Stellar earning, strong loan book, stable asset quality make HDFC Bank a multibagger; here's what experts are saying

After jumping by nearly 2% in early hours of Monday's trading session, the largest private lender HDFC Bank share price witnessed subdued sentiments from investors post March 2019 quarter (Q4FY19) result. At around 1143 hours, the share price of HDFC Bank was trading at Rs 2291.90 per piece up by just 0.08%. However, the bank has risen by over 1.71% after clocking an intraday high of Rs 2330 per piece. The bank posted a 22.6% increase in net profit to Rs 5,885.1 crore in Q4FY19, after providing Rs 3,069.3 crore for taxation. Net Interest Income which is a difference between interest earned and interest expended, came in at Rs 13,089.5 crore higher by 22.8% compared to Rs 10,657.7 crore for the quarter ended March 31, 2018, driven by average asset growth of 19.8% and a core net interest margin for the quarter of 4.4%.

In Q4FY19, HDFC Bank's gross NPA remained stable at t 1.36% of gross advances as on March 31, 2019, as against 1.38% as on December 31, 2018 and 1.30% as on March 31, 2018. Coverage ratio as on March 31, 2019 was 71%. Net non-performing assets were at 0.4% of net advances as on March 31, 2019. Meanwhile, provisions and contingencies for the quarter were at Rs 1,889.2 crore.

Talking about HDFC Bank's Q4FY19, Nitin Aggarwal, Alpesh Mehta and Yash Agarwal Research Analysts at Motilal Oswal said, "HDFCB has been consistently gaining market share across retail product segments. The bank’s strong capitalization and liquidity levels are likely to help it sustain this growth momentum. We expect HDFCBK to deliver 22%/22% loan book/PAT CAGR over FY19-21. Margins are likely to remain stable, while strong control on operating leverage is likely to result in steady return ratios (RoA/RoE of 1.9%/17.2% in FY21E). We maintain our Buy rating with a target price of Rs2,650 (3.7x FY21E ABV for the bank)."

CASA deposits grew by 14.0% with savings account deposits at Rs 248,700 crore and current account deposits at Rs 142,498 crore. Time deposits were at  Rs 531,943 crore, an increase of 19.4% over the previous year, resulting in CASA deposits comprising 42.4% of total deposits as of March 31, 2019.

Also, total advances in the quarter were at Rs Rs 819,401 crore, an increase of 24.5% over March 31, 2018. Domestic advances grew by 24.6% over March 31, 2018. As per regulatory [Basel 2] segment classification, domestic retail loans grew by 19.0% and domestic wholesale loans grew by 31.9%. 

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Mona Khetan and D. Vijiya Rao analysts at Reliance Securities said, "The Bank’s strong lending and deposit franchise, healthy capital position and impeccable asset quality performance across cycles have been aiding stable RoAs over the years. At CMP, the stock trades at 1-year forward multiple of 3.7x. Marginally tweaking our earnings estimates for FY20E/FY21E, we maintain our BUY recommendation on the stock with an SOTP-based Target Price of Rs2,650 (based on 3.7x FY21E adjusted PBV and the value of its subsidiaries, implying a FY21 P/ABV of 3.8x)."

Analysts at JM Financial said, "Positively, the pick up in wholesale loans, which management largely attributed to short-term loans to higher-rated corporates, has not come at the expense of NIMs. Deposit growth was strong (+8% QoQ), as CASA inched up 170bps QoQ to 42%. HDFCB’s best-in class PCR is now at 71% (117% including general and floating provisions) as slippages moderated in the quarter to 2%. HDFCB remains one of our top picks in the banking sector. Maintain BUY."

For entire fiscal FY19, HDFC Bank booked a net profit of Rs 21,078.1 crore, up 20.5% over the year ended March 31, 2018. Meanwhile, core net interest margin for the year ended March 31, 2019 was 4.3%. The core cost to income ratio for the year ended March 31, 2019 was at 39.9%, as against 41.7% for the year ended March 31, 2018.

Hence, one can continue to make buyings in HDFC Bank considering post Q4FY19 result, as the bank is well placed in its segment ahead.