HDFC Bank

HDFC Bank:

HDFC Bank's stock enjoys the highest premium among the large-cap banks. The reasons are obvious. It has consistently maintained a high growth rate without compromising on asset quality.

Advances have grown by 39 % annually in the past three years. In spite of high growth, its asset quality is still one of the best in the industry, at net NPA around 0.3 % of net advances. The provisioning coverage is also high.

Even though its provisioning policy is conservative (making larger provisions), the growth in profit is high and in the previous 42 quarters, it has maintained around 30 % annual growth in net profits. Because of high CASA deposit (around 50 % of the total deposits), the net interest margin of the bank is high and has helped it report high growth in net profit.

At a price-to-book value of four and PE of 29, the valuation may not rise, but growth in earnings would support the price rise.

Why Buy:

Consistently high growth, lower net NPA percentage compared to its peers, higher provisioning of NPA, large CASA base, high NIM.