Value Pick: Brokerages see 51% upside in HDFC Bank; recommend buy on dips

Amid the uncertainty in the Indian markets, the BFSI (Banking Financial Services and Insurance) segment had taken the major beating, as 6 of last 10 sessions, the Nifty Bank is witnessed fall. In this regard, most of the brokerages pick India’s largest private lender HDFC Bank as best bet, which has been corrected almost 20 per cent from its 52-week high.  

The analysts see an upside of up to 51 per cent in the banking heavyweight, urging investors to Buy it on a dip. HDFC Bank shares have been surging in the last three sessions, however, were trading at 52-week low till last week. It closed over 1 per cent higher to Rs 1389 apiece on the BSE, Thursday. 

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Motilal Oswal 

India's largest private lender is expected to deliver a healthy business growth fuelled by an uptick in retail (unsecured products) business and continued strength in commercial banking business. The brokerage estimates it to report around 18 per cent CAGR growth in PAT over FY22-24, with an RoA/RoE of 2.0/17.5 per cent in FY24E, respectively. 

The asset quality of the bank remains robust with credit costs undershooting the long-term trend, also increasing the contingency buffers prudently, which provide comfort. 

The stock is a high conviction Buy in the banking space with a target price of Rs 2,000 per share (premised on 3.4x FY24E ABV + INR127 from subsidiaries), implies 51 per cent potential upside from the current level. 

IIFL 

IIFL sees HDFC Bank to gain up to 51 per cent and puts the target price at Rs 2000.

The stock has an EPS CAGR between FY21-24 of around 18 per cent, price to book at 2.7 times, return on equity at over 17 per cent, and P/E multiple at 16.9/14.4 per cent in FY23/FY24E. 

Prabhudas Lilladher 

HDFC Bank has faced challenges in maintaining loan growth momentum leading to slower NII growth in December-end quarter. Traction in retail and commercial and rural banking is expected to improve loan and fees coupled. Containment in slippages will lead to improvement in overall earnings. 

We believe that bank has a strong balance sheet with PCR of 70 per cent and ability to absorb higher credit losses, comfortable contingency provisions and restructured stock at below 1.5 per cent. 

With higher earnings visibility leading to superior ROEs of 17-18 per cent over FY23-FY24E, HDFC Bank stands as one of the best placed in the industry. The brokerage reiterates Buy with a target price of Rs 1,870 per share, 36 per cent upside, retaining target multiple at 3.6x Sep-23 ABV. 

Axis Securities and JM Financial both maintains a Buy stance on this banking major shares with same target price of Rs 1985 per share, upside of around 45 per cent amid lucrative valuations and strong balance sheet.