HDFC Bank shares at Rs 2,000? InCred says lender surfing on the turning tide

InCred Equities on Thursday said it expects HDFC Bank Ltd to continue to maintain its leadership position in retail lending  and further strengthen its retail liability franchise in the mid- to long-term. It sees HDFC Bank's return on asset at 2 per cent and return on equity at 17 per cent going ahead. InCred suggested 'high-conviction ADD' on the stock with a price target of Rs 2,000, as it feels HDFC Bank is surfing on the turning tide.

InCred said it values the standalone bank at 2.4 times estimated FY26 book value. HDFC Bank subsidiaries are valued at Rs 250 per share, it said adding that slow growth and weak margins are key downside risks to its thesis.

"Deepening reach by propelling branch network and higher focus on rural and  semi-urban markets to fuel the retail franchise in both deposits and advances," it said.

InCred said increasing cross-selling of liabilities and high-yield products to eHDFC  customers are likely to be RoE-accretive, compensating for low RoE mortgage business.

"To address the liquidity problem post-merger, HDFC Bank’s management has already shored up its branch network (+3,130 branches since FY21) to garner a granular and sticky  deposit base through a plate full of private bank offerings to the rural & semi- urban masses," it said.
  
InCred said HDFC Bank has started witnessing some relief as branches started to break even. Of the total branch count of 8,738 as of Mar 2024-end, the newer branches (opened in the last 24 months) stood at 27 per cent, which are yet to mature. 

"Thus, the recent aggressive  branch expansion will result in superior revenue recognition in the coming quarters," it said.