Shares of HDFC Bank Ltd have delivered negative returns in the last three years. The banking heavyweight is down over 6% against a 43.40% rally in Sensex during the period. On similar lines, Nifty Bank surged 31.41% in three years. The underperformance in the HDFC Bank stock has reversed partially with the large cap stock gaining 4.31% in the last one week. The recovery in the stock came after the banking scrip hit its 52-week low of Rs 1,363.45 on February 14, 2024.
Valuation
HDFC Bank shares have a price to book (P/B) ratio of 2.51, which is low in the industry. It closest peer ICICI Bank has a P/B ratio of 3.52. Axis Bank and IndusInd Bank have a P/B ratio of 2.15 and 2.57, respectively. Another lender Kotak Mahindra Bank has a P/B ratio of 3.11.
HDFC Bank has a low PEG ratio of 0.5. A stock having PEG less than 1 is considered undervalued and with PEG ratio above 1 is regarded as an overvalued one.
The lender has a health capital adequacy ratio (CAR) of 19.26. banks are required to maintain a minimum CAR of 12%. Other lenders such as ICICI Bank, Axis Bank, IndusInd Bank and Kotak Mahindra Bank have CAR of 18.34%, 17.64%, 17.86% and 21.80%, respectively.
Stock price movement
HDFC Bank stock is down 12% in a year and fallen 15.11% in 2024. In the current session, HDFC Bank shares were trading flat at Rs 1441.30 against the previous close of Rs 1453.75 on BSE. Market cap of HDFC Bank fell to Rs 10.94 lakh crore.
Total 2.67 lakh shares of the firm changed hands amounting to a turnover of Rs 38.71 crore on BSE. HDFC Bank stock has a one-year beta of 0.6. This signals the stock has low volatility.
The large cap stock is trading higher than the 5 day, 10 day, 20 day but lower than the 30 day, 50 day, 100 day, 150 day and 200 day moving averages.
The banking stock is trading neither in the oversold nor in the overbought territory as the relative strength index (RSI) of HDFC Bank stands at 47.
Stock Recommendations
Global brokerage CLSA interacted with over 20 clients after the lender’s Q3 earnings. It has reiterated buy rating on the banking counter with a target of Rs 2,025 per share. "While most domestic clients were unhappy, we felt that it was slightly different for foreign investors, many of whom believe that we are near the end of the EPS cuts cycle. Key concerns, though, were about deposits and NIM, or net interest margins.”
Jignesh Shial, Director - Research; Head of BFSI Sector at InCred Capital said, "During 3QFY24 earnings, HDFC Bank has reported weak deposit growth of 1.9% qoq as the bank has avoided wholesale deposits during the quarter whereas advance growth remained healthy at ~4.9% qoq. This has resulted in steep decline in Liquidity Coverage ratio to ~110% whereas Loan to Deposit rose to ~112%. Now market believes that HDFC Bank is struggling for liquidity and will raise wholesale deposits at expensive rate which will impact margins else will start growing at slower pace. This has impacted the stock price post results and stock is down since then."
Brokerage KR Choksey has a price target of Rs 1,950 on the banking stock.
"We value the bank's standalone business at 2.2 times FY26E P/ABV to Rs 1,716 and the subsidiaries at Rs 233, taking the total value to Rs 1,950 (earlier Rs 2,060 per share), implying an upside of 26.8% from the current price. Accordingly, we maintain a "BUY" rating on the shares of HDFC Bank," it said.
Vijay Gour, Analyst-BFSI, Choice Broking said, "We have a positive outlook for HDFC Bank over one to two years. The fall in share price was on account of slow deposit rates and higher loan to deposit ratio (LDR at 110%). Currently, the cost of deposits is high, thus management was not comfortable with raising bulk deposits. In our view, the bank has to raise deposits as it has high LDR which would put pressure on margins in the short term. We see limited downside from here as management would plan appropriately to raise deposits, generates stable return ratios in FY26E and also planning to come up with IPO for HDB Financial Services (subsidiary). The bank has time till September 2025 for IPO.
Nuvama Institutional Equities downgraded the stock to ‘hold’ after Q3 earnings were announced. The brokerage also trimmed its earnings estimates for the lender.
"We are cutting earnings estimates by 5–6 per cent for FY25E–FY26E. While the cut in core earnings is higher at 8 per cent due to a 4 per cent cut in loan growth, it is partially offset by an upward revision of non-core items. The Bank has exhausted its LCR, will need to lower its LDR and is running slower than guidance on deposit growth. In all, we are lowering the target to Rs 1,730 from Rs 1,770," said the brokerage.
Financial Services firm Motilal Oswal has assigned a target of Rs 1950 to the Banking stock.
The brokerage said HDFC Bank’s margin stood largely flat, which was slightly below its expectations, even as the Bank deployed excess liquidity and significantly drew down the LCR ratio.
"Loan growth was healthy driven by growth in retail and continued traction in Commercial and Rural Banking. Asset quality ratios improved while provision coverage ratio (PCR) also inched up to 75 per cent. The Bank has continued to maintain 0.6 per cent buffer of floating plus contingent provisions, which provides additional comfort. Management suggested that NIMs will improve gradually over the coming years, which along with an improvement in operating leverage will enable the Bank to deliver healthy return ratios," the brokerage added.
Q3 Earnings
HDFC Bank logged a 34 per cent rise in its standalone net profit to Rs 16,373 crore in Q3 against Rs 12,259 crore in the corresponding quarter of the previous fiscal. Total income climbed to Rs 81,720 crore in the October-December quarter of FY24 against Rs 51,208 crore in the year-ago period.
Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
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