We downgrade our recommendation on HDFC Bank, Ltd. – ADS (HDB) to Underperform from Neutral based on the looming threat of higher cost of funds and ebbing loan demand.
Higher operating expenses along with puffy provisions and contingencies were the downside in its latest earnings report. Increasing competition in the retail space with the re-entry of peers is a future concern. Also, slowing loan demand is expected to keep bottom line under pressure.
Our six-month target price of $141.00 per ADS equates to about 29.8x our earnings estimate for fiscal 2011. This target price implies an expected negative total return of 9.0% over that period. This is consistent with our long-term Underperform recommendation.
HDFC BANK LTD (HDB): Free Stock Analysis Report
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