Q1 Results: Brokerages Maintain Bullish Rating On HDFC Bank Amid Tough Environment

Most brokerages maintained their bullish stock rating on HDFC Bank Ltd. after the country’s largest private lender met street estimates amid a slowdown in loan growth and higher credit costs.

The lender’s quarterly profit rose 21 percent on a yearly basis during the June quarter, even as provisions rose. While the net interest income or the bank’s core income met street estimates, the bank’s gross non-performing assets ratio expanded to 1.4 percent from 1.36 percent in the previous quarter. (more details here)

Going forward, the bank’s profit growth should remain healthy at above 20 percent, led by strong lending, robust and possibly expanding net interest margin and steady non-interest income, according a Bloomberg Intelligence report.

“Asset quality should remain healthy, though some stress stemming from its exposure to farm loan waiver-related assets and sequential rise in provisions in Q1 may be watched by investors.”

Here’s what analysts said about HDFC Bank post June quarter results:

Antique Broking

• Maintains ‘Buy’ with a price target of Rs 2,675, implying a potential upside of 12.6 percent from Friday’s close.
• Retail loan growth moderated and was at a four-year low.
• Continued macroeconomic challenges may lead to some moderation in loan growth.
• Stable asset quality with prudent provisioning increase.

Citi

• Maintains ‘Buy’ with a price target of Rs 2,800, implying a potential upside of 17.9 percent from Friday’s close.
• Additional provisions in certain segments.
• Bank saw seasonally higher provisions on agri book.
• Growth slowed due to fewer vehicle and corporate loans.
• Slower loan growth and higher credit cost may lower earnings.

CLSA

• Maintains ‘Buy’ and hikes price target to Rs 2,940 from Rs 2,930, implying a potential upside of 23.8 percent from Friday’s close.
• Tapering aggression on unsecured lending could be a margin risk.
• Highlight was its cautious stance on unsecured retail loans.
• Loan growth moderates but net interest margins aided top line and operating profit.
• Bank has levers to deliver earnings growth.

Credit Suisse

• Maintains ‘Outperform’ with a price target of Rs 2,700, implying a potential upside of 13.7 percent from Friday’s close.
• Growth moderated but core profitability intact.
• Loan growth moderated on the back of a slowdown in the vehicle book.
• Slowdown in some segments may led to a slight moderation in growth.

Edelweiss

• Maintains ‘Buy’ with a price target of Rs 2,785, implying a potential upside of 17.2 percent from Friday’s close.
• Momentum maintained but growth belies expectation.
• Softening credit growth led by moderating auto loans and rundown of a few corporate assets.
• Higher provisioning in unsecured lending and increased provisioning for agricultural loans.

Goldman Sachs

• Maintains ‘Buy’ with a price target of Rs 2,879, implying a potential upside of 21.9 percent from Friday’s close.
• Strong beat on core pre-provisioning operating profit.
• Well placed to cope with cyclical headwinds.
• Expects premium valuations to sustain.

Morgan Stanley

• Maintains ‘Overweight’ with a price target of Rs 3,000, implying a potential upside of 26.3 percent from Friday’s close.
• Stays ‘Overweight’ due to the bank’s strong balance sheet.
• Core pre-provisioning operating profit was 2 percent above estimates, helped by strong net interest income.
• Loan growth moderation was broad-based, led by corporate banking.

Nomura

• Maintains ‘Buy’ with a price target of Rs 2,450, implying a potential upside of 3.1 percent from Friday’s close.
• Stable quarter in a tough environment.
• Better-than-expected core operating performance used up to build provision buffers.