Brokerage bullish on HDFC Bank despite private lender sees a slight miss in Q4 estimates; see up to 34% upside

Shares of HDFC Bank dropped more than 4 per cent in on Monday's intrady trade after the leading private lender reported weak net interest margin (NIM) and lower-than-expected net interest income (NII) in the quarter ended March 31, 2022. The bank’s NII grew 10% to ₹18,872 crore. Its provisions declined 29% from the year-ago quarter whereas net interest margin, a key measure of profitability, was down 20 bps YoY and 10 bps QoQ at 4%. 

Despite sector-leading credit growth (~21 per cent y-o-y), HDFC Bank reported a slight miss on PAT at Rs 100 billion due to continued weak core profitability (up 10 per cent y-o-y), which was dragged by weak margins/fees and additional contingent provisions of Rs 10 billion,  said Emkay Global Financial Services. 

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Meanwhile, despite lower than expected HDFC q4 result, brokerages were bullish on the stock and sees an upside of around 25% in the counter

As per brokerage house LKP Securities, HDFC Bank is expected to outperform the sector led healthy balance sheet growth and much higher provision than regulatory requirement in the balance sheet. It is of the view that strong capital cushion of 17.9% at Tier1 level and best in class underwriting and risk management practices will help the share going forward. 

LKP Securities | Target Price: Rs 1831

LKP Securities maintained buy rating with target price of Rs 1831, which translates into an upside of 31% on Monday’s low price of Rs 1390 per share on the BSE.

“Given the said strengths, we expect HDFC Bank to remain one of the best among all the lending business. Thus, we continue to maintain BUY rating on the bank with target price of Rs1, 831,” said the brokerage. 

Motilal Oswal | Target Price: RS 1850

Motilal Oswal was of the view that NII and PPoP growth stood modest due to a decline in margins even as earnings were buoyant because of benign credit cost despite making additional contingent provisions.

The brokerage house maintained a ‘Buy’ rating and cut the target price from Rs 2,000 per share to Rs 1,850 per share in one year. This is an upside of over 32% on the lower price of Rs 1390 that the HDFC Bank traded on April 18. 

Edelweiss | Target Price: Rs 1860

Meanwhile, Edelweiss too reduced the target price of HDFC Bank from Rs 2,000 to Rs 1860.  “We believe two consecutive let-downs on core PPOP coupled with merger uncertainty could weigh on the stock. HDFC Bank’s slippage ratio improved to 1.4% on-quarter basis from 1.6%, but lower recoveries edged up GNPLs. The target price has been cut to Rs 1,860 per share from Rs 2,000 earlier,” said the brokerage firm in its report. At day’s low of Rs 1390, this turns out into an upside of nearly 34%. 

Earlier on Saturday, HDFC Bank on posted a 23 per cent jump in standalone net profit to Rs 10,055.20 crore for the March quarter, led by growth in loan demand across categories and lower provisioning as bad loans were trimmed. 

The bank's net profit during the corresponding period of the previous fiscal stood at Rs 8,186.51 crore. 

Total income of the bank on a standalone basis rose by over 8 per cent to Rs 41,085.78 crore in the January-March period of 2021-22 as against Rs 38,017.50 crore in the same quarter of 2020-21.  On the asset quality front, the bank's gross non-performing assets were at 1.17 per cent of the gross advances as on March 31, 2022, compared to 1.26 per cent earlier. PTI SUM