HDFC Bank stock gets Jefferies' buy rating on strong deposit growth, LDR improvement plans

In the last one year, HDFC Bank stock has risen around 10 percent compared to Nifty's gain of 27 percent during this period.

HDFC Bank shares are in focus as Jefferies has issued a 'buy' rating on the stock with a target price of Rs 1,890 per share.

The lender is aiming to lower its loan-to-deposit (LDR) ratio to 85-90 percent over the next three years, which, according to the brokerage, can be achieved through a compound annual growth rate (CAGR) of 15 percent in deposits and a slower loan CAGR of 11 percent.

A loan-to-deposit ratio (LDR) is a percentage that compares a bank's total loans to its total deposits. It is used to assess a bank's liquidity, funding strategy, and riskiness.

Jefferies also stated that a branch expansion strategy is expected to help HDFC Bank increase its market share in deposits, though its loan growth will likely remain at or below the sector average.

HDFC Bank's loan growth is projected to stay at or below the sector average. However, the bank has scope to reduce its funding costs, which could boost its net interest margin (NIM), said Jefferies.

Importantly, compliance with priority sector lending requirements is not expected to significantly impact profits, the brokerage noted.

Jefferies has trimmed its estimates for HDFC Bank by 4-6 percent to factor in slower loan growth. However, the bank’s careful management of unsecured loans is expected to help control credit costs, ensuring that profitability remains relatively stable, it said.

HDFC Bank is slated to report its Q2 FY25 earnings on October 19. Earlier this month, the lender shared its Q2 business update, revealing that its deposit growth had outpaced its loan growth.

It is worth noting that following its merger with HDFC in July last year, HDFC Bank inherited a higher volume of loans compared to deposits, pushing its loan-to-deposit ratio (LDR) up to 110 percent. To address this liquidity challenge, the bank shifted its focus towards accelerating deposit growth over loan disbursements.

HDFC Bank stock ended 2.3 percent higher at Rs 1,689 on the National Stock Exchange (NSE) in the previous session. So far this year, the stock has slipped half a percent, underperforming Nifty's returns of 15 percent.

In the last one year, the counter has risen around 10 percent compared to Nifty's gain of 27 percent during this period.