Buy HDFC Bank; target of Rs 1900: Sharekhan

Sharekhan's research report on HDFC Bank

HDFC Bank reported PAT at Rs. 16,373 crore, beating consensus and our estimates by 4% and 2%, respectively, mainly led by write-back of tax provisions amounting to ~Rs. 1,500 crore from a favourable tax order. However, core operating performance remained below expectations as NIMs (based on IEA) were stable q-o-q at 3.6% vs. expectation of improvement (~5-10 bps) due to the release of excess liquidity as regulation on ICRR has now been withdrawn. We believe NIMs have bottomed out, but NIM progression would be the key focus area in the near to medium term. Liability-side transition is also important to track as the CD ratio continues to remain elevated compared to the industry and retail deposit growth continues to remain challenging.

Outlook

We believe the bank would have to slow down loan growth in the near term to navigate the liability-side transition. However, we remain constructive on the bank with mid to long-term perspective. The stock trades at 2.2x/1.9x its FY2025E/FY2026E core BV estimates. We maintain Buy with an unchanged PT of Rs. 1,900.