HDFC Bank Ltd climbed 2 per cent in Tuesday's trade, adding over Rs 20,000 crore to its market capitalisation, as brokerage price targets suggested up to 38 per cent upside potential on the counter. The stock rose 1.86 per cent to hit a high of Rs 1,558 on BSE. That said, the stock cut gains and was later trading 0.88 per cent higher at Rs 1,543, commanding a m-cap of Rs 11,69,874.21 crore over its Monday's close of Rs 11,59,638.76 crore. Gains were limited, as a beat on Q2 profit was offset by a lower-than-expected growth in net interest income (NII) and weakness in net interest margin (NIM). Anlaysts maintained their 'Buy' ratings on the stock even as a few cut their price targets on thge counter.
"While the sequential NIM was affected by surplus liquidity, we believe margins have bottomed out as excess cash has already been drawn down which should normalize NIM in H2FY24E. Moreover, as high cost liabilities of HDFC are replaced, NIM should enhance over FY24-26E from 3.57 per cen to 3.72 per cent. Due to higher fees/lower taxes we raise FY24E core PAT by 3 per cent, although FY25/26E earnings remain unchanged. With core RoA of 1.74 per cent and likely core PAT CAGR of 19 per cent over FY24-26E, HDFC Bank remains our preferred pick among large-caps. We maintain multiple at 2.8 times on Sep’25E core ABV and target at Rs 2,025," said Prabhudas Lilladher.
Phillip Capital said the merger with HDFC strategically fit HDFC Bank’s product basket. As the benefits accrue over a period, the intermittent period will see merger-related costs in the form of pressure on margins and cost to income ratio, it said.
"The return on equity is expected to moderate in near term owing to low leverage of the parent, however we expect RoA to sustain at 1.8-1.9 per cent level. We remain constructive from medium to long term perspective," it said.
Kotak Institutional Equities said it is building in the positive thesis that it has probably worked through the worst of the merger-related news flow and the bank should be able to grow with fewer concerns hereon. The bank has the ability to grow its balance sheet at a marginally faster-than-industry average, it said.
"Overall, we continue to maintain BUY and would keep tracking deposit traction and cost of funds to assess risks to our estimates, if any. Valuations adjusted for subsidiaries are reasonable at 2.1 times FY25 BV and we maintain BUY with an increased target of Rs 1,975 at 2.7 times H1FY26 PB," Antique Stock Broking said.
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