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Emkay Global
HDFC Bank (Buy)
Target: ₹2,050
CMP: ₹1,528.4
HDFC Bank has reported healthy but in-line credit growth of 16 per cent y-o-y/5 per cent q-o-q in Q3FY22 (total loans stood at nearly ₹12.6 lakh crore). This looks much more balanced and broad-based. Retail loans grew by 13.5 per cent y-o-y/4.5 per cent q-o-q, commercial and rural banking were up 30 per cent y-o-y/6 per cent q-o-q, while corporate growth re-accelerated to 7.5 per cent y-o-y/4.5 per cent q-o-q.
HDFC Bank continues to hold a relatively larger housing portfolio from HDFC, totalling ₹7,460 crore (₹7,100 crore in Q2-FY22/Q3-FY21). Adjusted for portfolio buyouts too, overall credit growth was 16.5 per cent y-o-y/5 per cent q-o-q. Notably, the bank has started regaining market share in cards, and should see further acceleration, along with PL, subject to absence of or partial lockdown situation.
The stock has underperformed by its own standards as well as that of peers after the management change, more so due to the RBI’s embargo on its card/digital initiatives and Covid-induced growth/asset-quality disruption. The risk of fresh Covid wave-induced lockdowns could once again disrupt business/asset-quality normalisation. However, we believe that the bank has built reasonable Covid buffers (0.8 per cent of loans) and should be relatively resilient. After the recent correction, the stock is trading at a reasonable valuation.
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