Shares of HDFC Bank extended their gains for the fourth straight session in Monday's trade after recording strong results in the third quarter (Q3) of current financial year 2022-23 (FY23). The stock rose 1.47 per cent today to hit a day high of Rs 1,624.40 over its previous close of Rs 1,600.85.
LKP Securities has given a 'Buy' call on HDFC Bank with a target price of Rs 1,869, suggesting a potential upside of 17 per cent from the brokerage's calculated market price of Rs 1,601. The one-year target price of Rs 1,869 is 46.96 per cent higher than the private lender's 52-week low level of Rs 1,271.75, hit on June 17 last year.
The brokerage said NII (net interest income) growth, intact credit quality and maintained growth were the key factors behind the Q3 earnings.
LKP noted that HDFC Bank's NII stood at Rs 23,000 crore; grew by 24.6 per cent YoY (year-on-year) and 9.4 per cent sequentially driven by re-pricing benefits, while NIMs (net interest margins) stood at 4.3 per cent.
It also mentioned that the private lender's upgrades and recoveries were at Rs 3,100 crore, better than the previous quarter and the absolute gross non-performing assets (GNPA) grew by 2.5 per cent, at Rs 18,700 crore, sequentially.
The brokerage further said that HDFC Bank is adequately capitalized and the lender's risk-weighted assets (RWA) to total asset stood at 67 per cent.
"HDFC Bank is expected to outperform the sector in the long run led by healthy balance sheet growth, much higher provision than regulatory requirement in the balance sheet and best in class underwriting and risk management practices. Given these strengths we expect HDFC Bank to remain one of the best among all the lending businesses. Thus, we continue to maintain 'Buy' on the bank with a target price of Rs 1,869," it stated.
LKP also said, "With respect to holdings in HDB Financial and HDFC Life insurance, the bank can hold a stake in insurance below 30 per cent or above 50 per cent. HDFC stake in HDFC life is 47.8 per cent and it will increase to 50 per cent if required or below 30 per cent as suggested by RBI. With respect to the merger timeline, HDFC Bank seems to be a quarter or few months ahead of the stipulated time."
The private sector lender reported an 18.5 per cent increase in its standalone net profit at Rs 12,259.5 crore for Q3 that ended December 2022 against a net profit of Rs 10,342.2 crore in the corresponding quarter of the previous financial year.
Total income on a standalone basis rose to Rs 51,207.61 crore in the October-December quarter of FY23, against Rs 40,651.60 crore in the same period a year ago, the private lender stated in an exchange filing.
The counter was last seen trading higher than 5-day, 50-, 100- and 200-day moving averages but lower than 20-day moving averages. HDFC Bank has an average target price of Rs 1,833.41, Trendlyne data showed, suggesting a potential upside of 13.90 per cent. It has a one-year beta of 1.09, indicating high volatility on the counter.
The lender's 14-day relative strength index (RSI) came at 52.56. A level below 30 is defined as oversold while a value above 70 is considered overbought. The company's stock has a price-to-equity (P/E) ratio of 22.18.
Meanwhile, Indian equity benchmarks rose in early deals, led by gains in technology and state-owned lenders' stocks.
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