Buy HDFC Bank - Motilal Oswal

• Mkt Cap USD19.7b
• CMP Rs2,045
• Buy

HDFC Bank's 1QFY11 PAT grew 34% YoY to Rs8.1b, driven by strong loan growth and improvement across operating parameters. Highlights

- The bank posted strong loan growth of ~40% YoY and ~16% QoQ, driven by one-off opportunities in the wholesale business. Retails loans grew ~5% QoQ. Core loan growth was ~9% QoQ (excluding one-off short-term loans).

- NIM decline of just 10bp QoQ, despite the impact of savings deposit re-pricing on an average daily basis (18bp), higher share of priority sector loans and full impact of CRR, is impressive.

- CASA deposits grew strongly at 37% YoY and 3% QoQ. Core CASA ratio stood at 49% v/s 45% a year ago and 50% a quarter ago.

- Asset quality remains one of the best in the industry, with provision coverage ratio at 77% (v/s 78% a quarter ago). Gross NPAs stood at 1.21% (v/s 1.43% in FY10) while net NPAs stood at 0.3%. Restructured assets stood at 0.2% of the loan book.

Valuation and view: Our comfort on HDFC Bank's core operating parameters remains one of the highest in the industry, given (1) expectation of strong loan CAGR of 25%+ over FY10-12, (2) NIM of 4.2%+, (3) improving fee income growth, and (4) realization of operating efficiency from CBoP branches. We have upgraded our estimates by ~2% for FY11/12. We expect EPS CAGR of 32% over FY10-12 v/s 25% EPS CAGR over FY08-10. The stock trades at 18.3x FY12E EPS of Rs112 and 3.3x FY12E BV of Rs627. Buy.

Source : Equity Bulls

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