HDFC Bank’s September quarter net interest income (NII) beat consensus estimates; its retail deposit growth was strong and net interest margin (NIM) improvement was the first in three. Notwithstanding the merger overhang, analysts are largely positive on HDFC Bank, calling it their top banking sector pick in a rising interest rate scenario.
“Notwithstanding the merger-related regulatory overhang, we believe HDFC Bank offers the best play on India’s consumption story and is also a good defensive bet in the topical turbulent markets. The stock currently trades at reasonable valuations, at 2.3 times FY24E adjusted book value,” said Emkay Global.
This brokerage values the stock at Rs 1,800. Motilal Oswal Securities has the same price target on the scrip as it expects the scrip to perform gradually, as revenue and margin revive further while the merger-related overhang ebbs.
The private lender is seen completing the merger with HDFC by the first half of FY24.
ICICI Securities has a target of Rs 1,874 on the stock while LKP Securities sees it at Rs 1,831.
On Monday, the scrip was trading at Rs 1,435.40 on BSE, down 0.40 per cent. The above targets suggest a potential up to 31 per cent upside for the stock.
HDFC Bank on Saturday reported a 20.1 per cent YoY jump in standalone net profit at Rs 10,605.80 crore for September quarter. Its gross non-performing assets improved to 1.23 per cent from 1.28 per cent in June quarter and 1.35 per cent in the year-ago quarter.
The lender’s NII grew 18.9 per cent YoY (8 per cent QoQ) to Rs 21,021.20 crore. The sequential NII growth was supported by asset growth of 6 per cent QoQ and NIM expansion of 10 bps to 4.1 per cent.
The bank incurred a mark-to-market (MTM) loss of Rs 253.10 crore against MTM gains of Rs 675.50 crore in the year-ago quarter.
“HDFC Bank remains our top pick with its strong execution and liability franchise – more valuable when rates rise. The stock has underperformed Nifty50 by 7 per cent YTD due to merger concerns and NIM pressure. With improving profitability and a strong retail footprint, the stock would re-rate. We increase our EPS, building in higher yields. Our new target is Rs 1,825 against Rs 1,750,” said Nuvama Institutional Equities.
The bank’s domestic retail loans grew 21.4 per cent, commercial and rural banking loans climbed 31.3 per cent and corporate and other wholesale loans jumped 27 per cent. Total deposits rose 19 per cent to Rs 1,673,408 crore YoY.
