Buy HDFC Bank; target of Rs 2100: Emkay Global Financial

Emkay Global Financial's research report on HDFC Bank

HDFCB’s management reiterated its unwavering focus on customer satisfaction, arresting employee attrition, upgrading tech, and reducing regulatory friction. It plans to cut its LDR to pre-merger level (~85%) from the current 100% by cannibalizing credit growth and accelerating deposit growth. Bank should grow at sub-system levels in FY25, mimic system in FY26, and outperform in FY27. HDFCB proactively reduced unsecured loan growth earlier on, but would be open to quality loans as others take a back seat. Falling LDR/higher CoF could put some pressure in the near term, but margins are expected to inch-up in the long run, led by better portfolio mix/lower share of borrowings (8-9% of liabilities). HDB Fin’s listing should help meet current RBI guidelines, while the bank awaits clarity on Holdco norms for further stake cut.

Outlook

HDFCB’s asset quality may witness intermittent volatility, but would outperform peers. With rising systemic stress, we believe HDFCB deserves a safety premium given healthy RoAs and provision/capital buffer; we retain BUY with a revised TP of Rs 2,100.

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