HDFC Bank gets 'buy' rating with 35% upside
Brokerage firm CLSA has recommended a "buy" for HDFC Bank, setting a target price of Rs. 2,025, which is nearly a 35% increase from current levels. The shares of India's biggest private lender have dropped 11% in two days, following disappointing Q3 results. This decline also dragged down Bank Nifty and Nifty50, as HDFC Bank holds 40% weightage in the former and over 13% in the latter. At the time of writing, HDFC was trading 0.87% down at Rs. 1,473.90
Q3 results show strain on margin and sluggish deposit growth
The bank's Q3 results showed a strain on margin, slow deposit growth, and a decade-low earnings per share (EPS). HDFC Bank's EPS decreased by 4% QoQ to Rs. 22 from Rs. 21.1. CLSA analysts discovered that domestic clients were dissatisfied with the bank's performance. However, many foreign investors felt that they were approaching the end of the "EPS cuts" cycle for HDFC Bank. Some clients attributed the slower-than-expected deposit growth to macroeconomic issues rather than problems intrinsic to HDFC.
Core profitability falls short of expectations
HDFC Bank's Q3 core profitability did not meet expectations, with the margin remaining flat at 3.4% due to higher borrowing costs. A significant negative aspect was the bank's slow deposit growth compared to strong credit growth, raising the loan-to-deposit ratio (LDR) to 110% versus 107% QoQ. This indicates that the bank needs to increase deposit mobilization to protect itself from unforeseen crises. Over the past year, the bank's stock has gained around 5%, compared to a 25% surge in Sensex.
