Buy HDFC Bank; target of Rs 1850: Motilal Oswal

Motilal Oswal's research report on HDFC Bank

HDFC Bank (HDFCB)’s Annual Report emphasizes the institution's commitment to achieving sustainable growth over the medium term as it continues to invest in strengthening both its physical infrastructure and digital prowess. While the near-term growth is likely to remain soft due to constraints on the CD ratio, the increased threshold on loan pricing, which enables improved asset mix and gradual retirement of high-cost borrowings, will nevertheless fuel margin recovery. HDFCB has posted a healthy traction in Retail + Commercial and Rural Banking portfolio, with the mix of these two segments improving ~300bp over the past one year to ~81%. This has helped address the PSL shortfall and the bank became a net seller of PSLCs during FY24 (though the segmental gap persists) after reporting consistent shortfalls in prior years.

Outlook

We thus estimate HDFCB to deliver an FY26E RoA/RoE of 1.86%/14.9%. We reiterate our BUY rating on the stock with a TP of INR1,850 (premised on 2.3x FY26E ABV + INR256 for subsidiaries).