HDFC Bank Ltd - Research Report


Private Client Research




Bank - Private


HDFC Bank Ltd

Reco Price
Rs. 1141.50
Price Target (1 Year)
Rs. 1370.00


May 09, 2016
CNX Nifty




Strong asset quality and disciplined approach will drive the future growth.

Strong Story:
HDFC Bank will continue to generate high returns on equity, and is favorably positioned to leverage India's strong long-term economic growth prospects. The bank is able to maintain strong loan growth, averaging at about 31% annually for the past 10 years, underpinned by an expansion of its deposit base at nearly the same pace (29%). The latter allows the bank to maintain low-cost funding and uphold its profitability. As such, net interest margin averaged 4.7% over the past decade, much higher than any of its peers. Liquidity remains strong, with the bank's loan/deposit ratio at 85% as of fiscal 2016.

Reduction in Cost:
HDFC Bank maintains strong cost-control practices, with its cost/income ratio declining steadily over the past five years. The bank's scale advantage is kicking in, as it reaps benefits from investing in branches in both urban and rural areas. A digital strategy will complement the firm's targeted expansion of 200-300 branches annually. The management noted that 30% of the personal loans in fiscal 2016 originated through the online channels, with other products tracking around 20%. We anticipate that the bank's cost/income ratio will further decline as additional products are directed towards the digital channel and its branches are becoming more efficient, with a focus on cross-selling additional financial products.

Best-in-class asset quality:
Thanks to the rigorous credit parameters, the asset quality stood best-in-class and improved further with gross and net NPA ratios at 0.94% and 0.28% respectively in Q4FY2016. However, in absolute terms, gross NPA and net NPAs stood higher and surged by 28% & 47% Y-o-Y respectively; slippages for the quarter stood at Rs 170 Crores which were 1.5% as against 1.7% in Q3FY16. While agri and business banking segments did witness spikes in slippages in Q3FY16, the quarter observed pull back. The Punjab Government exposure stands at Rs 2000 Crores; also the bank utilized floating provisions to the tune of Rs 300 Crores. Restructured book has stood at just 0.1% and have remained stable past six quarters in a row. Going forward, by FY18E, the credit costs are expected to stand higher in the range of 0.6% and gross NPAs and net NPAs at 1.0% and 0.3% respectively.

Strong loan growth – both Retail assets and wholesale contributing:
Loans and advances grew at a robust 27%. As per the bank’s internal classification, the proportion of retail loans (including business banking) is 62% which grew by 28% Y-o-Y, while wholesale grew by 25% Y-o-Y, mainly on account working capital and medium term loans in Q42016. Retail loan growth was facilitated mainly due to housing loans (+32% Y-o-Y), personal loans (+45% Y-o-Y), vehicle loans (+23% Y-o-Y), credit cards (+27% Y-o-Y) and business banking (+22% Y-o-Y). Within vehicle loans, auto and 2-wheeler loans were up 23% and 26%, while the CV/CE portfolio growth picked up to 24% vs. 19% in the sequential quarter. Home loan segment too has been exceptionally strong in last three quarters. The management indicated that they are retaining a higher proportion of loans on their books. This is driven by HDFC Bank buying back a higher proportion of the housing loans it originates (70% as compared to 50% earlier) from HDFC. Management had earlier indicated that the effect of this will be seen in the form of a higher base throughout FY16, and growth rates should normalize by September 2016 to reflect the growth rate of origination (seen in FY14).

Value Creation:
We believe that there is still a considerable scope for long-term expansion and shareholder value creation, as the bank benefits from rising incomes across India's middle and upper classes, which have been its target customer segments for a long time now. The bank’s focus on salaried individuals with steadily rising incomes, and on giving loans mainly to existing clients within this segment, has allowed HDFC Bank to control its nonperforming loans at about 0.6% of the total lot for the past five years; and we see this as commendable.

Stock Data

CMP (Rs)
Face value (Rs)
52 Week Range (Rs)
1136.70 - 928.00
Market cap (Rs Crores)
Price To Book Value (x)
P/E Ratio (x)

One Year indexed Stock Performance

HDFC Bank LtdSensex
HDFC Bank Ltd
Return (%)


(in %)

+91 22 6639 3000



Indian banking industry is expected to witness the roll out of innovative banking models like payments and small finance banks. 11 payment banks are expected to be launched in 2016 and 2017 apart from about 10 small finance banks. RBI’s new measures may go a long way in helping the restructuring of the domestic banking industry. The Indian banking system consists of 26 public sector banks, 25 private sector banks, 43 foreign banks, 56 regional rural banks, 1,589 urban cooperative banks and 93,550 rural cooperative banks, in addition to cooperative credit institutions. Public-sector banks control nearly 80 percent of the market, thereby leaving a comparatively smaller share for its private peers. Standard & Poor’s estimates that credit growth in India’s banking sector would improve to 12-13% in FY16 from less than 10% in the second half of CY14.


