HDFC Bank shares rise on positive Q1 business update; analysts see at least 20% upside potential

HDFC Bank’s advances aggregated to approximately Rs 11.48 lakh crore at the end of June this year. (Image: REUTERS)

HDFC Bank’s share price was up 2.3% on Tuesday, trading at Rs 1,529 apiece among top performers on Sensex. Shares of the private sector lender rose as investors reacted to the April-June quarterly business update provided by the company. The largest private sector lender in the country saw healthy business growth during the second wave of the pandemic advances growing 14.4% on-year basis. HDFC Bank share price is down more than 6% since the end of February this year when the stock reached a fresh 52-week high of Rs 1,650 apiece.

Business performance

-Loan growth during the quarter was 14.4% higher than the previous year and 1.3% better than the previous quarter.
-HDFC Bank’s advances aggregated to approximately Rs 11.48 lakh crore at the end of June this year.
-Domestic retail loans grew by 10.5% on-year while domestic wholesale loans grew 17%.
-Retail loans grew by 9.0% from the previous year; commercial and rural banking loans grew by around 25.0%; and other wholesale loans grew by 10.5% during the same time period.
-Deposits aggregated to approximately Rs 13.46 lakh crore, a growth of 13.2% from the year-ago period.
-HDFC Bank said its CASA deposits aggregated to approximately Rs 6.12 lakh crore up 28.2% from the previous year.

What do brokerage firms make of it?

CLSA – Buy

Target price – Rs 1,825 

While there has been news flow about corporate deleveraging and even HDFC Bank’s corporate banking head has pointed out repayments from large corporates, HDFC Bank has been able to maintain positive loan growth in non-retail loans. We value HDFC Bank based on a consolidated basis using adjusted book value of equity per share. Our target value for the bank is based on 3.5x Mar-23CL PB. We believe HDFC Bank deserves a premium versus peers, given its higher profitability and stronger underwriting quality.

Motilal Oswal – Buy

Target Price – 1,800

HDFC Bank continues to deliver better growth trends v/s its peers, led by healthy trends in Wholesale advances. Also, Retail deposit trends remain healthy, while a sharp sequential drop in Wholesale deposits affected deposit growth in 1QFY22. In the near term, lifting of RBI restrictions and new stress formation due to the second COVID wave would be a key monitorable. We maintain our Buy rating with a TP of Rs 1,800/share (3.5x FY23E ABV).

Axis Bank – Buy

Target price- 1,785

The bank has managed to sustain its performance amidst Covid-19 uncertainties, both on the growth front as well as on the asset quality front. However, moderation is visible in the retail book, now forming 45% of the total loan book, down from 47% a year ago. Lifting ban on new credit cards will be a key monitorable. We believe HDFC Bank remains one of the resilient stocks in the sector. We currently have a BUY on the stock with a target price of Rs 1785/share.

Emkay  Global – Buy

Target price – 1,850

Overall, we believe that HDFCB’s credit momentum has moderated a bit in Q1, dragged mainly by continued weakness in the retail segment. The bank has well-managed its asset quality after the second Covid wave, but new stress formation in CV, SME and PL due to back-to-back disruptions will be a key monitorable. Currently, we have a Buy rating on HDFCB with a TP of Rs1,850, given its cross-cycle best asset-quality performance, strong franchise/capital profile, better growth outlook and superior return profile.