Rs 1,730 or Rs 2,200? HDFC Bank share price targets post Q3 results

HDFC Bank Ltd has seen a couple of brokerages trimming their price targets on the stock while others maintaining their calls following a mixed set of December quarter results. Analysts said HDFC Bank's margin disappointed and that the bottom line, though higher than expected, was supported by tax write-backs. Post-merger, a relatively weaker liability construct is keeping net interest margin (NIM) lower as compared to the past, which is getting offset by high productivity, and lean cost of operations and low credit cost, said analysts.

"RoAs are likely to be similar to pre-merger levels but with a different P&L flow. This could keep multiples lower than the historic averages as concerns can emerge with respect to growth, as a large balance sheet would have a higher correlation with the macroeconomic environment and NIMs, as a relatively weaker liability mix, may have a higher impact on liquidity conditions," said Antique Stock Broking, which trimmed its target on the stock to Rs 2,000 from Rs 2,050 earlier. Equirus Securities cut its target on the stock to Rs 1,900 from Rs 2,000 earlier.

Nirmal Bang said it would stay positive on HDFC Bank from a long-term perspective due to its high growth potential on account of good capital position, revenue & cost synergies arising out of the HDFC merger and best-in-class asset quality. "However, in the near term, successful merger transition, elevated operating costs (due to continued expansion) and margin trajectory will be the key monitorables," it said while suggesting a target of Rs 1,994 on the stock.

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Morgan Stanley suggested a target price of Rs 2,110 in its first cut on earnings, saying NII met its expectations and that profit was a beat. It said Q3 credit costs was higher than its estimates, owing to one-time contingency provisions. CLSA reportedly suggested a HDFC Bank target of Rs 2,025, HSBC Rs 1,950, Jefferies Rs 2,000 and Bernstein at Rs 2,200.

YES Securities said it will maintain a less-than-bullish 'ADD' rating with an unchanged price target of Rs 2,000 on the stock.

"Given continued systemic tightness in liquidity and HDFC Bank's high ask rate w.r.t to deposit accretion (LDR>100% and LCR already down to 110%), we believe improvement in HDFC Bank's NIMs will need a fine balancing act and improvement will be only be gradual. While acknowledging the near-term pressures, we believe HDFC Bank remains well-placed to deliver healthy growth with relatively lower risk. We maintain BUY with a target price of Rs 2,010," JM Financal said. 

On Wednesday, the stock slipped 6.48 per cent to hit a low of Rs 1570 on BSE. The market capitalisation of HDFC Bank dropped to sub-Rs 12 lakh crore level from Tuesday's Rs 12,74,740.22 crore, down about Rs 77,000 crore.

"We are cutting earnings by 5–6 per cent for FY25E–FY26E. While the cut in core earnings is higher at 8 per cent due to a 4 per cent cut in loan growth, it is partially offset by an upward revision of non-core items. The bank has exhausted its LCR, will need to lower its LDR and is running slower than guidance on deposit growth. In all, we are lowering the target to Rs 1,730 from Rs 1,770," Nuvama said while trimming the stock rating to ‘HOLD’.

Also read: HDFC Bank Q3 results: Profit jumps 34% to Rs 16,373 crore, meets Street expectations; key takeaways
 

Phillip Capital said the results were in line on back of drawdown of excess liquidity in the balance sheet but said tight liquidity condition is creating challenge for the bank to mobilise deposit.

"The ask rate for deposit outstrip the current run rate, which may transpire into moderation in credit growth.

Decline in liquidity coverage and rising LDR, limits the scope for balance sheet manoeuvrability to defend margin," it said while suggesting a target of Rs 1,920 on the stock.

Motilal Oswal said the HDFC Bank margin stood largely flat, which was slightly below its expectations, even as the bank deployed excess liquidity and significantly drew down the LCR ratio.

"Loan growth was healthy driven by growth in retail and continued traction in Commercial and Rural banking. Asset quality ratios improved while PCR also inched up to 75 per cent. The bank has continued to maintain 0.6 per cent buffer of floating + contingent provisions, which provides additional comfort. Management suggested that NIMs will improve gradually over the coming years, which along with an improvement in operating leverage will enable the bank to deliver healthy return ratios," it said while suggesting a target of Rs 1,950 on the stock.

InCred Equities said elevated cost of deposits and pressure on margins would be common issue for all banks in the coming quarters and that HDFC Bank is better placed due to its improved penetration providing portfolio granularity and command over loan pricing. This brokerage finds the stock worth Rs 2,000.Prabhudas Lilladher also suggested a target of Rs 1,200 on the stock. There was a slight miss on core PPoP; lower tax rate allowed contingent provisions, it said.

 

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