INSUBCONTINENT EXCLUSIVE:
Edelweiss Financial Services has a buy call on HDFC Bank with a target price of Rs 2,452.
The current market price of HDFC Bank is Rs
1,966.3.
Time period given by the brokerage is 'Long Term' when HDFC Bank price can reach the defined target
Investment hypothesis by Edelweiss:RoA is expected to improve on back of the following factors a) cost-income ratio is likely to come down
slippage which is likely to remain moderate leading to a comparatively lower credit cost.
HDFC Bank consistently witnessed healthy profit
growth even in challenging environment
back of 28 per cent growth over loans advances
We have projected net revenue and net profit to grow at 20 per cent and 26 per cent respectively over FY18-20e on back of 25 per cent
growth in loans advances HDFC Bank may look to unlock value by selling stake in its subsidiaries HDB Financial Services and HDFC Securities
HDB for FY18 reported PAT of Rs 9.5bn and Loan book of Rs 436bn, HDFC Securities reported revenue for FY18 of Rs 7.9 bn and PAT of Rs 3.4
We believe the bank may divest stake in its subsidiaries in future to unlock value for the bank and strengthen its balance-sheet At CMP,
stock is trading at 3.2x FY20 ABV with a RoA and RoE of 2.1 per cent and about18 per cent.
Risks: Higher than expected delinquencies due to
the loan mix and also vulnerable to system-wide deterioration in the quality of retail assets is the key risk.
Valuations de-rating of the
stock due to structural changes within the bank (like a change in management etc).
