LKP Securities
HDFC Bank (Buy)
Target: ₹2,058
CMP: ₹1,670.15
HDFC Bank reported a strong trend on assets quality and operating performance in 2QFY22. The absolute GNPA amount decreased 4.4 per cent sequentially, which resulted in improvement in GNPA ratio to 1.35 per cent v/s 1.47 per cent in the previous quarter. The reported GNPA is well below the historical trend of 1.4 per cent.
Moreover, the restructuring book increased to 170 bps of overall loan v/s 80 bps in the previous quarter; which is slightly disappointing, however, the contingent stands adequate. In Q2-FY22, the provisioning expenses were lower sequentially at ₹3,920 crore (v/s ₹4,700 crore Q1-FY22), which includes contingent provision build-up of ₹1,200 crore. At the same time core fee and commission income increased by 18 per cent q-o-q. Thus, the bank has reported sequential increase in PAT by 14.3 per cent and ROA/ROE of 2 per cent/16.2 per cent v/s 1.8 per cent/14.1 per cent in the previous quarter.
HDFC Bank is expected to outperform the sector led by: healthy growth in operating income; much higher provision than regulatory requirement in the balance sheet; strong capital cushion of 17.9 per cent at CET1 level; and best in class underwriting and risk management practices.
We continue to maintain Buy rating on the bank with revised target price of ₹2,058 (based on 4.2xFY23E Price to Adjusted Book Value).