This underperforming bank is up 20% from current levels

New Delhi: Since agreeing to take over the leading family financier in April this year, the scenario is said to be tapering off and has since eroded in value by almost 10%. Also, against Bank NiftyProfit more than 10% in the past 1 year, HDFC Bank adjusted more than 4% in the same period.

Now, after leading brokerage Prabhudas has clarified some of its concerns to the management, it maintains its optimistic view and raises its price target to Rs 1,800 from Rs 1,740 previously. This considers Friday’s closing price of Rs 1,493, which equates to a potential gain of nearly 21%.

The brokerage firm is optimistic on the premise that “faster deposit accumulation for HDFC Bank from a systemic point of view can be achieved, while bank borrowing can be allowed. The unsecured stake in the incorporated entity is likely to remain in the 11-12% range, as the mortgage portfolio (higher ticket size) will grow strongly.

Smart talk

The stand-alone NIM could gradually improve (4.2% in FY22), as the retail share will increase, which could also protect the NIM due to lower requirements. Opex is likely to remain bullish in the medium term. As we slightly increased NII for year 24E/25E, and at the same time increased NII (net interest income) for FY24E/25E, our NPAT increased by 2.5% on average. Therefore, we increase our SOTP-based price target from Rs 1,740 to Rs 1,800 base ABV September 2024 but remain “buying,” the broker noted.

Furthermore, the broker asserts that HDFC Bank can easily see about 25% increase in market share of systemic deposits over the medium term, to finance HDFC’s organic growth and debt maturity. This is due to the bank’s continued focus on the bank’s term deposits (TDs), higher yields from existing branches and a target of 1,000-2,000 branch expansion per year.

“Historically, the bank has achieved an increased market share in TDs of 42% in FY18, 21.5% in FY20 and 26.1% in FY22. In Q1FY23, the bank has added Rs 600 billion to TD,” the broker added.

Risk broker for NIM says that any drag in PSL even after buying PSLC will result in investment in NABARD/SIDBI bonds yielding only 3-3.5% causing 10-15 bps drag for NIM. However, it added after iInteraction with banks showed that this cost could be recouped through price adjustments in other products.

(Disclaimer: The recommendations, suggestions, views and opinions expressed by experts are their own. They do not represent the views of The Economic Times)

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