Analysts turn bullish on HDFC Bank, but stock dips post Q4

Shares of HDFC Bank slipped over 1.2 per cent, after reporting its March quarter earnings over the weekend, despite analysts remaining bullish on the stock. The stock settled at ₹1,512.30 on the BSE, after beginning on a positive note the BSE. On the NSE, shares edged down 1.10 per cent at ₹1,514.35.

HDFC Bank on Saturday reported a ₹17,257.87 crore net profit for the March quarter on a consolidated basis, over 2 per cent higher than that in the preceding quarter. Its consolidated net profit for FY24 came at ₹64,060 crore. On a standalone basis, the country’s largest private sector lender reported a net profit of ₹16,511.85 crore during the quarter under review as against ₹16,372.54 crore in the December quarter. In July 2023, the bank merged its home loan-focused parent HDFC into itself. However, analysts are giving a thumbs up to HDFC Bank post Q4.

According to LKP Securities, HDFC Bank is expected to overcome the merger overhangs gradually led by healthy balance sheet growth, much higher provision than regulatory requirement in the balance sheet and best in class underwriting and risk management practices. “Given these strengths we expect HDFC Bank to remain one of the best among all the lending businesses. Thus, we continue to maintain Buy rating on the bank with revised target price of ₹1,756,” said the domestic brokerage.

Primary worry factor

Global investment advisory BNP Paribas said balance sheet growth is the primary worry factor with pushbacks linked to deposit availability in a tight liquidity/monetary environment, the need to reduce C/D ratios and a stretched out LCR. “The greatest behavioural comfort factor for us is HDFC Bank’s decision to not raise FD rates through the last 12 months and maintaining parity with best-in-class peers, not the actions of a bank that is alarmed about deposit prospects. We introduce some nuance into the central idea behind a C/D ratio calculation and note the likelihood of a LCR upswing as monetary/liquidity conditions ease,” it added.

InCred Capital said HDFC Bank posted a healthy Q4 FY24 PAT amid steady q-o-q margins, while the one-off gains from Credila were used for a floating provision. The bank witnessed a sequential improvement in the LDR ratio to about 104 per cent and LCR improved to about 115 per cent, but the trend may stay volatile amid tight liquidity. “We believe HDFC Bank is better placed due to its improved penetration providing portfolio granularity and command over loan pricing. We expect HDFC Bank to be an ~2 per cent RoA and ~16 per cent RoE story. HDFC Bank is our high-conviction ADD-rated stock with a target price of ₹2,000,” it added.

According Elara Capital, HDFC Bank’s Q4 earnings were characterised by a few one-offs: transaction gains of ₹7,340 crore from stake sale in HDFC Credilla; ₹1,500 crore staff ex-gratia payment; and floating provisions of ₹10,900 crore (to prop the balance sheet). Adjusted for these, earnings were broadly steady. “While believe we are closer to bottoming of core earnings, even as recovery may take longer and thus the stock may see time correction (near term) till investors find merit in execution,” it added.