Investors fail to cheer HDFC Bank share price, but analysts still give Buy rating

Even as investors were optimistic over banking stocks on Monday, surprisingly, they were not enthusiastic on HDFC Bank, which last week registered strong fourth quarter ended March 2017 financial performance. Today, HDFC Bank on stock exchanges was the worst performer with the share price tumbling over 3% during trading session. However after touching intraday low of Rs 1894.85, the share price of the bank closed at Rs 1933.05 down by 1.42%. 

HDFC Bank posted net profit of Rs 4,799.28 crore in fourth quarter ended March 2018, witnessing growth by 20.27% compared to net profit of Rs 3,990.09 crore in the corresponding period of the previous year. The net interest income (NII) as on March 2018, came in at Rs 10,657.69 crore, registering growth of 17.70% and 3.32% in comparison with NII of Rs 9,055.10 crore in Q4FY17 and Rs 10,314.34 crore in Q3FY18 respectively.

In major developments, HDFC Bank recommended a dividend of Rs 13/- per equity share of Rs 2/- each (i.e.650 %) out of the net profits of year end March 2018. 

Also the bank’s board of directors have approved the issue of Perpetual Debt Instruments, Tier II Capital Bonds and Long Term Bonds (financing of infrastructure and affordable housing) up to a total amount of up to a total amount of Rs. 50,000 crore in the period of next twelve months. 

Despite these development in Q4FY18 financial audit report, the investors were not sure of HDFC Bank shares, however, this does not change the true potential of the largest private lender, as many analysts have given the bank ‘Buy’ ratings. 

CLSA said, “We see a 21% Cagr in profit over FY18-21 led by topline growth and realisation of cost efficiencies; the proposed capital raising of Rs240bn can lift growth/scope to invest in branches. We retain BUY with a target price of Rs2,470 (earlier Rs2,340) based on 4.4x Mar-20CL adjusted PB and the value of subsidiaries.”

While Edelweiss Financial Service stated that, best-in-class liability franchise, expansion of rural/semi-urban branches and improvement in productivity owing to digital focus will ensure the bank delivers above-industry earnings growth—>25% CAGR over FY18-20E—and sustains superior return ratios (RoA of 2%). 

Therefore, analysts at Edelweiss also maintained Buy rating with a target price of Rs 2,454 per share. 

Nitin Aggarwal and Alpesh Mehta Research Analysts at Motilal Oswal said, “ HDFCB has been consistently gaining market share across most products in the retail segment (personal loans, business banking, credit cards and auto loans), and the upcoming capital raise will enable it to sustain this growth momentum.”

The duo added, “Operating expenses have been under control, and significant digital initiatives have led to a consistent decline in the C/I ratio to ~40%. We have built in INR240b of capital raise in FY19 and arrive at a TP of INR2,400 at 4.0x Mar-20E ABV for the bank. Maintain Buy.”

Currently, HDFC Bank has a market capitalisation of Rs 5,01,643.92 crore on BSE.