HDFC Bank reported healthy March-quarter financials (Q4FY24) after missing out on several fronts in Q3. The private lender has largely ticked all the right boxes in Q4, delivering better-than-expected deposit growth, positively surprising on margins, and seeing a rebound in its liquidity coverage ratio (LCR). This has made brokerages issue bullish calls on the lender and bump up their respective target prices.
Although HDFC Bank's stock has dropped by more than 10 percent this year, and underperformed the Nifty 50 index, which went up by 3 percent, analysts are happy with its Q4 performance. Unlike before, when there were some problems due to the HDFC merger, this time, things look good for the bank, they said. HDFC Bank shares slipped 0.6 percent to Rs 1,521 per share in April 22 morning deals.
LDR ratio improves as deposit growth outpaces loans
Jefferies maintained a 'buy' rating on HDFC Bank and raised the target price to Rs 1,880 per share, noting that deposit growth was strong at 17 percent in Q4FY24. The brokerage believes that loan growth lagged at 12 percent in the quarter ended March as the management has been working on margin expansion and moderating its loan-to-deposit ratio.
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HDFC Bank's loan-to-deposit ratio fell to 104 percent in Q4FY24 from 110 percent in Q3FY24. Ideally, a loan-to-deposit ratio of 80-90 percent is considered healthy for a bank, as long as it can meet its liquidity requirements.
Motilal Oswal, too, shared a 'buy' rating for HDFC Bank with a target price of Rs 1,950 per share, forecasting 13.5 percent/18 percent compound annual growth rate (CAGR) in loans/deposits over FY24-26.
Lower borrowings to improve HDFC Bank's RoA, RoE
HDFC Bank's deposits grew 7.5 percent quarter on quarter (QoQ) in Q4FY24, outpacing 1.6 percent QoQ loan growth in Q3FY24, with the corporate segment seeing a decline.
The management had earlier indicated that it expects deposit growth to outpace loan growth by 300-400 bps over the medium term. However, during the Q4FY24 earnings call, the management explicitly refrained from issuing any guidance or retaining the guidance shared earlier.
With a gradual reduction in borrowings, analysts at ICICI Securities upgraded HDFC Bank to 'buy' from 'add' with a target price of Rs 1,850 per share. The brokerage anticipates a gradual re-rating on sustained deposit growth and expects the bank to deliver a healthy return on assets (RoA) of nearly 1.7 percent for FY25/26 with a 14-15 percent return on equity (RoE).
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Margin expansion will boost profitability, say analysts
Another key positive in the lender's Q4 scorecard was the gradual improvement in margins. HDFC Bank's core net interest margin (NIMs) improved by 4 basis points (bps) QoQ to 3.44 percent in Q4FY24 from 3.40 percent in Q3FY24 amid stability in its cost of funds.
Going ahead, analysts at Nomura expect the bank to build a gradual improvement in its margin trajectory as the management prioritises profitability over growth. The brokerage has put a 'neutral' call on HDFC Bank and raised its target price to Rs 1,660 per share from Rs 1,625 per share.
Analysts at Kotak Institutional Equities said that the bank is taking the right steps on slowing down loan growth and shifting its focus to improving the NIM through better loan pricing and/or improving the liability mix. They maintained a 'buy' rating on the counter, with a target price of Rs 1,750 per share.
HDFC Bank reported flattish sequential net profit growth to Rs 16,611 crore in Q4FY24 due to the rise in provisions, while transaction sales from the HDFC Credila stake sale helped accrue net revenue to Rs 47,240 crore.
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