The HDFC Bank stock has failed to live up to its name this year so far, as the second wave of the pandemic aggravated concerns over the asset qualities of banks.
Year-to-date (YTD), shares of HDFC Bank have gained just 10 percent against a 24 percent jump in the benchmark Sensex.
However, brokerage firm Motilal Oswal Financial Services now sees a 14 percent upside in the stock from hereon.
The brokerage firm has maintained a buy call on the stock with a target price of Rs 1,800.
India's largest private sector bank by assets and by market capitalisation, HDFC Bank has now got the relief from the RBI, which has partially lifted the restrictions placed on it and allowed the bank to source new credit cards.
The bank now is looking to regain its lost market share across card segments in the next three-four quarters, media reports suggest.
"This addresses a key overhang as HDFC Bank is the largest credit card issuer in the country, and this segment is key to the bank’s overall profitability," Motilal Oswal said.
"In recent quarters, HDFC Bank reported moderation in fee income or NII, impacted by the restriction, as this segment contributes 25–33 percent to its total fee income. Thus, the lifting of restrictions before the start of the festive season is a positive development as HDFC Bank is usually aggressive during this time, offering various discounts on consumer products," Motilal Oswal pointed out.
In the April-June quarter of the financial year 2022 (FY22), the bank delivered healthy growth in advances despite a challenging environment due to the second wave of COVID-19.
Brokerage firm Motilal Oswal expects a strong uptick in growth in the second half of FY22 even as growth in the first half could remain soft.
"We estimate loans to grow by 15 percent and 17.5 percent in FY22E and FY23E, respectively. Deposit growth remains strong, led by CASA, which would support the margin trajectory. Its fee income profile was impacted by muted business activity in 1QFY22. As lending picks up, with a revival in economic activity, fees would reflect improving trends," Motilal Oswal said.
Strong cost control, led by further digitalisation, is likely to drive an overall improvement in the bank's return ratios. Although margins have moderated, the brokerage firm expects a gradual increase on account of lower cost of funds and a strong and granular liability franchise.
"Strong capitalisation and liquidity levels should help HDFC Bank sustain its growth momentum over the next few years. This renders the bank better placed to tide over the crisis and gain incremental market share," Motilal Oswal said.
Motilal Oswal expects growth trends to revive in retail, especially in the unsecured lending segment in coming quarters.
The bank understands that the threat of COVID-19 still looms and it has taken steps to mitigate the impact of the future wave of the pandemic.
"HDFC Bank continues to make additional contingent provisions to further strengthen its balance sheet against any potential COVID-19 impact and expects stress to remain controlled," Motilal Oswal observed.
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