Accumulate HDFC Bank - Target Price Rs. 720 - Dolat Capital

- HDFC Bank has built-up its branch network at a time when the growth environment was challanging. We believe that the bank should be able to derive the benefits of the expansion when the macro environment improves interest rates trend downwards.

- It remains one of the best banks with high and stable NIM, best in industry asset quality and high CASA. The bank's retail growth focus continues with retail contributing to 53% of the total loan book.

- The bank managed to move out of the stress sectors on its wholesale book well in time to escape the asset quality pressures which other banks faced. Its corporate loans comprise mostly of working capital loans and do not see any stress in this segment.

- HDFC Bank has been amongst the few banks which maintained their NIM throughout the interest rate cycle. We believe that the bank should be able to earn stable margins which would support the secular 26% growth in net profits over the next two years.

- We expect HDFC Bank to grow its loan book at CAGR of 27% during FY13E-15E with stable NIM and asset quality. Our estimated 26% CAGR in earnings for HDFC Bank over the next 2 years is higher than most other banks. Expected ROE of 23% by FY15, is one of the highest in industry. However, current valuations at 3.4x on FY14E BVPS forecasts do not provide for major upside. We have an accumulate rating on the stock with target price of Rs. 720 based on PBR of 4x on FY14E BVPS forecasts.

Source : Equity Bulls

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