Brokerages Raise Price Target On HDFC Bank Post Q3 Results 
Exterior of HDFC Bank with namesign (Photo: BloombergQuint) 

Brokerages Raise Price Target On HDFC Bank Post Q3 Results 

Analysts raised their price targets on HDFC Bank Ltd. after its third-quarter results were ahead of consensus estimates.

India's largest private sector lender saw its net profit and net interest income growing 18% and 16% respectively in the October-December period as compared to last year, while asset quality remained steady.

The pro forma gross NPA ratio, which precludes the impact from the Supreme Court’s interim stay on bad loan classification, stood at 1.38% at the end of December 2020, compared to 1.37% in the previous quarter. The pro forma net NPA ratio stood at 0.40% compared to 0.35% last quarter.

Most analysts said the bank is well-placed to ride the next wave of growth, citing its superior balance sheet, strong franchise and faster prospects of asset quality normalisation.

Shares of HDFC Bank gained as much as 1.6% to Rs 1,491 - trading near its record high. Out of the 55 analysts that track HDFC Bank, 51 have a 'buy' recommendation, three say 'hold' while one has a 'sell' rating. Based on the 12-month Bloomberg consensus price target, the stock has a return potential of 10.2%.

Here’s what they analysts had to say on HDFC Bank’s earnings:

Jefferies

  • Maintains buy rating
  • Price target raised to Rs 1,800 apiece from Rs 1,730 apiece
  • Stable asset quality, low restructuring, an uptick in retail lending and expansion in NIMs a key positive
  • Digital platform resolution can take some time
  • Pressure on HDB Financial offsets strength at HDFC Securities
  • See 18% loan CAGR over FY20-23
  • Raise earnings forecasts to factor in better asset quality and recovery in retail demand
  • Bull case price target of Rs 2,007

Emkay

  • Maintains buy rating
  • Price target raised to Rs 1,850 apiece from Rs 1,500 apiece
  • Sets the tone for better asset quality, growth outlook
  • Healthy business momentum; NIMs normalise QoQ
  • Asset quality trending towards normalisation
  • Asset quality trends at HDB Financial remain sub-par, reflecting continued weakness in the NBFC space
  • Well placed to ride the new growth wave, given its strong franchise, balance sheet and prospects of faster asset quality normalisation
  • Key risks: Delay in the lifting of credit card suspension, tail-end asset quality risk and management attrition

Motilal Oswal

  • Maintains buy rating
  • Price target raised to Rs 1,720 apiece from Rs 1,650 apiece
  • Strong business growth as the economy continues to recover from the Covid shock
  • Bank's operating performance remains steady, aided by healthy revenue growth, improving margins and controlled opex.
  • Sufficient additional contingent provision buffer to manage residual stress
  • Expect 20% PAT CAGR over FY20-23E with RoA/RoE estimate of 2.1% and 18.2% for FY23E

Investec

  • Maintains buy rating
  • Price target raised to Rs 1,680 apiece from Rs 1,435 apiece
  • Bank's asset quality metrics are nearly normal
  • HDB Financial continues to struggle, being a drag on consolidated profit growth
  • Normalise our credit costs close to steady-state estimates
  • Upgrade PAT estimates for FY22e by 14%
  • Improving retail credit growth momentum is key for sustainable returns

IDBI Capital Markets

  • Maintains buy rating
  • Price target raised to Rs 1,740 apiece from Rs 1,430 apiece
  • Stable credit growth while deposit growth declined
  • Believe bank will traverse through these tough times and will gain market share led by strong leadership position across segments, large distribution, digital focus and strong capital adequacy
  • Remain structurally positive given its superior credit growth, underwriting, structurally better NIM and the ability to maintain a higher RoA among its peers

Kotak Institutional Equities

  • Maintains add rating
  • Price target raised to Rs 1,550 apiece from Rs 1,475 apiece
  • Enviable execution at the display; solid performance overall
  • Another round of earnings upgrade as the impact of Covid has been negligible
  • Two key risks: Growth recovery is slower resulting in lower-than-expected revenue growth and delayed presence of Covid impact on banks

Macquarie

  • Maintains outperform rating
  • Price target of Rs 2,005 apiece
  • Continues to build provisioning buffer
  • Collection efficiencies trending better
  • Restructuring under RBI resolution for Covid-19 was at 0.5% of loans
  • Management expects 2-3% of SME portfolio to slip Vs initial assessment of 9%
  • Strong balance sheet and high provision buffer remain key catalysts
  • Remains top pick in the sector
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