LKP Securities

HDFC Bank (Buy)

Target: ₹2,039

CMP: ₹1,521.55

HDFC Bank reported a strong trend on asset quality and operating performance in Q3-FY22. The absolute GNPA amount decreased 2 per cent sequentially, which resulted in improvement in GNPA ratio to 1.26 per cent v/s 1.35 per cent in the previous quarter. The reported GNPA is well below the historical trend of 1.4 per cent.

Moreover, the restructuring book decreased to nearly 139 bps of overall loan v/s 170 bps in the previous quarter; Secured loans contributes about 30 per cent of restructured book.

Furthermore, the contingent stands adequate. In Q3-FY22, the provisioning expenses were lower sequentially at ₹3,000 crore (v/s ₹3,900 crore bn 2QFY22), which includes contingent provision buildup of ₹900 crore.

At the same time core fee and commission income increased by 11 per cent q-o-q. Thus, the bank has reported sequential increase in PAT by 17 per cent and ROA/ROE of 2.2 per cent/18 per cent v/s 2 per cent/16.2 per cent in the previous quarter.

HDFC Bank is expected to outperform the sector led by healthy growth in operating income, much higher provision then regulatory requirement in the balance sheet, strong capital cushion of 17.4 per cent at CET1 level and best in class underwriting and risk management practices. Given these strengths we expect HDFC Bank to remain one of the best among all the lending business.

Additionally, superior underwriting practices, higher liquidity, adequate coverage and strong capital position makes the bank best in class and thus, we recommend Buy.

comment COMMENT NOW