HDFC Bank shares tank 3%, m-cap falls Rs 39,000 crore. Here's why

HDFC Bank on Wednesday saw its shares falling over 3 per cent in early trade, pushing its market capitalisation (m-cap) below the Rs 12 lakh crore mark. The third most-valued stock on Dalal Street fell 3.3 per cent to hit a low of Rs 1,575.15 on BSE and saw its m-cap falling to Rs 11,95,013.88 crore from Rs 12,34,104 crore on Monday. The stock market was shut on Tuesday.

What dragged the stock lower was downward revisions in target prices, as analysts factored in negative surprises following the lender's Analyst Meet. Analysts largely cut their FY24 and FY25 estimates due to a fall in the merged bank's net worth amid policy harmonisation and accounting changes. They were concerned over an increase in non-performing loans (NPLs) for the merged entity, a fall in net interest margin and weakness in return on asset (RoA).

InCred Equities said non-individual loan book of HDFC will be area of concern in the near term. Margins in FY24, it said, will remain under pressure due to excess liquidity.

Nirmal Bang Institutional Equities noted that HDFC Bank's (merged entity) loan growth has moderated to 13 per cent due to 18 per cent YoY decline in HDFC’s wholesale book. The management has guided for reducing this book further in FY24, before it starts growing it again in the coming years.

"After incorporating these developments into our merged entity pro-forma estimates, we have cut our FY24E and FY25E earnings estimates by 11.9 per cent and 7.9 per cent, respectively. Consequently, we have revised our target price to Rs 1,935. While in the near term, the bank’s financials face volatility due to merger related adjustments, we are positive about HDFC Bank over the long term," it said.

Kotak Institutional Equities said the non-performing loans in the parent entity were higher than expected, but further negative surprises should be negligible. It feels that a re-rating for HDFC Bank is some time away, as the private lender has to work through the NIM transition and build its thesis of differentiation, which the brokerage is still less certain about. This broking firm has reduced its target on HDFC Bank to Rs 1,850 from Rs 1,925 earlier.

Nomura India has downgraded the stock to 'neutral'. It said net worth adjustments will have a negative 4 per cent impact on its estimated FY24 book value per share. It estimates NIM cuts of 25 bps in FY24 and 15-20 basis points in FY25-26 on excess liquidity and accounting adjustments.

Antique Stock Broking has reduced its target on the stock to Rs 1,925 from 2,025 earlier.

Phillip Capital said the return on equity is expected to moderate in near terms owing to low leverage of the parent but felt RoA may sustain at 1.8-1.9 per cent level. This brokerage has revised its target lower to Rs 1,880 from Rs 1,960 earlier.

Motilal Oswal Securities estimated FY24 NIM to be around 3.75 per cent, which is in line with the pro forma merged estimates. The impact on net worth from the transition to IGAAP, credit policy harmonisation and other factors, it said, has led to a slight cut in the brokerage's book value projections.

"Besides, the drag from excess liquidity, ICRR and continued unwinding of the non-individual loan portfolio of HDFC Ltd will further impact margins and earnings," the domestic brokerage said while suggesting a revised target of Rs 1,950.

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