Given that weakness in deposit mobilisation and elevated opex due to higher branch roll-outs, Nomura has downgraded its rating to Neutral from Buy and reduced the target price to Rs 1800. While the brokerage fully appreciates the strength of the franchise, they are uncertain about upside potential over next 12 months on the back of RoA and loan growth pressures. They continue to prefer other banking counters like Axis Bank and ICICI Bank in their top banking bets.
JM Finance: They have recommended a Buy rating with target price of Rs 1850. Given the large excess liquidity build-up in the run up to the merger, the income NIM of HDFC stood at 2% (vs 2.7% for 1QFY24) and this JMFL believes could drag down the merged entity’s margins by 25-30 bps in the near-term and will recover gradually over the next 2-3 quarters. Additionally, merged entity on an opening basis will see 20bps increase in GNPL given that HDFC’s wholesale portfolio has seen asset quality deterioration. Provisioning alignment also entails the bank raising PCR on GNPLs from 42% to 74% on GNPLs which has been adjusted through the opening networth of the merged entity.They value the bank at 2.5x FY25e P/BV.
Prabhudas Lilladher: The brokerage bullish on HDFC Bank and sees upside potential of 29%. It recommends Buy with a target price of Rs 2025.Gaurav Jani – Research Analyst, Prabhudas Lilladher added that,”We expect loan CAGR of 16% over FY24-26E which would translate to garnering (18-21%) market share in incremental system deposits, which may not be challenging.” The expected net interest margin for Q2 FY24 can dip sharply by 40 basis points QoQ to 3.6%. However, as loan growth picks up and liquidity is utilised, NIM will normalise to 3.88% by Q4 FY24E.FY24 performance would be muted, given the sharp fall in NIM. As the high-cost liabilities of HDFCL are replaced over FY24–26E, NIM would improve from 3.60% to 3.76%,” highlighted the report.
Incred: This brokerage retained the Add rating with target price of Rs 2000 per share. Slower-than-expected growth and a weak profitability trend post-HDFC merger are the key downside risks as per them. They are concerned about the probable margin compression and volatility in the asset quality profile of HDFC Bank in the near-term. However, the healthy provision coverage provides some relief. They believe HDFC Bank has enormous growth opportunity post-merger of HDFC amid the bank’s competitive edge in mortgage financing business as well as a probable cross-selling opportunity to existing HDFC customers.
HDFC stock performance
The HDFC Bank market cap stands at Rs 1,178,787.15 crore, the P/E ratio is 24.17, and the dividend yield is 1.22%. The share price of HDFC Bank fell 6.7% in the last one week, 2% in the last one month, and 1.6% in the last six months, while it surged 4.3% in the last one year. The stock hit a 52-week high of Rs 1,757.50 on July 2, 2023, while it slipped to a 52-week low of Rs 1,365 on September 30, 2022.