Buy HDFC Bank; target of Rs 2050: Motilal Oswal

Motilal Oswal's research report on HDFC Bank

HDFC Bank (HDFCB) reported steady performance in 2QFY25, with net earnings of INR168.2b (~3% beat). NIMs declined 1bp QoQ to 3.46%, while the C/D ratio declined sharply by ~4% QoQ to 99.8%. Provisions were 5% higher than MOFSLe at INR27b. The bank utilized INR7b of contingent provisions pursuant to the reversal of AIF provisions. HDFCB is holding total provisions (floating and contingent) of INR262b. GNPA ratio increased 3bp QoQ to 1.36%, while PCR remained stable at 71.2%. Fresh slippages stood at INR78b (1.3% of loans). Given that the bank is focusing on bringing C/D to a normalized level, we trim our loan growth estimates to 7%/10% for FY25/FY26. Thus, we estimate C/D to improve to 97.1%/92.2% in FY25/FY26. We estimate HDFCB to report gradual recovery in loan growth over FY25-27E with earnings growth accelerating faster. We thus estimate HDFCB to deliver FY26E RoA/RoE of 1.8%/14.6%. We reiterate our BUY rating with a TP of INR2,050 (2.4x Sep’26E ABV + INR295 for subs).

Outlook

We estimate HDFCB to report gradual recovery in loan growth over FY25-27E with earnings growth accelerating faster. We thus estimate HDFCB to deliver FY26E RoA/RoE of 1.8%/14.6%. We reiterate our BUY rating with a TP of INR2,050 (2.4x Sep’26E ABV + INR295 for subs).