balance sheet strength which are the issues that have stymied the growth of PSU Banks. HDFC Bank is expected to maintain its leadership in the retail banking space through product innovation, enhanced cross sell / upsell and leveraging its pan India presence.

NIMs are expected to be maintained in the range of 4.2-4.6 over the forecast period notwithstanding the fact that corporate loans typically have lower NIMs.

Deposit growth (21.7% CAGR to Rs 11,59,129) crore is expected to keep abreast of the lending book. CASA ratio is expected to marginally dip by 100 bps to 47% by FY20.

Operational efficiencies are expected to kick in given the pervasive usage of technology, data analytics and slow down in hiring. We expect cost to income ratio to improve by 170 bps to 41.4% by FY20. In our opinion this is commendable as we expect the smaller private banking peers to witness higher cost income ratio given the increasing tilt to grow the retail franchise.

Its hallmark asset quality is expected to remain robust. However we have built in a 10 bps deterioration to 1.15% for the GNPLs and 2 bps to 0.35% for the NNPLs over the period FY17-20.

Return ratios RoA and RoE are expected to improve by 5bps & 144bps to 1.8% and 19.8% respectively by FY20.

Earnings are expected to grow at a CAGR of 20% to Rs 26,361 crore by FY20. We initiate with a strong BUY rating for a target of Rs 2174 (3.9X FY20 P/Adj BV) representing an upside of 33.1% from the CMP of Rs 1632 over a period of 30 months.

Valuation

We initiate a coverage on HDFC Bank with a BUY with a price objective of Rs 2174 (4.0XFY20 P/Adj BV) representing a potential upside of 33.1% over in the next 30 months. Currently the stock is trading at 3.0X FY20 P/Adj BV.

 

For full details, Click on the attachment.

Disclosures and Disclaimer: Ventura Securities Limited (VSL) is a SEBI registered intermediary offering broking, depository and portfolio management services to clients. VSL is member of BSE, NSE and MCX-SX. VSL is a depository participant of NSDL. VSL states that no disciplinary action whatsoever has been taken by SEBI against it in last five years except administrative warning issued in connection with technical and venial lapses observed while inspection of books of accounts and records. Ventura Commodities Limited, Ventura Guaranty Limited, Ventura Insurance Brokers Limited and Ventura Allied Services Private Limited are associates of VSL. Research Analyst (RA) involved in the preparation of this research report and VSL disclose that neither RA nor VSL nor its associates (i) have any financial interest in the company which is the subject matter of this research report (ii) holds ownership of one percent or more in the securities of subject company (iii) have any material conflict of interest at the time of publication of this research report (iv) have received any compensation from the subject company in the past twelve months (v) have managed or co-managed public offering of securities for the subject company in past twelve months (vi) have received any compensation for investment banking merchant banking or brokerage services from the subject company in the past twelve months (vii) have received any compensation for product or services from the subject company in the past twelve months (viii) have received any compensation or other benefits from the subject company or third party in connection with the research report. RA involved in the preparation of this research report discloses that he / she has not served as an officer, director or employee of the subject company. RA involved in the preparation of this research report and VSL discloses that they have not been engaged in the market making activity for the subject company. Our sales people, dealers, traders and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein. We may have earlier issued or may issue in future reports on the companies covered herein with recommendations/ information inconsistent or different those made in this report. In reviewing this document, you should be aware that any or all of the foregoing, among other things, may give rise to or potential conflicts of interest. 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Similarly, this document does not have regard to the specific investment objectives, financial situation/circumstances and the particular needs of any specific person who may receive this document. The securities discussed in this report may not be suitable for all investors. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. Persons who may receive this document should consider and independently evaluate whether it is suitable for his/ her/their particular circumstances and, if necessary, seek professional/financial advice. And such person shall be responsible for conducting his/her/their own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the securities forming the subject matter of this document. The projections and forecasts described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. Projections and forecasts are necessarily speculative in nature, and it can be expected that one or more of the estimates on which the projections and forecasts were based will not materialize or will vary significantly from actual results, and such variances will likely increase over time. All projections and forecasts described in this report have been prepared solely by the authors of this report independently of the Company. These projections and forecasts were not prepared with a view toward compliance with published guidelines or generally accepted accounting principles. No independent accountants have expressed an opinion or any other form of assurance on these projections or forecasts. You should not regard the inclusion of the projections and forecasts described herein as a representation or warranty by VSL, its associates, the authors of this report or any other person that these projections or forecasts or their underlying assumptions will be achieved. For these reasons, you should only consider the projections and forecasts described in this report after carefully evaluating all of the information in this report, including the assumptions underlying such projections and forecasts. The price and value of the investments referred to in this document/material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for future performance. Future returns are not guaranteed and a loss of original capital may occur. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. 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