BackHDFC Bank share price falls 4%, erases mcap by about ₹49,000 crore in a day; here's what brokerages forecast
HDFC Bank's share price fell 4 per cent after mixed views from analysts after the bank's investor meeting. RBI approves CEO reappointment.
PremiumHDFC Bank share price declined over 4 per cent in trade on BSE on Wednesday after brokerage firms expressed their mixed views on the stock post the bank's analyst and institutional investor meeting on Monday (September 18). The stock opened at ₹1,599 against the previous close of ₹1,629.05 and fell 4.20 per cent to the level of ₹1,560.60 in Wednesday's trade.
The stock finally closed 4 per cent lower at ₹1,563.90. The market capitalisation (mcap) of HDFC Bank stock dropped by nearly ₹49,000 crore in a day as its mcap dropped to nearly ₹11.85 lakh crore on BSE today against ₹12.34 lakh crore in the previous session.
HDFC Bank share price has strongly underperformed the benchmark Sensex in the last one year. HDFC Bank shares are up by just 3 per cent while the Sensex has gained about 12 per cent in the last one year period. The stock hit its 52-week high of ₹1,757.80 on July 3 this year and its 52-week low of ₹1,365.05 on September 30 last year on BSE.
Meanwhile, the Reserve Bank of India (RBI) has approved the reappointment of Sashidhar Jagdishan as HDFC Bank managing director and chief executive officer for three more years till 26 October 2026.
In its analysts' meeting, HDFC Bank pointed out the possibility of a worsening of net interest margin (NIM), net worth and asset quality in the short term following its merger with parent Housing Development Finance Corp. (HDFC).
NIM may narrow 25 basis points (bps) due to the combined effect of incremental cash reserve ratio (CRR) and excess liquidity, analysts cited chief financial officer Srinivasan Vaidyanathan as saying at the meeting. Before the merger, HDFC had built an excess liquidity buffer of close to ₹1 trillion.
Read more: HDFC Bank may face margin, net worth hit
Brokerages express mixed views
Following the analysts' meeting, global brokerage firm Nomura downgraded HDFC Bank stock to a 'neutral' from a 'buy' and cut the target price to ₹1,800 from ₹1,970 earlier.
In a report on September 20, Nomura said it found the following four negative surprises from the analyst meeting of HDFC Bank:
(1) Net worth adjustments have a negative 4 per cent impact on FY24F BVPS (book value per share).
(2) NIM cuts of about 25bps in FY24F and 15-20bp in FY25-26F on excess liquidity, accounting adjustments.
(3) Higher cost-to-income due to accounting changes (upfronting of sourcing costs under IGAAP for HDFC versus amortisation under IndAS).
(4) A sharp uptick in NPAs in HDFC’s corporate loan book.
"Our EPS cuts of 5-9 per cent over FY24-26F and BVPS cuts of about 7 per cent largely factor in these, in our view. This depresses HDFCB’s medium-term RoA (return on assets) profile further (1.7-1.8 per cent over FY24-26F) and the gap versus ICICI’s 2.2 per cent RoA profile (FY24-26F) is even starker now," Nomura said.
"While the bank did not mention any changes to its loan growth outlook, we remain watchful of any near-term impact arising out of pressure to maintain elevated liquidity levels. While we fully appreciate the strength of the franchise, we struggle to see an upside over the next 12 months on the back of RoA (return on assets) and loan growth pressures," Nomura said.
On the other hand, Goldman Sachs reiterated a buy call on the stock with a target price of ₹2,051, implying a 26 per cent upside potential as it believes HDFC Bank is well placed to gain substantial market share in both lending and deposits over the next few years, thanks to its expanding distribution network and its strong focus on cross-selling to existing customers.
"We forecast sector-leading earnings growth of 17 per cent in FY23-26E and superior return ratios (average ROA and ROE at nearly 2 per cent and about 16 per cent, respectively, over FY24-26E) with a high degree of earnings visibility," Goldman Sachs said.
It believes the bank will continue to grow its loan book at about 18 per cent CAGR and see better return ratios and also does not expect the bank to raise capital at least for the next eight years on lower capital consumption, driven by improved risk density and improving ROEs.
"The stock currently trades at 1STDEV (one standard deviation) below the mean, adjusting for the SOTP (sum of the parts) value of its group businesses (e.g., HDFC Life, HDB Financial Services, HDFC AMC), which we view as compelling. As a result, we are buy-rated on HDFC Bank. We expect HDFC Bank to trade at a premium valuation multiple of about 20 times FY24-FY25E EPS/2.8 times FY24-FY25E BVPS," said Goldman Sachs.
Among the domestic brokerage firms, Motilal Oswal Financial Services has a buy call on the stock with a target price of ₹1,950, implying a 20 per cent upside.
Motilal believes that the HDFC-HDFC Bank merger will enable HDFC Bank to build a more diversified and robust franchise.
Moreover, an increased customer base, strong technological edge and robust distribution should help the bank improve cross-selling to customers and enable healthy business growth, Motilal said.
Brokerage firm Nirmal Bang, too, has a buy call on the stock with a target price of ₹1,935, implying a 19 per cent upside. Nirmal Bang is positive about HDFC Bank over the long term.
"While in the near term, the bank’s financials face volatility due to merger-related adjustments, we are positive about HDFC Bank over the long term due to top management’s stability, good capital position, higher specific and standard provision buffer and historically lower valuation of 2.6 times FY25E ABV," said Nirmal Bang.
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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
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