Buy HDFC Bank; target of Rs 1900: Sharekhan

Sharekhan's research report on HDFC Bank

HDFC Bank reported PAT at Rs. 15,977 crore on the merged basis beating consensus and our estimates by 9%/8% respectively mainly due to lower tax rate led by one off item i.e. write back of tax provisions amounting to ~Rs. 1,000 crore from a favorable appellate orders. NIMs were lower at ~3.6% based on interest earning assets for the merged entity in Q2FY24 vs ~3.7-3.8% in Q1FY23 based on the proforma disclosed earlier. Excess liquidity built up required for LCR and for incremental CRR led to ~25 bps negative impact on NIMs resulting in NII missing consensus and our estimates by 3%/2% respectively. Management guided that NIMs would normalize gradually over the next few quarters as liquidity was made available through debt funding and it would require time to retire as they are not short term in nature. Despite significant margin pressure, bank reported RoA of ~2.0% led by higher other income, lower credit cost and lower tax expense.

Outlook

The stock trades at 2.2x/2.0x its FY2024E/FY2025E core BV estimates. We maintain our Buy rating with an unchanged PT of Rs. 1,900.