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Elara Capital
HDFC Bank (Accumulate)
CMP: ₹1,955.05
Target: ₹2,483
In Q4FY19, HDFC Bank posted in-line core lending operational performance (NII), but core fee income was below our expectations, leading to lower PPoP and net profit. Lower credit cost aids net profit q-o-q. Equation among LCR (liquidity coverage ratio), LDR (loan-to-deposit ratio) and NIM show required reduction in cost. Credit and investments (as a percentage of deposit and borrowings) were at 80 per cent and 28 per cent respectively; drop in these ratios by about 100 bps each q-o-q, a rise in cash ratio (as a per cent of deposit & borrowings) by 200 bps and a slight fall in LCR to 118 per cent (from 120 per cent) show limited scope for LDR expansion. Considering moderation in PL, credit cards, high-yielding secured loans (vehicular & two-wheeler loans), asset yield could be under strain.
The bank needs to work on liability front to enhance or stabilise margin. We expect stable performance of HDFC Bank considering stability in margin and asset quality, mid-teen growth in fee income and listing of HDB Financial Services (HDBFSL) to result in value unlocking. We forecast FY20E & FY21E RoAA & RoAE of 2.0 per cent & 16.8 per cent and 2 per cent and 17.4 per cent.
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