HDFC Bank Ltd.

July 4, 2015 . Equities Desk

HDFC Bank Ltd. is India’s largest private sector lender engaged in providing a range of banking and financial services. The bank operates in four segments: treasury, retail banking, wholesale banking and other banking business. With capital adequacy of 16.8% (tier-1 capital: 13.7 %) by the end of FY15, the bank is well-capitalized to meet its capital requirements to support its future business growth. As on 31st March, 2015, the bank has customer base of ~3.2 crore with a nationwide network of 4,014 branches and 11,766 ATM’s in 2,464 towns and cities across India.

Valuation and view

Over the years, HDFC Bank has outpaced industry growth  rates in almost all the operational parameters. But to maintain similar trend and deliver ROA as high as its present 1.9% level despite enlargement in balance sheet, will be a challenge for the bank. However, we believe HDFC Bank will continue its streak of consistent performance and remain one of the safest bets in the banking sector. Further, with strong capital adequacy ratio, healthy asset quality and stable NIM, we believe the HDFC Bank is well positioned to take the advantage of revival in economy, which in turn would lead to higher loan growth in future.

At a current CMP of  Rs 1,062, the stock trades at a P/BVPS of 3.7x FY16E and 3.1x FY17E, book value. We recommend ‘BUY’ with a target price of Rs 1,253, arrived at FY17E book value which implies potential upside of ~18% to the CMP from a long term perspective.

Research Report HDFC Bank Ltd

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