HDFC Bank share price targets: What analysts say on merged entity

HDFC Bank reported better-than-expected results for the June quarter on most fronts- be it net interest income, pre-provision operating profit or profit after tax, thanks to lower provisions. Analysts largely maintained their 'Buy' rating on the stock but said a successful merger transition, elevated costs and the margin trajectory would be keenly watched in the near-term.

The merged HDFC Bank's balance sheet still has a few variables that are hard to forecast, which implies that near-term earnings forecast is still not robust enough, said Kotak Institutional Equities. The choices that the bank has to manage this transition is quite high, it said.

"Although we would like to see the full normalization of the liability side transition back to where it was pre-merger, the size of this transition and the incremental growth that the bank is pursuing could result in a slow transition. It is perhaps more pertinent to look at the cost of funds and growth choices than focusing only on retail deposits. The wedge between deposit and loan growth is persistently high for the industry and this would eventually force all banks to focus on deposits a lot more," Kotak said.

This brokerage has maintained 'BUY' in the stock, with fair value at Rs 1,925 , which is 2.6 times book for RoEs at 16-17 per cent levels.

Prabhudas Lilladher said the HDFC-HDFC Bank merger strategically fit HDFC Bank’s product basket. As the benefits accrue over a period, the intermittent period will see merger-related costs in the form of pressure on margins and cost to income ratio, it said adding that the return on equity is expected to moderate in the near term, owing to low leverage of the parent.

"However, we expect RoA to sustain at 1.9 per cent level. We remain constructive from medium to long term perspective. At CMP, the core book trades at

2.5x/2.2x FY24e/25e ABVPS of Rs 607/693, thus valuing the subsidiary at Rs 156 per share. We maintain 'Buy' with a target of Rs 1,950 which is 2.6 times FY25 book value," it said.

Motilal Oswal Securities said HDFC Bank's quarterly results were steady with healthy growth in NII and PAT, driven by lower provisions, even as margins remained stable. Loan growth was driven by sustained momentum in commercial and rural banking and a pick-up in the retail segment, it said adding that asset quality ratios remained stable and while the restructured book moderated to 27 bps of loans.

"Healthy PCR and a contingent provisioning buffer should support asset quality. We introduce forecasts for the merged entity and estimate net earnings of Rs 65,400 crore/ Rs 79,800 crore/Rs 95,700 crore over FY24-26, translating into an RoA of 1.9-2.1 per cent. We thus estimate RoE for the merged entity to revert to pre-merger levels of 17 per cent-plus by FY26. We reiterate our BUY rating with a target of Rs 2,070," the brokerage said.

YES Securities said the unmerged bank grew relatively slower while the merged entity more so. This brokerage has maintain "less-than-bullish ADD" on the stock with a target of Rs 1,950. 

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