HDFC Bank Down Over 2% As Q4 Results Leaves D-St Unimpressed; Buy, Hold or Sell?

HDFC Bank Shares: India’s largest private lender, HDFC Bank Ltd Shares, fell 2.13 per cent to trade at Rs 1,656.45 apiece in Monday’s opening deals as the bank reported a 19.8 per cent jump in net profit for the January-March quarter.

This was primarily on the back of healthy growth in net interest income (NII) and lower provisions. On Thursday, prior to the quarterly results, the bank’s share price closed higher by 0.6 per cent at Rs 1,695 per share, close to the 52-week high of Rs 1,702.4 per share.

“For Q4FY23, NII was up 23.7 per cent YoY / 1.6 per cent QoQ while core NIMs on total assets were flat QoQ at 4.1 per cent. Opex continues to be elevated – up 32.6 per cent YoY and 8.0 per cent QoQ. Continued investment in branches and employees led to an elevated opexto-assets ratio of 2.26 per cent and cost-to-income at 42 per cent,” said analysts at ICICI Securities.

As a result, ICICI Securities said the operating profit stood at ₹186.2 billion, up 13.8 per cent YoY and down 2.1 per cent QoQ, but lower than the brokerage’s estimate of over Rs 195 billion. “Lowest credit cost in 6 years at 67 bps largely aided the bank post in-line PAT despite lower-than-expected operating profit. GNPA fell further to a 23-quarter low at 1.12 per cent,” the note stated.

What Should Investors Do Now?

ICICI Securities maintained a buy rating on HDFC Bank post March quarter results and raised the target price to Rs 1990 from Rs 1874 earlier.

“We have slightly cut our FY24E earnings, by 1 per cent, factoring-in the elevated costs, but expect the standalone bank to deliver a superior RoA/RoE of 2 per cent/17-18 per cent over FY24-26E. Notwithstanding the merger-related regulatory overhang, we believe HDFC Bank offers the best play on India’s consumption story and is also a good defensive bet in current choppy waters. We retain a long-term BUY, with revised TP of Rs 2,050/share vs Rs1,925 (valuing the core bank at 3x Mar-25E ABV) and a subs valuation of Rs 87/share,” said Anand Dama, Senior Research Analyst, Emkay.

“HDFC Bank is amongst the few banks to see deposit growth outpacing credit growth despite the intense competition for deposits as well as smaller banks offering competitive rates. The bank’s ability to leverage its distribution network will ensure robust deposit mobilisation. While the aggressive branch expansion exercise will keep Opex ratios elevated over the near to medium term, we expect it will set the stage for the bank’s next leg of growth. We trim our NII/PPOP estimates by 2-4 per cent/1-2 per cent over FY24-25E to reflect the rising CoF with deposit growth led by TDs and elevated Opex owing to aggressive distribution network expansion. The current valuations of 2.9x Sep’24E ABV seem reasonable, a discount to its long-term average of ~3.4x P/ABV. We value the core book at 3.2x Sep’24E ABV and assign a value of Rs 71/share to the subsidiaries, thereby arriving at a target price of Rs 1,975/share, implying an upside of 17 per cent from the CMP,” said Axis Securities.

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