With close to Rs 8 trillion in assets and more than 4500 branches, HDFC Bank is one of India's largest non-government-owned banks. The bank's retail and wholesale segments service India's middle- and upper-income individuals and businesses. More than 60% of the bank's loans are to retail clients, within which working capital loans and vehicle financing are the most prominent (accounting for 73% of the retail book), followed by personal loans (16%) and housing loans (11%). With close to INR 8 trillion in assets and more than 4,500 branches, HDFC Bank is one of India's largest non-government-owned banks. The bank's retail and wholesale segments service India's middle- and upper-income individuals and businesses. More than 60% of the bank's loans are to retail clients, within which working capital loans and vehicle financing are the most prominent (accounting for 73% of the retail book), followed by personal loans (16%) and housing loans (11%).

Profit & Loss Statement:- (Consolidated)
(Rs Crores)
  • Interest Earned
  • Other IncomeM
  • Total Income
  • Growth (%)
  • Interest Expended
  • Operating Expenses
  • Total Expenditure
  • Operating Profit before Prov.& Cont.
  • Margin (%)
  • Provisions and Contingencies
  • PBT
  • Tax
  • Profit After Tax
  • Adj Calculated EPS
  • 42555.02
  • 8297.50
  • 50852.52
  • -
  • 23445.45
  • 12469.65
  • 12469.65
  • 14937.42
  • 29.37
  • 1726.75
  • 13210.67
  • 4446.16
  • 8764.51
  • 36.45
  • 50666.49
  • 9545.69
  • 60212.18
  • 18.41
  • 27288.46
  • 14577.52
  • 14577.52
  • 18346.20
  • 30.47
  • 2266.75
  • 16079.45
  • 5379.40
  • 10700.05
  • 42.64
  • 63161.57
  • 11211.65
  • 74373.22
  • 23.52
  • 34069.57
  • 17831.89
  • 17831.89
  • 22471.76
  • 30.21
  • 2960.77
  • 19510.99
  • 6693.66
  • 12817.33
  • 50.63
  • 76775.00
  • 14880.00
  • 91655.00
  • 23.24
  • 42685.00
  • 22050.00
  • 64735.00
  • 26920.00
  • 29.37
  • 3550.00
  • 23370.00
  • 8017.58
  • 15352.42
  • 60.64
  • 95504.00
  • 17250.00
  • 112754.00
  • 23.02
  • 54050.00
  • 27050.50
  • 81100.50
  • 31653.50
  • 28.07
  • 4152.00
  • 27501.50
  • 9434.97
  • 18066.53
  • 71.36
Source: Stockaxis Research, Company Data


HDFC Bank continues to grow well in and expanding its market share while managing credit costs efficiently. Defying macro challenges, HDFC Bank continues to maintain business momentum and earnings traction each quarter; thereby improving asset quality was added advantage in Q4FY2016.

As per our estimates the Adjusted book value for FY2018E comes to Rs 392/Share. Hence, we assign a target price of Rs 1370 trading at P/ABV FY2018E of 3.49x indicating fair valuation, considering its strong asset quality and improved market share.



Opulent Investment Adviser Private Limited is registered as an Investment Adviser with SEBI bearing registration Number INA000002462 as per Securities and Exchange Board of India (Investment Advisers) Regulations, 2013. Opulent Investment Adviser Private Limited offer investment advisory services to clients as well as prospects.

The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.

Other disclosures by Opulent Investment Adviser Private Limited and its Research Analyst with reference to the subject company(s) covered in this report-:

Opulent Investment Adviser Private Limited does have any financial interest in the subject company: (NO)

Research Analyst or his/her relative’s have financial interest in the subject company: (NO)

Opulent Investment Adviser Private Limited and Research Analyst or his/her relative’s does have any material conflict of interest in the subject company: (NO)

Research Analyst or his/her relatives have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research Report: (NO)

The research Analyst has served as officer, director or employee of the subject company: (NO)

Our salespeople and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein.

This report is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person.

This report is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It is for the general information of the users of / Opulent Investment Adviser Private Limited.

While reasonable care has been taken in the preparation of this report, it does not purport to be a complete description of the securities, markets or developments referred to herein, and we do not warrant its accuracy or completeness.

Opulent Investment Adviser Private Limited, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report.