Buy HDFC Bank; target of Rs 1950: Motilal Oswal

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26 Aug, 2025 12:21

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HDFC Bank (HDFCB) reported a steady first quarter after the merger, with in-line PPoP and robust business growth (~5% QoQ). PAT grew 33.7% QoQ to INR159.8b in 2QFY24. Deposit growth was particularly strong as the bank garnered INR1.1tn of deposits in 2QFY24 (85% retail deposits). Margins compressed sharply to 3.4%, dragged down by excess liquidity and ICRR impact. However, the bank reported an 8% earnings beat, supported by a lower tax rate. NII came in slightly lower than our estimate, but it was offset by robust other income (buoyed by treasury gains). As a result, revenue stood in line with our estimate. GNPA ratio improved over pro forma 1QFY24 estimates, while PCR was broadly stable at 74%. Fresh slippages stood at INR78b or 1.9% of loans. HDFCB has made a good beginning, and given a huge pace of capacity building, we believe that there are levers in place to sustain this momentum in business growth. Margins are likely to recover gradually, which, along with improved operating leverage, should improve return ratios. We estimate HDFCB to deliver a CAGR of 18%/20% in loans/deposits and a 21% CAGR in earnings over FY24-26, translating into RoA/RoE of 2%/17.4% by FY26E. We reiterate our BUY rating.

We estimate HDFCB to deliver a CAGR of 18%/20% in loans/deposits and a 21% CAGR in earnings over FY24-26, translating into RoA/RoE of 2%/17.4% by FY26E. We reiterate our BUY rating with an unchanged TP of INR1,950 (2.7x FY25E ABV + INR209 for subs).

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