HDFC Bank Q4 profit rises 21%, here’s what brokerages have to say about the stock

HDFC Q4 Result: While most broking houses have reiterated their “buy” rating on the stock, there are some concerns about limited EPS growth, flat NIM and higher operating expenses

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HDFC Bank share price touched a 52-week high of Rs 1,715.85 in the opening trade, however, erased the gains and was trading at Rs 1,669, down Rs 24.30, or 1.44 percent on the BSE.

The private lender has reported 21 percent year on year (YoY) rise in consolidated net profit at Rs 12,594.5 crore.

HDFC Bank posted a 20.3 percent YoY growth in consolidated net revenue at Rs 34,552.8 crore during the quarter against Rs 28,733.9 crore recorded in the year-ago quarter.

Net interest income (NII), or the difference between interest earned and interest expended, grew by 23.7 percent to Rs 23,351 crore from Rs 18,872 crore for the quarter ended March 31, 2023, HDFC Bank said in an exchange filing on April 15.

Here is what brokerages have to say about stock and the company after the March quarter earnings:

Motilal Oswal

HDFC Bank reported an in-line quarter with healthy growth in NII, even as margins remained stable, while core pre-provision operating profit (PPoP) growth remained modest. Loan growth was driven by sustained momentum in the retail segment and robust growth in commercial and rural banking.

Asset quality ratios remained robust, while the restructured book moderated to 31bp of loans. Healthy PCR and a contingent provisioning buffer should support asset quality.

The broking house upheld its earnings projection and estimates the bank to deliver a ~19 percent PAT CAGR over FY23-25, with RoA/RoE of 2.0 percent/17.7 percent in FY25.

The brokerage reiterated its “buy” rating with a target price of Rs 1,950 (premised on 3.0x Sep’24E ABV). A potential pick up on the margins and progress on the merger would be the key monitorables.

Prabhudas Lilladher

HDFC Bank saw a mixed quarter. While core PAT at Rs 120.8 billion was in-line, core PPoP missed broking firm estimates by 4.4 percent due to weak NII which, was offset by lower operating expenses (opex) and provisions.

Asset yields were below estimates likely due to loans being booked towards the quarter end.

The bank wants to maintain its current net interest margins (NIM), as the funding cost rise would be offset by the fixed rate loans (45 percent of book). Retail wholesale mix improved QoQ from 44:56 to 47:53. Retail deposit accretion was healthy (+7.5 percent QoQ) and its share is now 83 percent (80 percent in March 2022).

The bank added 1,479 branches in FY23 and this run rate would continue in FY24E. However, the key highlight is the bank’s balance sheet, which is merger ready as suggested by high cash and other assets that in the short term could drag NIM, said the broking firm.

Maintaining multiple at 3.0x, and roll forward to FY25E core ABV, it raised the target price from Rs 1,850 to Rs 1,925 while retaining the “buy” rating. Valuation is at 2.6x FY25 core ABV.

Bernstein

The broking firm has kept an “outperform” rating on the Mumbai-headquartered lender and has set a target price of Rs 2,200 a share.

The bank’s Q4FY23 performance met expectations and it is prepared for a merger, its analysts said in a report.

The report, however, also noted that the bank’s EPS growth was limited due to a flat NIM and a spike in operating expenses, with an unchanged return on assets (RoA) compared to FY22.

UBS

The broking firm has maintained a “buy” rating, with a target price of Rs 1,900 a share. The report notes that HDFC Bank’s Q4 results were in-line and it was getting ready for a merger.

However, the report mentions that some metrics were in-line, while lower treasury, higher operating expenses, and provisions led to a PAT miss. The report also highlights strong retail deposits and a decline in slippages, while the loan-to-deposit ratio (LDR) continues to fall.

The bank’s management expects stable NIMs and a higher cost-to-income (CI) ratio in FY24. The merger is expected to complete by July 2023, according to management.

The report notes that the peaking of the interest rate cycle and a fall in incremental system LDR could be a positive for the bank.

CLSA

According to a CLSA report, the bank’s NII was in line, but PPoP was a miss due to operating expenses (opex). However, the report said credit costs are expected to offset high opex in FY24. The report also notes that deposits and loan mix were positive from Q4.

There was a high opex growth and asset quality provides a cushion to the bank’s profit and loss (P&L).

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