Near/Mid term target may be 1115-1130
Strong retail loan growth may help in the coming days.
CMP: 1070
Buy either on breakout above 1090 or in dips around 1040-1030:
TGT: 1115-1130 (1-3M)
TGT:1185-1280 (12-24M)
TSL<1010
Note: Consecutive closing below 1010-998 zone for any reason HDFC Bk can fall up to 975-944 & 930-915 area, where it may be again accumulated for better portfolio investment average.
Q2FY16 result of HDFC Bk was in line with street estimates and consequently the stock corrected by around 7% after that as market need "above estimate result & guidance" for a stock to rally post result !!
Q2 PAT was at around Rs.2869 cr against expectations of around Rs.2875 cr (YOY-2381 & QOQ-2696).
Q2 EPS was at 11.30 against consensus of 11.65 (YOY-9.80 & QOQ-10.6).
Q2 NII was at Rs.6681 cr against estimates of around Rs.6598 cr.
Thus 20.5% growth in Q2 PAT was aided by strong NII (up by 21.2%), other income (non interest income up by 24.7%) & operating profit (rose by 24.2%), despite higher provisions and tax expenses.
But NII margin fall by 0.01% to 4.2% on sequential basis due to transmission of lower base rates (by 0.65%) and strong increase in FD. The bank guided NII margin of 4.1-4.4% for FY-16.
Provisions for stressed assets jumped by 49.4%, on YOY basis, but declined by around 6.4% sequentially. Net NPA declined marginally by 0.25% in Q2 from 0.27% on QOQ & 0.28% on YOY basis.
Q2 Tax provisions of HDFC Bk also jumped by 22% on YOY basis.
Analysts are pointing out that the loss in NII margin was made up by above average retail loan growth of around 29% (YOY). There is silver line in the form of above 30% growth in home/personal/agricultural/2-W loans, which comprises of around 45% of its total loan portfolio.
It may be noted that, while there is consistent weakness in the overall loan growth in the Indian banking system for lack of pick up in corporate credit growth, HDFC Bank, being a leading retail lender is benefiting early with its wealthy customers and it may be a sign of nascent economic recovery in India and also consumer confidence.
Corporate loan demand may be sluggish in the next few quarters, due to very tepid economic recovery, still high real rate of interest wrt to WPI & investors are basically waiting for vicious consumers demand to pick up, while consumers are waiting for more rate cuts by banks !! Also very sluggish earnings growth and stretched balance sheets are might be some of the reason of slow industry loan growth.
Thus combination of lower NII growth margin, but higher retail loan growth may keep the previously projected incrementally higher earnings estimates for FY:16-18 nearly unchanged for HDFC Bank. Also, due to 7-th Pay Comm induced expected liquidity, demands for auto & other consumer loans may increase and it may be also good for all retail lenders including HDFC Bk.
HDFC Bk is continuing to expand its branches to around 4227 as on Q2FY16, out of which 55% are non-urban. At the same time, the Bank is cutting its numbers of ATM(s) to reduce costs and increasingly adopt cashless mode of transactions with digital banking. Analysts are expecting that incremental increase in branches might help it to garner cheap CASA (liability funding) in the days ahead and will also able to face likely competition from new partial banking entities.
The stock also corrected recently to some extent as recent FDI/FPI proposal/clarification by the Govt in Pvt. Banks failed to benefit it instantly as that quota is almost fulfilled previously (as promoter quota is also being defined as FPI/FDI in case of HDFC Bank).
Recently, HDFC Bank and traders association (CAIT) has formed a tie up for e-commerce initiatives and cash less transactions of all of its members including the corner "Kirana" (Grocery) stores. Certainly this may also help HDFC Bk to gather cheap CASA and fees income by going to masses with digital technology and attractive fees.
Looking ahead, apart from banking story, possible de-leveraging (insurance & securities/broking arm) and merger with HDFC may be some of the triggers of HDFC Bank.
Thus HDFC Bank, being one of the largest and safest private banking space in India with credible professional management and stable asset base, may be ideal for any investor portfolio.
Technically, after recent correction & consolidation, 1040-1030 might be a good point for portfolio buying.
As par BG metrics & current market parameters:
(Based on standalone TTM & FWD EPS)
Current median valuation of HDFC Bk may be around: 1040 (FY:15/TTM)
Projected fair valuations might be around: 1090-1185-1300 (FY:16-18/FWD)
| SCRIP | EPS(TTM) | BV(Act) | P/E(AVG) | Low | High | Median | 200-DEMA | 10-DEMA |
| HDFCBANK | 44.6 | 246.68 | 23 | 1029.27 | 1045.06 | 1037.16 | 1032.75 | 1064.68 |
| HDFCBANK | 49.28 | 324.25 | 23 | 1081.92 | 1098.52 | 1090.22 | 1032.75 |
| HDFCBANK | 58.25 | 426.75 | 23 | 1176.28 | 1194.32 | 1185.30 | 1032.75 |
| HDFCBANK | 69.55 | 561.55 | 23 | 1285.32 | 1305.03 | 1295.18 | 1032.75 |
Analytical Charts:
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