HDFC Bank analyst meet: What management says on HDFC merger; share price targets & more

At its Analyst Day meet, the HDFC Bank management highlighted to analysts how the private lender was getting future-ready by focusing on strengthening its digital capabilities and sustainable growth after the planned HDFC merger while maintaining return on asset (RoA) at the current level. Post its meet, a couple of brokerages suggested price targets of Rs 1,925-1,960 on the stock, up to 21 per cent potential upside for the stock.

HDFC Bank, Nuvama Institutional Equities, said reiterated its core strategy of digitisation, distribution and strong risk control.

"Despite the high base, the bank remains confident of gaining market share in deposits and loans driven by mortgages, personal loans and MSME. The bank believes that it will be able to sustain RoA of 2 per cent even in FY24 (merger year) but merged RoE will take three–four years to revive to standalone levels. Cost-to-income ratio will improve to below 30 per cent in 8–10 years from 40s now on higher revenue," Nuvama noted.

This brokerage has reiterated its ‘Buy’ on HDFC Bank arguing that its strong deposit franchise should become more valuable in FY24 when balance sheet growth rather than margins will be a key driver. It believes the merger will make the franchise more formidable. It finds the stock worth Rs 1,960.

Motilal Oswal Securities, which also attended the analyst meet suggested a similar price target of Rs 1,950 on the stock.

Watch: LIC shares jump post Q4 results; analysts bullish, say accumulate. Check target price, stop loss and more

"HDFC Bank suggested that the merger process is on track and is expected to be completed in about five weeks. The bank is positioning itself to capitalise on new growth opportunities in mortgage assets, higher cross-selling as customer stickiness improves, and faster growth in liabilities. Investments in branches and digital infrastructure will further support growth over the long term," it said.

The bank noted tha demand remains strong in the secured retail segment, and that there are 40-50 crore people yet to be tapped by the banking system. While competition has been high, HDFC Bank said it has been able to maintain pricing discipline.

HDFC Bank expects to double the commercial and rural banking (CRB) portfolio over the next three years, supported by robust distribution and increasing branch presence. The bank is already at the number one position and is looking at 3 times business potential over the next five years, Motilal Oswal said.

Kotak Institutional Equities noted that the HDFC Bank management was optimistic about growth opportunities across all business segments and willing to invest in the franchise for the long term.

Kotak said the bank was confident that the HDFC merger would have a negligible impact on return ratios. Deposit mobilisation remains one key area that is likely to be monitored closely, Kotak said adding that one needs more than a few quarters to establish a trend.

"We maintain BUY with a fair value of Rs 1,925 (unchanged), valuing the bank at 2.7 times book for RoEs at 16-17 per cent levels," it said.

Also Watch: ITC shares hit fresh record high; rally for 6th straight day; should you buy? See what analysts say

Also read: Tata Motors shares get 'Sell' call; UBS says negatives overlooked, cites 3 risks for stock

Also read; ZEE shares in focus ahead of Q4 results; profit may shrink up to 90% YoY, sales 12-16%. Here's why