Analyst Corner: Maintain ‘buy’ on HDFC Bank with SOTP-based TP of Rs 1,620

We hosted MR. S Vaidyanathan (CFO) & Mrs Ashima Bhat(Group Head, Finance & Strategy & CSR) at India ESG Summit. Mgt. highlighted that bank has focussed on imbibing ESG/ CSR initiatives into business strategy & focus is on scalable& measurable initiatives. Lending now has greater preference for responsible-lending, deep-presence in non-urban areas helps to extend social-initiatives & diversity/parity of employees with independent boards are key areas of focus.

ESG embedded in bank’s overall strategy. Management highlighted that at HDFCB, ESG initiatives are driven right from the top and get embedded in business strategies. These draw heavily from deep penetration in non-urban areas (as >50% of bank’s +5,000 branches are in semi-urban and rural India) and management estimates that bank has touched c.78mn lives through combination of lending, financial literacy and other social initiatives.

Focusing on ‘Responsible Financing’ to support the environment. Management highlighted that bank has been taking the approach of responsible-financing & has limited funding to projects with negative ozone impact; loans above ticket size & tenure are scrutinised under Social and Environment Management System. Bank also runs internal campaigns to reduce environmental impact from operations – e.g. reduction of single-use plastics, paper etc, waste management, energy/emission reduction drives etc. While its emission levels are low (given it’s a finance company), it still targets to reduce its emission levels/energy intensity by 3-10% by 2022.

Social change with scale. Management highlighted that its CSR initiatives aim at empowering socio-economically challenged groups across the country. Maintain Buy. We see healthy growth in earnings for the bank -we raise earnings a bit- and maintain our Buy rating with a SOTP-based price target of Rs 1,620 / share (Rs 1,450 previously) including value of bank at 3.8x Sep-22 adjusted PB; price target for ADR is at US$78.