Accumulate HDFC Bank - Kotak

Q1FY13: Core performance largely in line; CASA mix dipped marginally to 46%. However, NIM and asset quality remained one of the best in the industry.

- HDFC bank reported strong net interest income (22.3% YoY), mainly aided by healthy loan growth (21.5% YoY) along with 10bps improvement in NIM (both YoY & QoQ). Net profit rose 30.6% YoY on back of robust non-interest income (36.6% YoY) along with modest growth in provisions & contingencies (9.8%).

- Although CASA mix dipped marginally to 46.0% at the end of Q1FY13, largely due to subdued current account deposit mobilization, it still remains one of the best in the industry. NIM saw 10bps QoQ improvement mainly due to 360bps improvement in LDR (loan deposit ratio) on back of strong built-up in wholesale book (~15% QoQ).

- Asset quality remained stable - gross and net NPAs stand at 1.0% and 0.2%, respectively. Its provision coverage ratio is also healthy at 81% at the end of Q1FY13, which provides cushion to its future earnings with any unforeseen deterioration in its asset quality. Lower stressed assets (gross NPA: 1%, restructured book: 0.3%), further reduces the risk of any big negative surprise in the future.

- At the CMP of Rs.587, the stock is trading at 20.8x its FY13E earnings and 4.0x its FY13E ABV. In our view, HDFC bank would continue to enjoy the valuation premium vis-à-vis its peers as it fares better at majority of the operational parameters - liability franchise, asset quality and NIM. With limited upside from current level, we maintain ACCUMULATE rating on the stock with unchanged TP of Rs.590 based on 4.0x of its FY13E ABV. However, we would advice our clients to enter into the stock with any decline in the stock price.

Source : Equity Bulls

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