Buy HDFC Bank; target of Rs 1762: LKP Research

LKP Research's research report on HDFC Bank

HDFC Bank reported mixed operating performance in 3QFY24. The slippages decreased by 10% sequentially aided by stable recoveries and upgrades, which resulted in improved GNPA ratio at 1.26%. The reported GNPA is below the historical trend of 1.4%. Furthermore, the contingent stands adequate. In 2QFY24, the provisioning expenses were higher sequentially at ₹42.2bn (v/s ₹29.1bn 2QFY24). At the same time NII growth was tepid sequentially (23.9% YoY, 4% QoQ) against the loan growth (62.3% YoY, 4.9% QoQ, merger impact). The bank reported NIMs stable at 3.6%. A stable opex (C/I ratio: 40.3%) and stable NII growth led to sequential improvement in PPOP.

Outlook

Thus, the bank has reported sequential increase in PAT by 2.5% along with ROA/ROE of 1.96%/15.5%. We expect marginal reduction in ROA/ ROE for FY24E owing to higher C/I ratio and margin pressure. Nevertheless, we believe, a superior underwriting practices, adequate coverage and strong capital position makes the bank well placed and thus, we recommend BUY with price target of ₹1762.