Following the bank’s analyst and institutional investor meeting on Monday (September 18), brokerage companies voiced their mixed opinions on the stock, which resulted in the HDFC Bank share price falling more than 4% in early trade on BSE on Wednesday. In contrast to its previous closing price of 1,629.05, the share price began trading on Wednesday at 1,599, but it has since decreased by 4.02 percent, reaching a level of 1,563.50. On the BSE, the market capitalization (mcap) of HDFC Bank stock decreased to over 11.8 lakh crore.
During the past year, the share price of HDFC Bank has significantly lagged behind the performance of the benchmark Sensex. Comparatively, HDFC Bank shares have only increased by 4% over the past year while the Sensex has increased by almost 13% in that same time span. On BSE, the share price reached a 52-week high of 1,757.80 on July 3 of this year and a 52-week low of 1,365.05. These prices were both recorded on September 30 of previous year.
In the meantime, the Reserve Bank of India (RBI) has given their stamp of approval to Sashidhar Jagdishan’s reappointment as managing director and chief executive officer of HDFC Bank for an additional three years, which would take him until October 26th, 2026.
Following its merger with Housing Development Finance Corp. (HDFC), HDFC Bank brought up the risk of a short-term deterioration in its net interest margin (NIM), net worth, and asset quality at a meeting with its analysts. This possibility was brought up as a result of the merger between HDFC Bank and its parent company.
Analysts said that Chief Financial Officer Srinivasan Vaidyanathan said during the meeting that the net interest margin (NIM) could decrease by 25 basis points (bps) as a result of the combined effect of an increased cash reserve ratio (CRR) and excess liquidity. Prior to the merger, HDFC had established an extra liquidity buffer amounting to close to one trillion rupees.
Brokerages have a variety of opinions.
After the meeting of the analysts, the global brokerage firm Nomura reduced HDFC Bank shares from a ‘buy’ rating to a ‘neutral’ rating and decreased the target price from 1,970 to 1,800.
According to a report issued by Nomura on September 20, the company stated that it discovered four unexpectedly bad developments during the analyst meeting held by HDFC Bank:
(1) The book value per share (BVPS) for the fiscal year 24F is impacted negatively by 4% due to the effects of net worth adjustments.
(2) Reductions in the NIM of about 25 basis points in FY24F and 15–20 basis points in FY25–26F due to excess liquidity and accounting adjustments.
(3) An increase in the ratio of costs to revenues as a result of changes in accounting standards (the upfronting of sourcing costs under IGAAP for HDFC as opposed to amortisation under IndAS).
(4) A significant increase in the number of non-performing loans in HDFC’s corporate loan portfolio.
“Our EPS cutbacks of 5-9 percent over FY24-26F and BVPS cuts of around 7 percent are primarily responsible for factoring in this, in our opinion. This makes HDFCB’s medium-term RoA (return on assets) profile considerably worse (1.7-1.8 percent over FY24-26F), and the difference between it and ICICI’s RoA profile (FY24-26F), which is 2.2 percent, is even more pronounced now, according to Nomura.
“Although the bank did not indicate any revisions to its loan growth outlook, we continue to keep a close eye out for any near-term impact that may arise as a result of the pressure to keep elevated liquidity levels. “While we fully appreciate the strength of the franchise, we struggle to see an upside over the next 12 months on the back of RoA (return on assets) and loan growth pressures,” Nomura said. “While we struggle to see an upside, we fully appreciate the strength of the franchise.”
On the other hand, Goldman Sachs reiterated a buy call on the stock with a target price of 2,051, implying a 26 percent upside potential because it believes HDFC Bank is well placed to gain substantial market share in both lending and deposits over the next few years thanks to its expanding distribution network and its strong focus on cross-selling to existing customers. This is because Goldman Sachs believes HDFC Bank is well placed to gain substantial market share in both lending and deposits over the next few years.
According to Goldman Sachs, “We forecast sector-leading earnings growth of 17 percent in FY23-26E and superior return ratios (average ROA and ROE at nearly 2 percent and about 16 percent, respectively, over FY24-26E),” which will result in a high degree of earnings visibility.
It believes the bank will continue to increase its loan book at an approximately 18 percent CAGR and experience stronger return ratios. Additionally, it does not anticipate the bank to raise capital at least for the next eight years due to decreased capital consumption, which is driven by improved risk density and rising ROEs.
The company is currently trading at a price that is one standard deviation (one STDEV) below the mean, after taking into account the SOTP (sum of the parts) value of its group businesses (such as HDFC Life, HDB Financial Services, and HDFC AMC), which we find to be intriguing. As a direct consequence of this, HDFC Bank has assigned us a buy rating. Goldman Sachs has stated that they anticipate HDFC Bank will trade at a premium valuation multiple of about 20 times FY24-FY25E EPS and 2.8 times FY24-FY25E BVPS.
Motilal Oswal Financial Services, which is one of the local brokerage firms, has issued a buy call on the stock with a target price of 1,950 rupees, which indicates an upside potential of twenty percent.
Motilal is of the opinion that the combination between HDFC and HDFC Bank will make it possible for HDFC Bank to establish a more varied and powerful franchise.
According to Motilal, the bank should be able to improve its cross-selling to consumers and enable healthy business growth thanks to an increasing customer base, a strong technology edge, and solid distribution.
Additionally, brokerage company Nirmal Bang has a buy call on the stock with a target price of 1,935, which indicates a potential upside of 19% for the stock. Nirmal Bang has a favourable outlook on the long-term prospects of HDFC Bank.
“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 due to the stability of top management, good capital position, higher specific and standard provision buffer, and historically lower valuation of 2.6 times FY25E ABV,” said Nirmal Bang. “While we are optimistic about HDFC Bank over the long term due to top management’s stability, good capital position, higher specific and standard provision buffer, and historically lower valuation,”
