Should you buy HDFC Bank after its September quarter earnings? Here's what 5 analysts say

HDFC Bank on Saturday reported a 22.3 percent year-on-year (YoY) rise in its consolidated net profit to ₹11,125 crore for the September quarter for the financial year FY23 (Q2FY23) on the back of strong loan growth and asset quality.

Asset quality of the bank also improved with gross non-performing assets (GNPAs) at 1.23 percent during the quarter as against 1.28 percent in the year-ago period. Its net non-performing assets (NNPAs) in Q1 came in at 0.33 percent of net advances as on September 30, 2022, as against 0.35 percent in Q1FY23.

Meanwhile, the lender's net interest income (NII) grew 18.9 percent to ₹21,021.2 crore against ₹17,684.4 crore logged in Q2FY22. and its core net interest margin (NIM) for the quarter was mostly flat sequentially at 4.1 percent of the total assets.

Domestic retail loans grew by 21.4 percent while commercial and rural banking loans were up 31.3 percent in Q2FY23. The corporate and other wholesale loans also saw a 2 percent rise.

Provision and contingencies declined to ₹3,240 crores in the quarter, from ₹3,925 crores a year ago. Total deposits rose 21 percent YoY to ₹22.3 lakh crore. The total advances as on September 30, meanwhile, came in at ₹14.8 lakh crore, up over 23 percent YoY.

Stock price trend

The stock opened around a percent higher at ₹1,451 in early morning deals post its Q1 results but later pared gains to fall around half a percent to ₹1,429. In comparison, the Bank Nifty fell 0.2 percent in morning deals.

The stock has shed 15 percent in the last 1 year as against a 0.1 percent rise in the Bank Nifty. The scrip lost 3 percent in 2022 YTD and was up only half a percent in October so far.

The stock fell 4 percent in September after a 3.6 and 6.3 percent rise in August and July.

Let's see what brokerages make of it 

Motilal Oswal

The brokerage retained a buy call on the stock with a target price of ₹1,800, indicating a 25 percent upside in the stock.

As per MOSL, the lender reported a steady quarter with recovery in Core PPoP growth and margins through treasury loss dragged PPoP. Loan growth was driven by sustained momentum in the Retail segment, along with robust growth in Commercial and Rural Banking as well as Wholesale loans, it added.

Asset quality ratios also remained robust, while the restructured book moderated to 53 bps of loans, the brokerage pointed out, adding that a healthy PCR and a contingent provisioning buffer provided comfort on asset quality.

The brokerage estimates the lender to deliver 19 percent PAT CAGR over FY22-24, with an RoA/RoE of 2 percent/17.2 percent in FY24. It expects the stock to perform gradually as revenue and margin revive further while the merger-related overhang ebbs as HDFCB looks to complete the merger by 1Q/2QFY24E.

Prabhudas Lilladher

The brokerage also retained a 'buy' call on the stock with a target at ₹1,800 per share, indicating a 25 percent upside from the current market price.

"HDFC Bank saw a good quarter with core earnings beating estimates by 5 percent led by stronger NII and other income (excl. treasury) while asset quality was better. NIM was higher by 9 bps due to superior yields driven by faster asset repricing, which is expected to outpace that of liabilities, suggesting that NIM would improve in the near term," said the brokerage.

It also upgraded the lender's FY23 earnings estimates by 6 percent mainly led by higher NIM/NII while there is no material change in FY24/25E PAT. It said that it remains positive on HDFC Bank though the near-term focus would remain on the merger.

Nirmal Bang

The brokerage maintained a buy call on the stock with a target price of ₹1,805, indicating a potential upside of 25 percent.

"Aggressive branch expansion is leading to higher opex cost and is likely to remain elevated in the short term as the focus is to expand the distribution network. Credit cost stood at 87bps vs 130bps in 2QFY22 and is expected to remain range-bound as the bank continues to carry excess provisions," said Nirmal Bang.

It also noted that the lender's asset quality improved on a sequential basis, led by declining delinquencies.

It expects earnings growth to remain strong and estimates FY25E ROA/ROE at 1.9 percent/17.1 percent. However, it is cautious about the merger transition, which along with elevated opex and margin trajectory would be key monitorables going forward.

Sharekhan

The brokerage also has a 'buy' call on the stock with a target price of ₹1,800.

Sharekhan believes that HDFC Bank is on an accelerated growth path with strong advances growth, led by retail, MSME, and corporate segments along with healthy low-cost deposit mobilisation. The bank’s continuous building up of its digital capabilities and franchise network is likely to bode well for growth going ahead, it stated.

"The stock has underperformed its peers in the past 12 months. The bank is well capitalised and has the ability to manage its asset quality across cycles and deliver superior return ratios irrespective of economic cycles and reap opportunities from any revival in the economy going ahead. The stock is currently trading at 2.7x and 2.3x its FY2023E and FY2024E core ABV, respectively," the brokerage said.

Emkay Global Financial Services

“We believe HDFC Bank will be the key beneficiary of the buoyant credit markets, given its strong retail orientation as well as its increasing inclination towards corporate growth. However, a positive regulatory stance on the impending merger structure and managing the merger without much disruption will be key for re-rating. Currently, the stock trades at 2.4x FY24E ABV (ex-subs valuation). We retain our BUY rating on the stock, with TP of ₹1,800/share (3.0x Jun-24E ABV + subs valuation of Rs78), given healthy return ratios, strong capital comfort and reasonable valuations," noted Emkay.