HDFC Bank’s Over 20% Profit Growth Helps Analysts Stay Upbeat

Most brokerages are upbeat on HDFC Bank Ltd. after India’s largest private lender met estimates for the quarter ended March due to stable asset quality and lower provisioning for bad loans.

The lender’s net profit and net interest income for the three-month period rose above the consensus estimate of analysts tracked by Bloomberg. Most brokerages, barring Equirus, have retained their ‘Buy’ rating on the stock.

Here’s what analysts had to say about the earnings

Motilal Oswal

• Strong operating performance continues; margin improves further.
• Bank has been consistently gaining market share across retail product segments.
• Strong capitalisation and liquidity levels to help sustain momentum.
• Maintain ‘Buy’ with a target price of Rs 2,650 per share.

Equirus

• Downgrade to ‘Add’ after the recent run-up, target revised to Rs 2,500 from Rs 2,475.
• Management calibrates retail growth; Expects softcore fee income growth in first half of FY20.
• Incremental loan mix could shift in favour of wholesale.
• Growth momentum is likely to moderate in auto/cars (19 percent/6 percent of total loans).

Edelweiss

• Momentum maintained but fee income remains modest.
• Margins at the upper-end of the guidance.
• Strong tier-I at 15.8 percent and rising market opportunities enhance growth visibility.
• Asset quality steady, agri non-performing loans continue to be volatile.
• Maintain buy, target price revised upward to Rs 2,628 per share from Rs 2,530.

Bernstein Research

• Strong momentum in loans driving earnings growth.
• Margin improved sequentially driven by current account deposits push.
• Sequential trend in operating costs reflects revival in branch investments.

Jefferies

• Modest quarter, retail growth moderates, fee moderates to 11 percent on a yearly basis.
• Elevated provisions—building contingent provision for expected Agri NPLs in Q1.
• NIM at 4.4 percent and core-PPOP/Assets of 4.6 percent (highest since FY15) were better.
• Post-election rhetoric & implication on agriculture to be key driver going forward.
• Retain ‘Buy’, target Rs 2,685 per share.

JM Financial

• Management attributes this to short-term loans to higher-rated corporates
• Provision coverage ratio is best in class at 71 percent; slippage or loans turning sour moderated to 2 percent
• Bank remains top picks in banking sector; maintain buy

Prabhudas Lilladher

• Bank consciously has slowed retail growth in certain segments
• Overall loan growth supported by non-retail which were largely short term Management tone on agri loans continues to remain cautious and continues to add to contingent provisions
• Keeping an eye on cost of funds as liabilities seem to be a challenge in near term
• Retain buy, price target raised to Rs 2,700 from Rs 2,371

ICICI Securities

• Bank is consolidating, pacing its loan growth in select retail segments
• Credit cost factoring in risks on its agriculture book
• Muted fee income growth appears temporary mainly due to base effect
• Expect 25 percent EPS CAGR over FY19-21 and return of assets touching 2 percent
• Maintain buy on stock, price target Rs 2,639