HDFC Bank Share Price: With the exception of a slight sequential miss on asset quality front, HDFC Bank released a positive scorecard for the April-June quarter of the current fiscal year (Q1FY24).

Analysts largely maintained their ‘Buy’ rating on the stock but said a successful merger transition, elevated costs, and the margin trajectory would be keenly watched in the near-term.

For the quarter that ended in June 2023, HDFC Bank reported a standalone net profit of Rs 11,951.7 crore, an increase of 30 per cent from Rs 9,196 crore in the corresponding quarter the previous year.

Net interest income (NII) for the bank increased by 21.1 per cent in the first quarter of FY24, from Rs 19,481.4 crore to Rs 23,599.1 crore.

The asset quality of HDFC Bank decreased sequentially in Q4FY24. Quarter over quarter, the bank’s net non-performing assets (NPA) climbed by 9.4 per cent to Rs 4,776.9 crore from Rs 4.368.4 crore, while its gross non-performing assets (NPA) increased by 5.7 per cent to Rs 19,045.1 crore from Rs 18,019 crore.

What Should Investors Do Now?

The merged HDFC Bank’s balance sheet still has a few variables that are hard to forecast, which implies that near-term earnings forecast is still not robust enough, said Kotak Institutional Equities. The choices that the bank has to manage this transition is quite high, it said.

“Although we would like to see the full normalization of the liability side transition back to where it was pre-merger, the size of this transition and the incremental growth that the bank is pursuing could result in a slow transition. It is perhaps more pertinent to look at the cost of funds and growth choices than focusing only on retail deposits. The wedge between deposit and loan growth is persistently high for the industry and this would eventually force all banks to focus on deposits a lot more,” Kotak said.

This brokerage has maintained ‘BUY’ in the stock, with fair value at Rs 1,925 , which is 2.6 times book for RoEs at 16-17 per cent levels.

According to Motilal Oswal Financial Services, HDFC Bank reported a consistent quarter with healthy growth in NII and PAT, driven by decreased provisions, even as margins remained stable. Loan growth was fueled by ongoing momentum in commercial and rural banking as well as an uptick in the retail sector. The restructured book’s loan volume moderated to 27 basis points, while asset quality ratios remained constant. Asset quality ought to be supported by a strong contingent provisioning buffer and PCR.

“We introduce forecasts for the merged entity and estimate net earnings of Rs 654b/798b/957b over FY24-26, translating into an RoA of 1.9-2.1 per cent. We thus estimate RoE for the merged entity to revert to pre-merger levels of 17 per cent+ by FY26. We reiterate our ‘buy’ rating with a target price of Rs 2,070,” said the brokerage in its report.

LPK Securities stated in its analysis that HDFC Bank’s operating performance in the first quarter of FY24 was mixed. Slippages grew sequentially by 18 per cent, and the GNPA, at 1.17 per cent, is below the historical average of 1.4 per cent. Provisioning costs were Rs 28.6 billion in 1QFY24 compared to Rs 26.8 billion in 4QFY23, an increase sequentially. In contrast to the loan growth (15.8 per cent YoY, 0.9 per cent QoQ), NII growth was sluggish sequentially (21.1 per cent YoY, 1.1 per cent QoQ).

“We believe, superior underwriting practices, higher liquidity, adequate coverage and strong capital position makes HDFC Bank well placed and thus, we re-iterate ‘buy’ with price target of Rs 2,074,” said the brokerage.