RESULTS UPDATE:
HDFC Bank (SELL): In-line results, stock fairly valued
HDFC Bank's 2QFY17 PAT at Rs34.6bn was up 20% YoY, in line with our and consensus expectations. While loan growth (18% vs average 25% YoY growth in last five quarters) momentum slowed a bit in corporate and select retail segments, treasury income, control on opex and stable asset quality, supported growth. NIM was largely stable (down 10bps QoQ), but fee income (up 10% YoY) stayed subdued due to competition in retail segment. Asset quality was stable with total stressed assets at 1.1% of overall book. We expect loan growth for banking system to remain muted (11-12%) during FY17-18, leading to elevated competitive intensity in pricing of loans. Growth faster than current run-rate would come at expense of NIMs and cost pressures. We expect both standalone earnings and EPS CAGR of 20% over FY17-18E and average RoEs of 19.2% over FY17-18E. Current multiples of 21x FY17E P/E and 3.8x FY17E P/B, ~35% premium over peers, largely capture superior earnings in medium term. Remain SELLers. (Pankaj Agarwal, CFA, +91 22 3043 3206)
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