HDFC Bank gains after the big fall. CLSA says ‘buy’, FIIs warming up to the stock

CLSA shared a target price of Rs 2,025, implying an upside of 34 percent from current levels

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HDFC Bank reversed a two-day decline trend to trade over a percent higher at Rs 1,504 on January 19 morning deals after tanking 11 percent on a disappointing Q3 show.

In a morning note, global brokerage firm CLSA shared a “buy” call on India’s largest private sector lender, with a target price of Rs 2,025, implying an upside of 34 percent from current levels.

Investors dumped HDFC Bank after its December quarter numbers financials showed a strain on margin, sluggish deposit growth and decadal low earnings per share (EPS). The fall sent This ripples across on Bank Nifty, which lost 5 percent in two days as the lender commands around 40 percent weightage in the 12-pack index.

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CLSA analysts said they interacted with more than 20 clients since HDFC Bank’s Q3 results and found that its domestic clients were unhappy with the lender’s performance. However, many foreign investors said they were nearing the end of “EPS cuts” cycle for HDFC Bank.

The lender’s earnings per share fell 4 percent QoQ to Rs 22 from Rs 21.1.

“Some of the key concerns for HDFC Bank lied on slower-than-anticipated deposit growth and margin compression. But some clients believed that it was lower deposit growth was more of a macro problem and not intrinsic alone to HDFC Bank,” the brokerage firm said.

ALSO READ: Are HDFC Bank results all that bad for banking sector? It’s time to pick your best bets

HDFC Bank Q3 core profitability fell short of expectations, with the margin flat at 3.4 percent amid higher cost of funds or borrowing costs.

Another key negative was the lender’s sluggish deposit growth compared to strong credit growth that inched up loan-to-deposit ratio (LDR) to 110 percent versus 107 percent QoQ, signalling a bad financial health where the bank needs to step up deposit mobilisation to buffer itself from unexpected contingencies.

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