HDFC Bank share price: Jefferies raises price target to Rs 1860 from Rs 1800

RBI is still reviewing HDFC Bank's digital platforms and as per management, the focus is not only on managing flow of transactions, but also on building a globally comparable platform. Also, recent reports of temporary overhang of its system is a bit concerning. Jefferies believes that the complexity of payment systems has increased over the past 5 yrs as this combines a multitude of analytical platforms that require much stronger back-end.

Until restrictions are lifted, HDFC Bank is focussing on enhancing engagement with existing credit-card clients with new programmes and partnerships as well as focusing on debit-card users for pushing transactions. HDFC Bank share price today is Rs 1477, down Rs 20 or 1.3%.

See Zee Business Live TV Streaming Below:

Expansion in non-urban markets to help leverage digitising merchant payments:

With just 5m out of 55m merchants in India accepting digital payments, the opportunity in digitising payments is large. HDFC Bank has a leadership position here with about 35-40% share and can leverage expansion into non-urban markets to capitalise opportunity. HDFC Bank Management highlighted that they are taking a gamut of financial products along including current accounts/ loans/ transaction banking (tax, forex etc.) for the business and savings & wealth mgt. plans for proprietors and family. These should help in gaining better wallet share of the clients and thereby improve profits.

Digital platform might need integration:

HDFC Bank has launched multiple apps that cater to different segments such as Payzappp for payments/ shopping and Smartbuy for channeling ecommerce traffic, and will launch a platform for auto related loans/services. Even as HDFC Bank is taking proactive steps to design an ecosystem across key products, it might need to integrate independent mobile apps to improve customer experience.

Digital lending - longevity of data and collections add to bank's strength:

HDFC Bank Management highlighted that the bank is well-placed to leverage on opportunity in digital retail loans. In fact, the bank's two key strengths are quality of data and collection machinery. With a repository of data on retail lending/ borrowers, the bank has been able to build analytical/ predictive models that help in better client selection. At the same time, its existing collection network helps in better monitoring as well recovering loans - which is most important for new-to-bank clients and nonurban clients.

Jefferies see 20% profit CAGR over FY20-23 and ROE of 18% in FY22. Valuation at 3.5x adj P/B FY22E looks reasonable and rolls forward their price target to Rs 1860 (from Rs 1800) based on 3.8x Mar-23E adjusted Price to Book. Jefferies accordingly rolled forward our ADR price target to US$93 based on ADR/share & ADR-premium.