Buy HDFC Bank; target of Rs 1756: LKP Research

LKP Research's research report on HDFC Bank

HDFC Bank reported mixed operating performance in 4QFY24. The slippages increased by 4.3% sequentially added by stable recoveries and upgrades, which resulted in improved GNPA ratio at 1.24%. The reported GNPA is below the historical trend of 1.4%. Furthermore, the contingent stands adequate. In 4QFY24, the provisioning expenses were higher sequentially at ₹135bn (v/s ₹42.1bn 3QFY24). At the same time NII growth was tepid sequentially (24.5% YoY, 2.1% QoQ) against the loan growth (55.2% YoY, 1.6% QoQ, merger impact). The bank reported NIMs stable at 3.63%. A stable opex (C/I ratio: 38%) and strong other income growth led to sequential improvement in PPOP.

Outlook

Thus, the bank has reported sequential increase in PAT by 0.9% along with ROA/ROE of 1.96%/15.1%. We expect marginal reduction in ROA/ROE for FY26E owing to higher C/I ratio and margin pressure. Therefore, adjusted the P/BVPS multiple. Nevertheless, we believe, superior underwriting practices, adequate coverage and strong capital position makes the bank well placed and thus, we recommend BUY with price target of ₹1,756.