Strong growth momentum to continue… HDFC Bank, a new-generation bank, is the second largest private sector bank in India. The Bank has a nationwide distribution network of 4,787 branches and 12,635 ATM’s in 2,691 cities/towns as of FY18. The bank has grown its balance sheet at a healthy pace of 22% CAGR over FY13-18 maintaining high profit CAGR of 21%.
Valuation: We maintain HDFC Bank as a preferred pick in the banking sector. HDFC Bank is best-placed among peers in terms of managing the near-term challenges of capital adequacy (Basel-III norms), liquidity and asset quality. Moreover, we expect the bank to continue to report healthy core performance on the back of stable margins and strong growth in advances. It will help the bank to maintain superior return ratios with RoE of ~20% and RoA of ~2% over FY18-20E. Overall, strong fundamentals and stable asset quality would enable the bank to gain market share. As a result, HDFC bank will continue to enjoy valuation premium within banking space. Hence, we maintain a BUY rating on the stock with a target price (TP) of Rs2,188 (4.0x FY20E P/ABV).
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