Shares of HDFC Bank have been under strong pressure in the current calendar year, falling 10 percent year-to-date (YTD) as on March 8 while the benchmark Sensex has fallen about 8 percent in the same timeframe.
The stock has fallen 30 percent from its 52-week high of ₹1,724.30 that it hit on October 18, 2021, and now the brokerage firm Motilal Oswal sees a 51 percent upside in the stock from March 8 closing of the stock at ₹1327.05. The brokerage firm has a buy call on the stock of HDFC Bank with a target price of ₹2,000.
Here are 5 key points that Motilal Oswal believes will play in favour of the stock.
1. Revival of retail loan growth: As per the brokerage firm, the bank has witnessed a healthy pick-up in retail loans recently, which grew at an average of 5 percent quarter-on-quarter (QoQ) over the past two quarters. Motilal Oswal expects retail growth to remain healthy fueled by continued recovery in unsecured products, home loans and loans against property (LAP). "We thus estimate overall loans to clock nearly 18 percent CAGR over FY22-24," Motilal Oswal said.
2. SURU a key focus area for future: HDFC Bank has created a new business segment of Commercial and Rural Banking to capture the next wave of growth and indicated that it is the largest bank in the MSME segment. The SURU (semi-urban and rural) segment is witnessing robust traction and grew at more than 25 percent year-on-year (YoY) over the past few quarters. The bank has indicated that it would continue to expand its presence in the SURU region by enhancing its banking channel network across India, the brokerage firm highlighted.
3. Strong digital capabilities: Motilal Oswal said that the bank continues to maintain a leading market share across multiple digital channels with 18 percent share in POS terminals and about 9 percent and 27 percent share in debit and credit card spends as of nine months of FY22.
4. Margins to revive, NII growth to recover: With the revival in retail loan growth along with improving product mix and continued strength in liability franchise, Motilal Oswal expects NIMs to improve gradually.
"We note that after decelerating sharply at more than 8.6 percent YoY during Q1FY22, NII growth has recovered to 13 percent YoY in Q3FY22. We estimate NII growth to improve successively and sustain at 18 percent CAGR over FY22-24. This will enable a revival in PPoP growth as well, which too has softened to nearly 11 percent YoY during Q3FY22," said Motilal Oswal.
5. Strong earnings outlook and attractive valuations: Motilal Oswal expects the margin trajectory of the bank to recover gradually over FY23 while the uptick in retail loan growth and unsecured products would be supportive of fee income trends.
"Asset quality ratios have improved, though the restructured book stands comparatively higher at 1.4 percent of loans. Healthy provisioning coverage and a contingent provision buffer provide comfort on asset quality. Pick-up in loan growth, particularly Retail, would support NII and margin, which would drive profitability in the coming quarters," said Motilal Oswal.
The brokerage firm expects the bank to deliver about 18 percent PAT CAGR over FY22-24, with an RoA and RoE of 2 percent and 17.5 percent, respectively, in FY24.
HDFC Bank is currently trading at an attractive valuation of 2.4 times FY24E P/ABV, which offers favorable risk-reward.
Market sentiment on the stock is ‘neutral’, according to a MintGenie poll and an average of 45 analysts has a ‘strong buy’ call on the stock.