Brokerages bullish on HDFC Bank post steady Q1 earnings

At least five foreign brokerages, Citi, JPMorgan, HSBC, Jefferies and Morgan Stanley have either a ‘buy’ or ‘overweight’ call on HDFC Bank with a target price that sits upwards of Rs 2,000.

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Brokerage houses rolled out a positive growth outlook for HDFC Bank after the lender posted a steady set of earnings for the April-June quarter on July 17.

Shares of HDFC Bank also reacted positively to the upbeat growth outlook and at 09.18 am were trading at Rs 1,697.55 on the National Stock Exchange, up 1.1 percent from the previous close.

The lender posted a net profit of Rs 11,951 crore for the April-June quarter, reflecting a near 30 percent jump from Rs 9,196 crore in the same period of the preceding fiscal. The net profit was also slightly ahead of market expectations as at least four brokerages had predicted it to come to around Rs 11,581 crores.

Net interest income for the country’s largest private sector bank also grew by 21.1 percent year-on-year to Rs 23,599 crore. Asset quality also improved as the lender’s gross non-performing assets (GNPA) ratio came at 1.17 percent, improving from 1.28 percent in the corresponding period a year ago. Similarly, its net NPA stood at 0.30 percent from 0.35 percent in the year-ago period.

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Following the steady numbers reported by the lenders, brokerages have also carved a healthy growth outlook for HDFC Bank.

At least five foreign brokerages, Citi, JPMorgan, HSBC, Jefferies and Morgan Stanley have either a ‘buy’ or ‘overweight’ call on the stock with a target price that sits upwards of Rs 2,000.

Citi attributed the lender’s better-than-expected Q1 earnings to benign credit cost and treasury gains along with stable net interest margins. The brokerage also expects return on assets (RoA) for the merged entity to be hold around 1.9-2.0 percent post the merger of HDFC twins.

Also Read: HDFC Bank Q1 Results: Net profit jumps 30% to Rs 11,951 cr, maintains healthy asset quality

JPMorgan also likes the lender’s solid asset quality even as there was a slowdown in retail deposit accretion. On the other hand, HSBC expects HDFC Bank to meet tough deliverables in the coming quarters through effective cross-selling and ramp-up of operations. The brokerage house also seconded Citi’s estimates of an RoA of 1.9-2.0 percent for the merged entity, while it also sees HDFC Bank’s standalone valuation as attractive.

Aligned with the consensus, Morgan Stanley also forecasted a healthy growth outlook for HDFC Bank as it expects to see an acceleration in loan growth in the coming quarters.

Another foreign brokerage, Jefferies believes that HDFC Bank’s steady NII will hold-up better than its peers. Even though the firm believes that loan growth for the lender was softer in Q1, it expects it to pick up over the next couple of quarters as HDFC’s loans stabilise. Retail deposit growth was also soft and Jefferies expects a pick-up in this segment to be key in aiding asset growth.

As a result, the company will be on a merged basis from the second quarter of FY24, Jefferies pegged a 17 percent profit CAGR (Compounded Annual Growth Rate) over FY23-26 with a 16 percent RoE (Return on Equity).

Motilal Oswal Financial Services also introduced its forecasts for the merged entity and thus estimated its net earnings of Rs 65,400 crore/79,800 crore/95,700 crore over FY24-26, translating into an RoA
of 1.9-2.1 percent. “We thus estimate RoE for the merged entity to revert to pre-merger levels of over 17 percent by FY26,” the broking firm stated in its report.

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