HDFC Bank share price targets see revisions post Q2 results; here's what analysts say on most-valued bank

HDFC Bank Ltd is in focus on Tuesday morning after the private lender, in its first results reporting post HDFC merger, suggested a 51 per cent year-on-year (YoY) surge in net profit at Rs 15,976 crore for the September quarter on decline in provisions, beating Street estimates. Net interest margin (NIM) though declined to 3.6 per cent compared with the bank’s guidance of 3.7-3.8 per cent NIM post-merger. A few brokerages have upped share price targets for the stock while a few others cut their target prices, basing their estimates on short-term hit on financial ratios (due to HDFC merger) in the short term. Net-net, the target prices suggest up to 38 per cent upside potential for the stock.

"We are positive on HDFC Bank from a long-term perspective due to its high growth potential on account of good capital position, revenue & cost synergies arising out of HDFC merger (further aiding growth & profitability) and best-in-class asset quality. However, in the near term, successful merger transition, elevated operating costs (due to continued expansion) and margin trajectory will be the key monitorables," said Nirmal Bang Institutional Equities. The brokerage has upped its target on the stock to Rs 1,994 from Rs 1,935 earlier.

Antique Stock Broking said loan growth (gross) momentum was healthy at 5 per cent QoQ and 13 per cent YoY. It said deposit traction was strong at 5.3 per cent sequentially and 18 per cent YoY. It noted that post-merger liability momentum becomes increasingly important and needs to be watched as loan-to-deposit ratio runs high at 107 per cent and the CASA ratio (including borrowings) has now come off to 28.3 per cent. This is against a pre-merger 1QFY24 levels of 38.3 per cent.

"We upgrade our FY24 estimate by 5 per cent (not factored gains from the Credila stake sale), maintain FY25 estimates, and introduce FY26 earnings. Maintain BUY as we roll forward to 1HFY26 and revise our target price to Rs 1,975 (2.7 times 1HFY26 BV and Rs 187 for subsidiaries) against Rs 1,925 earlier," Antique Stock Broking said.

Motilal Oswal Securities said asset quality ratios took a hit due to a 22 bps impact from HDFC's non-retail portfolio but the bank maintained healthy provision coverage ratio (PCR) at 74 per cent. HDFC Bank also holds a 0.7 per cent buffer of floating and contingent provisions, which provides comfort, Motilal Oswal said

"HDFC Bank has made a good beginning and given a huge pace of capacity building, we believe that there are levers in place to sustain this momentum in business growth," it said while keeping its target unchanged at Rs 1,950 on the stock.

Jefferies has maintained its Buy rating on the stock with a target of Rs 2,030. Mogan Stanley finds the stock worth Rs 2,110. Citi has a target of Rs 2,110 on the stock. InCred Equities has a target of Rs 2,000 on the stock.

Not all brokerages were impressed though. HSBC has cut its target on the stock to Rs 1,850 from Rs 1,930. CLSA has lowered its target on the stock to Rs 2025 from Rs 1,900. On the asset front, CLSA forecast 17-18 per cent loan growth and 24-25 per cent deposit growth in FY24/25.

It believes that even if HDFC Bank is unable to garner adequate retail deposits, it would raise bulk deposits in order to meet its debt repayment obligations.

On NIM, it estimated 15 bps improvement from Q2 levels in FY25 and further 5-10 bps recovery in FY26. Credit costs are likely to remain benign at 60 bps, it said as it ends up with an 8 per cent PAT cut for FY24 and 2-3 per cent cut for FY25/26.

"Uncertainty on how soon NIM will reach the sustainable level and on consistent deposit growth will cap valuation in the short term. However, we take comfort in the bank’s strong execution, past success on achieving granular growth and retain BUY. We tweak earnings and cut target price to Rs 1,770 / 2.5 times BV FY25E from Rs 1,960/ 2.7x BV FY25E," Nuvama said.

Kotak Institutional Equities has cut its fair value on the stock to Rs 1,800 from Rs 1,850 earlier, valuing the bank at 2.5 times book for RoEs at 16-17 per cent levels.

Phillip Capital said HDFC Bank's Q2 results were below its expectation as NIM contraction was higher. NIM compression due to excess liquidity and accounting adjustment for HDFC financial is expected to continue for few quarters, it said adding that HDFC Bank may continue to focus on capacity build-up in near term in a benign credit environment and, hence, opex may remain elevated.

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