Emkay Global Financial's research report on HDFC Bank
We expect HDFCB to post moderate growth in the near term, as HDFCL’s loan book decelerates (mainly corporate), while near-term core margins (3.7-3.8% on merged basis vs. standalone 4.1%) contract by 10-15bps due to ICRR+excess liquidity impact. However, growth should accelerate (15% CAGR over FY24-26E), as mortgage engine fires up from the bank’s platform, which along with the gradual replacement of HDFCL’s high-cost borrowings (80-85% to be replaced via retail deposits), as they mature, should lead to margin normalization. We have cut our earnings/BV est. by ~4%/5-6% to reflect the nearterm margin softness, higher opex due to investments in the phygital network, and mergerrelated adjustments. Thus, we revise our TP to Rs2,100 (valuing the core bank at 2.8x its Sep-25E ABV+subs/inv. value at Rs185) from Rs2,150. However, retain BUY, as we believe the merger drag should ease soon, which along with improvement in the bank’s RoA/RoE back to ~2%/16-17% over FY25-26E, benefiting from the merger’s synergies, should be positive. Further, given KMB undergoing mgmt. transition (typically leading to business/valuation softness as seen in HDFCB), HDFCB with stable mgmt., better return profile and valuation (2x vs. 2.1x for KMB) offers a good bet from a medium-long term view. The long-awaited listing of HDB Fin should be another stock catalyst going ahead.
Outlook
We have cut our earnings/ABV est. by ~4%/5-6% to reflect near-term margin softness, higher opex due to investments in the phygital network, and merger-related adjustments. However, we expect the bank’s RoA/RoE to improve from 1.9%/15.6% in FY24E (merged) to ~2%/17% by FY26E, benefiting from better growth/margins and fees, as merger synergies kick in. We retain BUY with a revised TP of Rs2,100 (valuing the core bank at 2.8x Sep-25E ABV + subs/inv. value at Rs185/share).
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