Buy HDFC Bank; target of Rs 1,850: ICICI Securities

ICICI Securitie's research report on HDFC Bank

NIM uptick driven by profitable growth; borrowings down QoQ Loan growth and deposits growth were tepid, as communicated in provisional business update. End of the period deposits were flat QoQ though average deposits grew 4.6% QoQ. CASA balances declined 5% QoQ while ratio stood at 36.3% vs 38.2% QoQ. Overall loans declined 1% QoQ due to 5% decline in wholesale, though retail grew 1.5% QoQ and CRB grew 1% QoQ.

Outlook

HDFC Bank (HDFCB) has reported Q1FY25 PAT at INR 161.7 bn (down 2% QoQ) with annualized RoA of 1.88%. Despite flattish deposits and 1% QoQ decline in loans, NII grew 3% (1% beat) led by better loan mix (profitable growth). QoQ reduction in borrowings (down 9%) and rise in LCR (to 123%) were key positives. Core fee, opex and asset quality were broadly in line. Despite modelling-in solid 18% CAGR in deposits over FY24-26E, enabled by expanding distribution / focus, loan growth (12% CAGR) is likely to lag systemic average as the bank looks to improve elevated LDR and borrowing substitution. Maintain BUY with an unchanged target price of INR 1,850, valuing the core banking business at 2.3x FY26E ABV. Key risk is slower deposit mobilisation impacting loan growth and NIM.