Brokerages see up to 22% upside in HDFC Bank post Q2 results

Mumbai: Brokerages raised target price on HDFC Bank's shares after the private bank reported strong earnings for the September quarter.

Ambit, Edelweiss, Haitong Securities, Investec, Jefferies, Kotak Institutional Equities, Macquarie and Morgan Stanley raised target price by 2-22%.

The bank on Saturday reported an 18.4% rise in standalone net profit at Rs 7,513.2 crore, while Net Interest Income jumped 16.7% and asset quality improved.

"HDFC Bank management painted a very positive outlook for the bank when it comes to asset quality," said Macquarie, raising target price by 22%.

"The bank is also pleasantly surprised by overdue/NPA recoveries across different product segments...with such strong collections, we do believe there is significant upside to our earnings numbers," said Macquarie.

Investec, which raised target price by 13.4% to Rs 1425 while retaining a buy rating, said asset quality disclosures from HDFC Bank have been significantly better than peers. It is a reflection of its superior customer franchise and better credit underwriting.

"With a near 97% demand resolution and very little restructuring pipeline, HDFC Bank has demonstrated that asset quality is not a major concern any more. Valuations will soon anchor to growth where the ask rate is quite high for the next 2-3 quarters due to high base effect," said HDFC Bank.

While most brokerages have maintained buy, outperform or overweight ratings, Ambit has maintained a sell recommendation. Its target price increase for HDFC Bank is also the lowest on the Street at 2%.

Ambit expects HDFC Bank's asset quality to deteriorate due to COVID-19 given its exposure to stressed sectors. In the retail segment, it has high exposure to potential stressed sectors like microfinance, agri, CV/CE, and unsecured loans.