HDFC Bank, Reliance Industries annual report highlights, share price targets & more

HDFC Bank Ltd and Reliance Industries Ltd (RIL) recently released their FY24 annual reports, where the former emphasized the institution's commitment to achieving sustainable growth over the medium term, as the private lender continues to invest in strengthening both its physical infrastructure and digital prowess. On the other hand, the RIL annual report suggested no let-up in capex intensity, despite expectation of some moderation. New energy would be the focus of RIL's investments over the next few years, analysts suggested post the RIL annual report.

HDFC Bank annual report
In the case of HDFC Bank, while the near-term growth is likely to remain soft due to constraints on the CD ratio, the increased threshold on loan pricing, which enables improved asset mix and gradual retirement of high-cost borrowings, will nevertheless fuel margin recovery, MOFSL noted while commenting on HDFC Bank's annual report.

MOFSL said HDFC Bank has posted a healthy traction in retail & commercial and rural banking portfolio, with the mix of these two segments improving 300 bps over the past one year to 81 per cent. This has helped address the Priority Sectors Lending (PSL) shortfall and the bank became a net seller of PSLCs during FY24 after reporting consistent shortfalls in prior years, it said.

HDFC Bank has effectively reduced its borrowings by Rs 60,000 crore over the past two quarters, including significant repayments of commercial papers. Asset quality has remained stable post-merger, MOFSL said.

The brokerage expects HDFC Bank to deliver an FY26E return on asset (RoA) of 1.86 per cent and return on equity (RoE) of 14.9 per cent. "While slower loan growth than peers may remain an overhang on the near-term stock performance, we believe that HDFC Bank is structurally well poised to deliver steady growth and profitability in the medium to long term. We reiterate our Buy rating on the stock with a target price of Rs 1,850 (premised on 2.3 times FY26E ABV and Rs 256 for subsidiaries)," MOFSL said.

Reliance Industries annual report
RIL's annual report suggested that net debt, including spectrum and other deferred payment liabilities, remained flattish in FY24, despite a material Rs 1.65 lakh crore in operating cash flow in the year, ICICI Securities said.

Led by a sharp uptick in capital employed, which keeps running well ahead of earnings growth, RoCE has remained at moderate levels over the last 4–5 years, ICICI Securities said.  RIL has seen the sharpest contraction in the retail segment over FY20–24 while there has been a sharp jump in the returns from the upstream oil & gas segment, it added. 

"Due to largely a sharp uptick in inventory levels over FY24, net working capital (NWC) has seen a steady uptick over the last four years. We believe larger scale of operations at retail would have driven a greater inventory build-up," ICICI Securities said.

The brokerage said that despite a near 26.2 per cent CAGR in operating earnings over FY21–24, FCF earned during this period has remained muted – aggregate FCF earned during FY21–24 is negative Rs 22,100 crore, with small positive FCF earned in FY22 and FY24, offset by a sharply negative FCF of Rs 1 lakh crore seen cumulatively in FY21 and FY23.

"Net working capital (excluding cash) increased by Rs 11,900 crore (over FY22-24), driven by a sharp uptick in inventories. FCF generation remains elusive, despite sharply higher profitability – FCF yield of 0.2 per cent versus an average negative yield of 1.1 per cent over FY21-23. We introduce FY27E EPS of Rs 139.20 with this note, a rollover to FY27E multiples and some reduction in net debt drives a revision in target price to Rs 2,970 (from Rs 2,954). Reiterate HOLD," the brokerage said.

ICICI Securities said the domestic broking firm still sees RIL’s consolidated EPS CAGR at a material 14.2 per cent over FY25–27 at its revised estimates, with a lower 11.5 per cent CAGR in Ebitda. Stronger OTC margin, lower capex, stronger ARPU growth in RJio, and faster-than-estimated execution on green energy plans, it said.