HDFC Bank vs ICICI Bank vs Axis Bank: Which stock should you prefer? Here is what Nomura said

HDFC Bank share price has corrected over the past 2 days - post Q4FY19 result. On Tuesday, HDFC Bank shares finished at Rs 2,245.65 per piece, down by Rs 22.60 or 1%. However, the stock did touch an intraday high and low of Rs 2,290 per piece and Rs 2,242.15 per piece respectively. HDFC Bank has been in focus since it recorded once again another stellar earnings. The bank posted 22.6% increase in net profit to Rs 5,885.1 crore in Q4FY19, after providing Rs 3,069.3 crore for taxation. Net Interest Income, came in at Rs 13,089.5 crore higher by 22.8% compared to Rs 10,657.7 crore for the quarter ended March 31, 2018, driven by average asset growth of 19.8% and a core net interest margin for the quarter of 4.4%. Not only this, asset quality remained stable with strong loan book during the quarter. Including all these factors, HDFC Bank does become an appealing stock. But should we buy this bank's shares? Find out!

In its research note, analysts at Nomura said, HDFC Bank reported in-line PPOP with better than expected NII on the back of a 10bps q/q increase in NIMs netted off by lower core fee growth of <10% y/y (largely due to base impact). The bank delivered 24.5% y/y loan growth in spite of (1) auto loans slowing down to 12% y/y from +20% last year and (2) unsecured loan growth moderating to ~30% y/y due to a high base, mainly driven by +35% growth in corporate loans and +40% y/y growth in mortgages (higher buyouts from HDFC Limited).

The expert added, “ In spite of pressure to raise deposits and slowing retail growth, HDFCB has been able to shield its NIMs (at 4.4% currently). Asset quality remains stable expect for management’s still cautious guidance on the Agri book for the near term. Incrementally as well, key will be growth vs NIM trade-off given weak auto loan growth and a tight deposit market.”

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However, while giving a buy rating on HDFC Bank, the experts also said, “We maintain our Buy rating and PT of INR2,450/share but prefer corporate banks ICICI Bank (ICICBC IN, Buy)/ Axis Bank (AXSB IN, Buy) where we see scope for further multiple expansion.”

In Nomura’s view, management indicated that it has been able to maintain yields on the corporate book in spite of higher MCLR than larger PSUs/ICICI as it focuses more on working capital and cash management/trade business, which is more relationship-based and product suite-based, unlike PSUs who are more focused on term lending. 

“The growth vs NIM trend remains a key point to monitor, in our view,” says Nomura. It has given a target price of Rs 2,450 per piece on HDFC Bank ahead.