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What should investors do with HDFC Bank after Q2 results: buy, sell, or hold?

The company reported an 18.4 percent year-on-year growth in profit at Rs 7,513.11 crore for the September quarter.

October 19, 2020 / 03:38 PM IST

HDFC Bank share price rose 3 percent in the early trade on October 19 after the company posted its September quarter earnings over the weekend.

The company reported an 18.4 percent year-on-year (y-o-y) growth in profit at Rs 7,513.11 crore for the September quarter, driven by PPoP, NII and lower tax rate. The profit in the year-ago period was at Rs 6,345 crore.

Net interest income (NII), the difference between interest earned and interest expended, increased by 16.7 percent year on year to Rs 15,776.4 crore in the quarter, driven by asset growth of 21.5 percent and a core net interest margin for the quarter at 4.1 percent.

Here is what brokerages have to say about the stock after the Q2 earnings:

ICICIdirect | Rating: Buy | Target: Rs 1,450

Digital initiatives and strong festive tie-ups are seen propelling retail credit growth ahead. This, coupled with healthy traction in corporate disbursement, is seen as keeping the business momentum ahead of the industry. Improvement in collections at 97 percent and contingent provision at ~75 bps of advances provides cushion from high volatility in asset quality and earnings.

Though the management refrained from providing an indication about restructuring, improving collections are seen keeping the quantum in lower single digits. Adequate capital with CaR at 19.1 percent and healthy internal accrual and operational efficiency provide confidence about future business and earnings growth. Thus, ICICIdierct remains positive on the bank and maintains a buy rating with a revised target price of Rs 1,450 per share, valuing the core bank at ~3.8x FY22E ABV and adding Rs 50 in lieu of subsidiaries.

Motilal Oswal | Rating: Buy | Target: Rs 1,400

HDFC Bank has delivered strong growth amid a challenging macro environment and business momentum is swiftly moving toward pre-COVID levels.

The bank’s operating performance remains steady, aided by healthy revenue growth and controlled opex. The bank continued to make healthy provisions to further strengthen the balance sheet and still reported stable in-line earnings.

Overall, Motilal Oswal expects a marginal deterioration in asset quality/ earnings growth (on a high base) in 2HFY21. Although a healthy provision buffer would limit the damage and enable the bank to quickly recover to a normal growth run-rate.

It maintains earnings estimates for FY21/FY22 and also introduce FY23E. It estimate a 19 percent PAT CAGR over FY20–FY23E, with ROA/ROE at 2 percent/ 17.8 percent for FY23E. Maintain buy, with a revised target price of Rs 1,400 (3.1x Sep’22E ABV).

Dolat Capital | Rating: Buy | Target: Rs 1450

With the focus on top-end customers across segments, superior underwriting and healthy provisioning and capital buffers (CET 1 ratio at
17%), Dolat Capital sees HDFC Bank as best placed amid current uncertainty. It has factored in incremental stress (RSA+ slippage) of 3.7 percent for the bank.

Tweaking the estimates marginally and rolling over to Sep-22E, it maintains a buy recommendation on the stock with a SOTP-based target price of Rs 1,450, implying 3.4x Sep-22E P/ABV. The stock currently trades at 2.8x Sep-22E ABV.

Prabhudas Lilladher | Rating: Buy | Target: Rs 1,385

HDFC Bank’s earnings were marginally lower than expected at Rs 75.1 billion (PLe: Rs 75.9 bn). Miss was from NII, which grew by 17 percent YoY (PLe: 18 percent YoY) on a slightly sharper NIM decline of 20bps QoQ and slightly higher provisions for strengthening balance sheet.

The bank is placed in a strong position with prudent provisioning buffers at 0.7 percent of loans and high PCR of 85 percent (pro-forma 75 percent) and should have much lower restructuring and asset-quality outcome than the industry. The broking house has retained a buy rating with a revised target price of Rs 1,385 from Rs 1,265 based on 3.1x multiple as it rolled over its valuations to Sep-22 ABV.

Sharekhan | Rating: Buy | Target: Rs 1,500

HDFC Bank’s Q2FY2021 results were strong with operational performance in line with expectations. Asset quality improved on a q-o-q basis. Results indicated a revert to normalcy. The management commentary was positive and reassuring and indicated a bright long-term outlook.

The bank indicated a strong deal pipeline in the corporate segment and expects robust retail credit pickup, led by healthy disbursement trends. With the management transition behind it, the bank is looking to leverage technology/reach to gain market share across business lines, buoyed by better efficiencies and, thereby, deliver superior RoAs.

The brokerage expects HDFC Bank’s business quality and franchise strength will help it tide over near-term challenges.

Kotak Institutional Equities | Rating: Add | Target: Rs 1,300

The company reported 18 percent YoY earnings growth on healthy operating profit growth. The solid performance on asset quality implies a sizeable lead versus all banks. Strong operating profits give it an adequate cushion to manage stress, CNBC-TV18 reported the brokerage as saying.

Nomura | Rating: Buy | Target: Raised to Rs 1,450 from Rs 1,325

The franchise strengths were showing up, while collections were nearing normalisation.

The SME stress for 30 dpd (Days Past Due) reduced to 3 percent from 9 percent earlier and reduced credit cost estimate to 1.6 percent/1.3 percent for FY21/FY22, respectively. Nomura expects ROE of 17-18 percent by FY22-23, reported CNBC-TV18.

Jefferies | Rating: Buy | Target: Raised to Rs 1,450 from Rs 1,350

The bank is holding up, while HDB finance faces the pressure. Its September collections were indicating restructuring to be at just 1-2 percent of loans

The retail momentum pick-up will help topline and encouraged to see 27 percent growth in CASA. The lower funding cost enabling market share gain in corporate loans, reported CNBC-TV18

CLSA | Rating: Buy | Target: Raised to Rs 1,525 from Rs 1,450

The collections and new business trends were strong. It reduced credit cost estimate to 3 percent for FY21-FY22 from 3.2% and increased PPoP estimate by 1-2 percent due to better fee income, reported CNBC-TV18.

Edelweiss Securities | Rating: Buy | Target: Raised to Rs 1,490 from Rs 1,335

The bank's profits beat estimate due to higher other income. The exit month collection efficiency and disbursals run-rate shy of pre-COVID levels. The stability achieved and growth aspirations were renewed, reported CNBC-TV18.

Axis Capital | Rating: Buy | Target: Raised to Rs 1,450 from Rs 1,350

It was a strong show with normalcy returning sooner than expectations. The retail bank seems to have moved ahead with little damage. The disbursals in retail is at 80 percent of pre-COVID levels while HDB Finance reported a weak performance, reported CNBC-TV18.

Macquarie | Rating: Outperform | Target: Raised to Rs 1,489 from Rs 1,219

The management painted a very positive outlook on asset quality. The customer segment has been relatively insulated and salary credits quite regular.

The non-moratorium book collections are similar to pre-COVID levels. The 50 bps reduction in credit cost will result in earnings rebound of 15-20 percent, CNBC-TV18 reported the brokerage as saying.

At 0922 hours, HDFC Bank was quoting at Rs 1,211.80, up Rs 12.45, or 1.04 percent on the BSE.

Moneycontrol News
first published: Oct 19, 2020 09:42 am