In a research note, domestic brokerage firm Motilal Oswal Securities warned that as the bank aims to meet its 1Q/2020 profit projections, the margin profile of private sector lender HDFC Bank would improve and the merger-related overhang will lessen. By 2QFY24, the merger should be complete.
The firm has kept the large cap company at a “Buy” rating and set a target price of 1,930, which represents a potential gain of 23% from current levels.
The share price of HDFC Bank has decreased by 1,563 so far this year, or more than 4%, as of 2023. Each time, the stock price reaches a 52-week high of 1721.85 and a 52-week low of 1271.75. It has a market value of 8.72 lakh crore.
Even though margins were unchanged, HDFCB reported an in-line quarter with rise in core PPOP and NII growth. Retail sales have maintained their impetus, while commercial and rural banking have had significant growth. The restructured book shrank to 42 bp of loans, although the asset quality ratio remained high. Asset quality should be supported by a sound PCR and a contingency provisioning buffer, according to the note.
According to the brokerage, HDFC Bank will produce 19% PAT CAGR between FY22–FY25, with RoA/RoE of 2.0%/17.7% in FY25.
The lender’s advances saw a robust increase in the third quarter of FY23, driven mostly by retail loans’ ongoing strength. Even when corporate advances decreased from one quarter to the next, growth in commercial and rural banking continued to trend strongly.
The brokerage anticipates continued strong loan growth and projects a loan CAGR of 18% over the period of FY22 to FY25. The margin trajectory is supported by the continued strength of deposit traction as well as a solid CASA mix.
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