HDFC Bank’s price performance (3Years: negative 1.72%, 1Year: negative 11.53%, 6months: negative 11.13%, and YTD: negative 15.6%) was lukewarm for previous three years. With merger overhangs, higher operating expenses (C/I: 40% of 3QFY24), reducing yields (owing to higher HL of HDFC Ltd) and marginally reducing ROA (~2% for 3QFY24); the bank has underperformed the whole sector. However, we believe, the negatives are in price as trailing P/BVPS (2.78x) is at comfortable level, whereas the 5-Year peak P/BVPS (5.8x) of the bank was on June – 19. The median P/BVPS for last 5 –Years was 3.8x. The trailing P/BVPS (2.8x) is way below the 5-Year median of 3.8x.
OutlookWe opine a turnaround from this point as the ROA is likely to stay stable despite higher operating expenses. We recommend a STRONG BUY with a TP of ₹1,762; a potential upside of 22% from current level.
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