scorecardresearchBrokerages keep faith in HDFC Bank despite lower-than-expected Q3 credit growth

Brokerages keep faith in HDFC Bank despite lower-than-expected Q3 credit growth

Updated: 05 Jan 2023, 04:17 PM IST
TL;DR.
HDFC Bank's advances aggregated to approximately 15.07 lakh crore as of December 31, 2022, clocking a growth of around 19.5 percent over 12.61 lakh crore as of December 31, 2021.
The stock's performane has been subdued in the last one year.

The stock's performane has been subdued in the last one year.

HDFC Bank continued to fall for the second consecutive day on January 5. It fell nearly 2 percent on January 4. 

Shares of HDFC Bank closed 0.67 percent lower at 1,599.70 while the Sensex closed with a loss of 0.50 percent at 60,353.27 on January 5.

The stock's performance has been subdued in the last one year. As data shows, the stock has gained about 2 percent in the last one year while the BSE Bankex index has jumped 13 percent. The Sensex has been flat in the last one year.

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HDFC Bank stock in last one year

On January 4, the stock broke its two-day winning run after it reported the business update for the quarter that ended December 31, 2022.

Q3 update

In a BSE filing, the bank said its advances aggregated to approximately 15.07 lakh crore as of December 31, 2022, clocking a growth of around 19.5 percent over 12.61 lakh crore as of December 31, 2021, and a growth of around

1.8 percent over 14.80 lakh crore as of September 30, 2022.

Gross of transfers through inter-bank participation certificates and bills rediscounted, the bank’s advances grew by around 23.6 percent over December 31, 2021, and around 3.3 percent over September 30, 2022, the BSE filing said.

HDFC Bank said its domestic retail loans grew by around 21.5 percent year-on-year (YoY) and around 5 percent quarter-on-quarter (QoQ).

Commercial and rural banking loans grew by around 30 percent YoY and around 5 percent QoQ. Other wholesale loans grew by around 20 percent YoY but were lower by around 1 percent QoQ, said HDFC Bank.

The bank said its CASA deposits aggregated to approximately 7.63 lakh crore at the end of Q3FY22, registering a growth of around 12 percent over 6.81 lakh crore as of December 31, 2021, and a growth of around 0.4 percent over 7.6 lakh crore as of September 30, 2022.

Retail CASA grew by around 14.4 percent over December 31, 2021, and around 1.4 percent by September 30, 2022. HDFC Bank's CASA ratio stood at around 44 percent as of December 31, 2022, compared to 47.1 percent YoY and 45.4 percent QoQ, said HDFC Bank.

Brokerages keep faith

In its Q3FY22 business update, HDFC Bank reported growth for most segments. However, the credit growth number, which slipped one percent QoQ but rose 20 percent YoY, was below the expectations of some brokerage firms.

Nevertheless, they have kept faith in the stock.

"HDFC Bank reported lower than expected credit growth. This was mainly due to de-growth in the corporate book, while retail continued its strong growth momentum, as did commercial banking. We believe, this should support margins amid rising funding costs," said brokerage firm Emkay Global Financial Services.

The brokerage firm has a buy call on the stock with a target price of 1,800, implying a 10 percent upside potential.

"We retain our long-term buy rating on the stock, given healthy return ratios, strong capital comfort and reasonable valuations. We will revise our estimates/target price post the results, once we attain better clarity on the growth/margin outlook and the merger process from the management," said Emkay.

Emkay believes the bank's slippages could remain elevated in Q3 due to seasonal stress in the agri-portfolio (including KCC). This, along with slower credit growth, could keep NPA ratios largely flat.

"With the bank sitting on healthy, specific as well as contingent provisions, we expect LLP to moderate, which should thereby support net profitability. We believe that slower credit growth coupled with lower fees and elevated opex in the run-up to the merger could keep core-profitability growth in check. Post the recent uptick, the stock is currently trading at 2.7 times FY24E ABV (ex-subs valuation)," said Emkay.

Motilal Oswal Financial Services also has a buy call on the stock and said that HDFC Bank reported a modest loan growth.

"Retail and commercial loans witnessed steady traction, which should support growth in operating profits. The trend in retail/term deposits remains strong, even as the bank witnessed a sequential decline in its CASA ratio to nearly 44 percent. We expect margins to remain stable, while consistent momentum in retail and unsecured loans should support fee income," said Motilal Oswal.

According to a MintGenie poll, an average of 37 analysts have a ‘strong buy’ call on the stock.

Disclaimer: The views and recommendations given in this article are those of the broking firms. These do not represent the views of MintGenie.

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First Published: 05 Jan 2023, 01:03 PM IST