HDFC Bank share prices tumbled 2.1% to Rs 1,656.9 per share in early trade on Monday as the lender’s Q4FY23 PAT clocked in at Rs 120.5 billion, up 19.8% on-year but down 1.7% QoQ. 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% at Rs 1,695 per share, close to the 52-week high of Rs 1,702.4 per share.
The bank experienced a moderate credit growth of 17% on-year and 6% QoQ, largely due to a slowdown in retail credit growth during 4Q, which comprised 46% of the bank’s portfolio. Conversely, deposit growth was strong, amounting to Rs 1.5 trillion, with a growth rate of 21% on-year and 9% QoQ. The previous quarter saw sub-optimal deposit growth, but healthy retail deposit growth leading up to the merger contributed to the uptick. The bank’s overall net interest margin (NIM) was 4.3% in 4Q; however, the recent surge in deposits may affect NIMs as the full impact has yet to be determined.
HDFC Bank share outlook
“We have slightly cut our FY24E earnings, by 1%, factoring-in the elevated costs, but expect the standalone bank to deliver a superior RoA/RoE of 2%/17-18% 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%/1-2% 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% from the CMP,” said Axis Securities.
“On the positive side, the fixed rate book, which is 45% of the loan book, runs for 2-3 years and hence, its repricing will continue for some time. Secondly, the share of wholesale loan book, which is 53-54%, currently, will come down on structural basis. On the other hand, cost of deposits would go up mainly due to the share of term deposits rising in total deposits. RIDF book has also been moving up for the bank. We downgrade HDFCB from BUY to ADD with a revised price target of Rs 2025,” said YES Securities in a report.