Housing Development Finance Corporation Ltd's 20 per cent jump in March quarter profit was in line with Steet expectations, but a 16 per cent rise in net interest income (NII) beat Street estimates. Target prices for HDFC largely suggest up to 16 per cent potential upside on the counter. All eyes are on HDFC's merger with with HDFC Bank, analysts said.
"Merger narrative will drive stock price. Historically, entities that are merged have traded at a discount to the merger ratio. We believe risk reward for HDFC is evenly balanced," said Nuvama Institutional Equities. This brokerage has upped its price target on the counter to Rs 2,820 from Rs 2,700 earlier. Nomura India has a target of Rs 3,100 on the stock. Nirmal Bang Institutional Equities finds the stock worth Rs 3,313.
Motilal Oswal Securities, which has target of Rs 3,290 on the stock, said the merger was on track and that the effective date is likely to be around July. It noted that warrant holders of HDFC, who were earlier eligible to receive HDFC shares -- if they exercised the warrants -- will now receive HDFC Bank shares in the same proportion as was announced at the time of the merger.
"In the context of the merger, HDFC has represented to all the respective regulators for grand-fathering of assets and liabilities and logically expects the regulators to grant this. The decrease in non-individual loans can be attributed to payment of earlier facilities, resolutions, and a reduction in certain exposures, resulting from the merger," it said.
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Kotak Institutional Equities said HDFC’s earnings outperformance was largely driven by better margins. Unlike peers, the impact of borrowing cost increase was front-ended for HDFC, it said.
"On the other hand, retail disbursements, strong until 2QFY23, reported weakness for the second consecutive quarter. We tweak estimates, retain BUY rating with FV of Rs3,230 —pegged with HDFC Bank," it said.
HDFC had on Thursday reported a 19.59 per cent year-on-year (YoY) rise in standalone net profit at Rs 4,425.50 crore for the March quarter compared with Rs 3,700.32 crore in the same quarter last year. Net interest income (NII) for the quarter jumped 16 per cent to Rs 5,321 crore compared wit Rs 4,601 crore in the same quarter last year. Net interest margin (NIM) for the quarter came in at 3.6 per cent.
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