After strong Q3 results, will HDFC Bank stock move higher? Here’s what brokerages say

HDFC Bank, India’s largest private-sector bank by assets, announced its third-quarter earnings late last week that broadly met market expectations.

HDFC Bank reported a net profit of Rs 10,342 crore for the three months ended December 2021, up 18% from the same period last year, led by credit growth and improvement in asset quality.

Domestic and foreign brokerages have assigned their ‘buy’ or ‘overweight’ rating on the stock with a target price indicating an upside of 29-34% to the current market rate.

Shares of HDFC Bank were quoting at Rs 1,526.60 apiece on the NSE in the afternoon trade on Wednesday, down 0.17% from the previous close. The stock has touched a high of Rs 1,725 and low of Rs 1,342 in the past 52 weeks.

Haitong Securities

Darpin Shah, vice president at Chinese securities firm Haitong Securities, said the core thesis remains unchanged and the bank will continue to reap the benefits of its strong balance sheet, and deliver superior loan growth coupled with better asset quality performance.

“We expect HDFC Bank to deliver best in class return ratios over the next couple of years. Improvement in net interest margin (NIM) will be keenly watched,” said Shah. He set a revised target price of Rs 2,049 (Rs 1,992 earlier), valuing the stock at 3.7 times price-to-adjusted book value (P/ABV) at December 2023 earnings estimates.

HDFC Bank reported a 13% year-on-year growth in net interest income (NII), while NIM was stable at 4.1%. Provisions fell to Rs 2,994 crore versus Rs 3,925 crore in Q2FY22. However, operating expenses were 15% higher as the bank added new branches and new hires.

Emkay Global

Anand Dama, head of BFSI at Emkay Global Financial Services, said the stock has underperformed by its own standards as well as when comparing it with peers mainly due to the RBI’s embargo on its card/digital initiatives, Covid-induced disruption and partly due to the change in top management.

“The card embargo is now lifted, while hopes remain abound on lifting of the restrictions on digital initiatives 2.0 in the near future. With growth trends improving and asset-quality well under control and strong buffers in place to absorb any dislocation due to a fresh Covid wave, we expect the bank to report healthy return ratios,” Dama said, assigning a target price of Rs 2,050 apiece.

During the December quarter, HDFC Bank’s credit growth showed an improvement of 16.7% mainly led by commercial and rural banking (up 29%) and bounce-back in corporate book (7.5%). However, retail growth remains suboptimal at 14%.

Analysts believe a pick-up in personal loans and card business in the third quarter is positive that may lend further support to NIM. Also, the bank’s asset quality continued to improve, with the gross non-performing assets (GNPA) ratio falling nine basis points quarter-on-quarter to 1.26%, while net NPA remained industry-best at 0.4%.

Sharekhan

“The bank’s continuous building up of its digital infrastructure and franchise network is likely to bode well for growth going ahead. We believe that the bank now has sufficient drivers in terms of asset quality, reasonable provision buffers and appropriate asset mix to drive growth going forward,” said securities firm Sharekhan in a note to clients.

The brokerage firm said the stock is trading at 2.6 times its one-year forward earnings and assigns a target price of Rs 1,973 per share.

Other brokerages

Swiss investment bank Credit Suisse has a target of Rs 1,950, while Macquarie sees it at Rs 2,005. Both Motilal Oswal and ICICIDirect expect the stock to touch Rs 2,000 apiece.