Analysts Raise HDFC Bank’s Price Target On Strong Recovery Prospects

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