HDFC Bank looks attractive amid merger, growth expectations; how much is the upside?
2 min read 25 May 2023, 12:58 PM ISTHDFC bank has delivered strong business growth as compared to its peers, propelled by sustained momentum in the Retail segment, along with robust growth in Commercial and Rural Banking. This has resulted in constant market share gains.
PremiumHDFC Bank, the largest private sector bank in the country, is poised to sustain its growth driven by technology and expanding network, while its stock may rise over 21% from the current levels, analysts said.
Brokerage firm Motilal Oswal Financial Services believes HDFC Bank appears well positioned to sustain healthy growth, supported by new initiatives, robust branch additions and expansion of digital offerings.
The bank has delivered strong business growth as compared to its peers, propelled by sustained momentum in the Retail segment, along with robust growth in Commercial and Rural Banking. This has resulted in constant market share gains.
The management of the private lender has highlighted how the bank is getting future-ready by focusing on strengthening its digital capabilities and sustainable growth after the merger while maintaining RoA at the current level. It suggested that the merger process is on track and is expected to be completed in about five weeks.
“The bank is positioning itself to capitalize on new growth opportunities in mortgage assets, higher cross-selling as customer stickiness improves, and faster growth in liabilities. Investments in branches and digital infrastructure will further support growth over the long term," Motilal Oswal said in a note.
It believes growth is likely to be broad-based, mainly driven by technology and expanding distribution network, while improved cross-selling will further augment revenue growth.
HDFC Bank had recorded healthy growth in its financial performance during the quarter ended March 2023, posting double-digit growth in both profitability and interest income. Its retail lending book witnessed robust growth with home loan products crossing ₹1 lakh crore mark.
In Q4FY23, the bank’s net profit rose 21% YoY to ₹12,047.5 crore, while its net interest income (NII) climbed by 23.7% to ₹23,351.8 crore from ₹18,872.7 crore, YoY.
The bank's provisions and contingencies dropped sharply to ₹2,685.4 crore as against ₹3,312.4 crore in Q4FY22.
In terms of asset quality, HDFC Bank's gross NPA declined to 1.12% of gross advances in Q4FY23 as against 1.23% in Q3FY23 and 1.17% in Q4FY22. Net non-performing assets were at 0.27% of net advances as of March 31, 2023.
“Asset quality ratios remain robust, while the restructured book has moderated to 31 bps of loans. Healthy PCR and a contingent provisioning buffer should support asset quality," Motilal Oswal said as it estimates HDFC Bank to deliver a 19% PAT CAGR over FY23-25, with RoA of 2%.
HDFC Bank remains one of Motilal Oswal’s preferred picks and the brokerage maintains Buy rating on the stock with a target price of ₹1,950 per share, implying over 21% upside from the current market price.
At 12:55 pm, the shares of HDFC Bank were trading 0.84% lower at ₹1,602.00 apiece on the BSE.
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