Jefferies retains ‘buy’ rating on HDFC Bank, foresees over 20% upsurge

The improvement in net interest margins (NIMs) is key to a rise in return on asset (RoA) and re-rating of valuations, said analysts at Jefferies

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Global brokerage firm Jefferies maintained a ‘buy’ rating on India’s biggest private lender, HDFC Bank, saying that its margin improvement will be key to increase the RoA and re-rating valuations. The brokerage firm assigned a target price of Rs 1,800 per share, signalling an upside of 20 percent from current levels.

So far this year, the stock of this private sector lender has declined over 12 percent, outperforming 2.4 percent rise in benchmark Nifty. Earlier, HDFC Bank shares had hit a 52-week low of Rs 1,363 on February 14, 2024 due to weak third-quarter financials.

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Analysts at Jefferies believe that HDFC Bank’s potential for credit growth over the next five years would build sensitivity to deposit market share gains. For instance, if the lender’s deposits record a 17-18 percent compounded annual growth rate (CAGR), then loans can grow at 13 percent.

“The improvement in net interest margins (NIMs) is key to a rise in return on asset (RoA) and re-rating of valuations,” the brokerage firm said.

In the March-ended quarter, deposits of HDFC Bank increased 7.5 percent sequentially to Rs 23.8 lakh crore, while gross loans rose 1.6 percent quarter-on-quarter (QoQ) to Rs 25.08 lakh crore, raising the CASA ratio to 38.2 percent from 37.7 percent.

Earlier, analysts at Macquarie had assigned a ‘buy’ rating on HDFC Bank, with a target price of Rs 2,000 per share, saying that the robust Q4 business update indicates that its consolidation strategy is playing out well.

Also read: Jefferies maintains ‘buy’ call on IDFC First Bank, sees 22% upside

“HDFC Bank’s valuations remain attractive, suggesting that it may be an opportune time to add the stock,” the brokerage firm guided.

HSBC too has a ‘buy’ call on the stock, with a target price of Rs 1,750 per share. They believe that the lender’s deposit performance exceeded the Street estimate of Rs 12-13 lakh crore for March quarter.

HDFC Bank will unveil the fourth quarter financials on April 20. Market participants will watch out for management’s commentary on business growth and margin improvement trajectory.

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