Analysts have raised price targets on HDFC Bank Ltd. citing strong loan growth during the quarter and prospects of asset quality springing a positive surprise despite Covid-19.
India's largest private sector lender reported a 17% year-on-year growth in its net interest income or core income, while net profit saw a growth of 18% during the July-September period.
On the asset quality front, gross non-performing assets stood at 1.08% from 1.36% last quarter while net non-performing assets stood at 0.17% from 0.33% in the previous quarter.
Provisions saw a decline of 5% quarter-on-quarter to Rs 3,704 crore.
Of the 56 analysts tracking HDFC Bank, 52 have a ‘buy’ rating, three suggest a ‘hold’ and the rest recommend a ‘sell’. The average of Bloomberg consensus 12-month target price is 8.8%. Shares of the lender gained as much as 3% to Rs 1,235, before cooling off the day’s high.
Here’s what the brokerages have to say:
JPMorgan
- Overweight rating maintained
- Price target raised to Rs 1,460 from Rs 1,220 apiece
- Solid execution during the quarter; loan growth is driven by corporate book
- Asset quality likely to deliver a positive surprise despite Covid-19
- Estimated stress in the SME sector has come down to under 3% from 9% last quarter
- Capital, funding, underwriting and growth remain one of the best in the sector
- Raise FY21/22 EPS estimates by 3.5% and 2% respectively
Jefferies
- Buy rating maintained
- Price target raised to Rs 1,450 from Rs 1,350 apiece
- Collections doing well; restructuring could be 1-2% of loans
- Retail momentum pick-up will help topline
- HDB Financial's drop in profit was disappointing
- Raise earnings estimates to factor in better asset quality and recovery in retail demand
- Upside scenario price target of Rs 1,673
- Downside scenario price target of Rs 1,051
Emkay
- Buy rating maintained apiece
- Price target raised to Rs 1,500 from Rs 1,300
- Treasury gains contribute to growth in net profit
- Collection trends are better with demand resolutions
- Deal pipeline in the corporate book remains strong
- Key risks: Slow loan growth, higher-than-expected NPAs in retail loans and management attrition
Prabhudas Lilladher
- Buy rating maintained
- Price target raised to Rs 1,385 from Rs 1,265 apiece
- NII growth slower but recovery was seen in fee income and Opex
- Collection trends normalising and restructuring could be lower
- Asset quality better placed
- Strong loan book growth in corporate book, retail growth slower
Phillip Capital
- Buy rating maintained
- Price target raised to Rs 1,380 from Rs 1,260 apiece
- Judicious mix enabled strong loan book growth despite systemic slowdown
- Strong underwriting and strict monitoring of loans will enable the bank to contain stress portfolio at a manageable level
- See PAT growth of approximately 19% over FY20-22 driven by stable growth due to tax cuts
IDBI Capital
- Buy rating maintained
- Price target raised to Rs 1,430 from Rs 1,270 apiece
- Collection efficiency seems to be the best in the industry
- Will see the best revival of growth within the sector
- Continues to command the highest market share among private banks
- Strong leadership position across segments, large distribution, digital focus and strong capital adequacy to drive market share growth
- Remain structurally positive due to superior credit underwriting, structurally better NIMs and the ability to maintain higher RoA
Kotak Securities
- Add rating maintained
- Price target raised to Rs 1,300 from Rs 1,200 apiece
- Steady on all counts in Q2; business getting closer to normalcy
- Will wait to see a more robust normalisation in the retail business
- Strong commentary implies that HDFC Bank has a sizeable lead as compared to other banks
- Strong operating profits give cushion to manage stress, a risk that still remains
Axis Capital
- Buy rating maintained
- Price target raised to Rs 1,450 from Rs 1,350 apiece
- Strong quarter; normalcy sooner than expected
- With growth returning, better cost ratios and asset quality contained, we expect strong earnings traction over the next few quarters
- See RoA and RoE of 2% and 17% in FY22
- Remains our top pick
ICICI Securities
- Buy rating maintained
- Price target raised to Rs 1,493 from Rs 1,470 apiece
- Management commentary encouraging
- Demand resolution trend is encouraging
- Flat pro forma Gross NPA is a big surprise
- NIM contraction catches up but should stabilise
- Raise FY21E earnings by 15% to factor-in low credit costs
- Best positioned to rebound quicker