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What should investors do with HDFC Bank after Q1 results: buy, sell or hold?

The country's largest private sector lender on July 17 reported a 16.1 percent year-on-year growth in standalone profit at Rs 7,729.64 crore for the quarter ended June 2021 despite elevated provisions.

July 19, 2021 / 09:50 AM IST
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HDFC Bank share price fell over 2 percent at open on July 19 after the company declared its Q1 results.

The country's largest private sector lender on July 17 reported a 16.1 percent year-on-year growth in standalone profit at Rs 7,729.64 crore for the quarter ended June 2021 despite elevated provisions.

Higher other income and pre-provision operating profit along with NII supported profitability. The bank reported a profit of Rs 6,658.62 crore in Q1 FY21.

Net interest income, the difference between interest earned and interest expended, grew by 8.6 percent to Rs 17,009 crore compared to the year-ago quarter, with loan growth of 14.4 percent and a core net interest margin of 4.1 percent. Deposits, at Rs 13.45 lakh crore grew, by 13.2 percent YoY.

Also Read: HDFC Bank Q1 profit jumps 16.1% to Rs 7,729.6 crore, NII rises 8.6%


The bank, in its BSE filing, said its continued focus on deposits helped in the maintenance of a healthy liquidity coverage ratio at 126 percent, well above the regulatory requirement.

The stock was trading at Rs 1,480.70, down Rs 41.00, or 2.69 percent. It has touched an intraday high of Rs 1,491.00 and an intraday low of Rs 1,475.00.

Here is what brokerages have to say about the stock and the company after Q1 earnings:

Goldman Sachs | Rating: Buy | Target: Rs 1,803

The company reported better-than-expected operating performance with core PPOP 5 percent ahead. However, higher-than-expected provisions led to PAT miss.

Morgan Stanley | Rating: Overweight | Target: Rs 2,000

The brokerage firm is of the view that Q1F22 EPS was 1 percent below its estimates. "NIM missed our estimate but was offset by higher fees. Bad loan formation was elevated given second Covid wave. Provisions broadly in-line adjusted for contingency provisions. Reduce EPS estimates by 2 percent," it said.

CLSA | Rating: Buy | Target: Rs 1,850

The bank reported manageable asset quality but weak NII trends. NII growth of less than 10 percent YoY was weak and reflects a big loan mix shift. "Commentary on retail and SME asset quality is comforting Loan and NII growth trends will be key to watch. No update on credit card ban which will remain a near-term overhang," it added.

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Motilal Oswal | Rating: Buy | Target: Rs 1,800

HDFC Bank reported an in line performance, though margin fell by 10bp QoQ on higher interest reversals, unfavorable asset mix, and lower revolving balances on credit cards. Advances growth stood at 14 percent YoY, led by healthy trends in the commercial and rural banking portfolio, while retail growth was muted due to a sharp decline in the credit cards portfolio, which was affected by RBI’s restriction on sourcing of new credit cards and lower revolving balances.

Asset quality deteriorated marginally, with GNPA/NNPA ratio increasing by 15bp/8bp QoQ. Total slippages in 1QFY22 stands elevated. Also, restructured loans rose to 0.8% of loans (v/s 0.6% in FY21). We broadly maintain our earnings estimates for FY22E/FY23E and maintain our buy rating.

Arihant Capital | Rating: Accumulate | Target: Rs 1,721

Covid 2.0 has impacted the bank’s operation resulting into spike in slippages. However, it remained pretty much under control. With the easing of lockdown and decline in covid cases, business activity has started picking up and bounce rates also holding up well. We believe, bank should bounce back from Q2FY22 onwards as normalisation starts.

We continue to maintain our positive stance on HDFC Bank due to its best-in-class deposit franchise, well cushioned balance sheet, comfortable capital level and expect growth rate to bounce back. We cut our earnings estimates by 3%/1% for FY22/23E and maintain our accumulate rating on the stock with a revised target price of Rs 1,721 (earlier Rs 1,683), valuing the bank at 3.7x FY23E P/ABV.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.
Sandip Das
first published: Jul 19, 2021 09:50 am

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