HDFC Bank share price: HDFC Bank likely to see strong upside as RBI lifts ban on digital 2.0 program
The stock has fallen 7 per cent in the last one year compared with an 11 per cent rise in Sensex during the same period. The prevailing valuations are undemanding for such a strong franchise, said Antique Stock Broking.
HDFC Bank trades at 2.4 times FY24 book value and 14 times EPS compared with its 15-year average multiple of 3.4 times and 21 times, respectively, which the brokerage finds attractive as the franchise has provided earnings consistency (expect 18 per cent CAGR) and improvement in return ratios (ROAs of 2 per cent and ROEs of 18 per cent. Antique has a target of Rs 1,900 on the stock.
Jefferies has maintained buy on the stock with a target of Rs 2,160. Morgan Stanley finds the stock Rs 2,050 worth. CLSA has a target of Rs 2,025 on the stock while Nomura sees the stock at Rs 1,955 level. The targets suggest up to 55 per cent upside potential for HDFC Bank over Friday’s closing of Rs 1,397.
The stock was up 2.3 per cent at Rs 1426.70 in Monday’s trade.
HDFC Bank, which issues more than 2 lakh credit cards a month, was directed by the RBI in December 2020 to stop issuing fresh cards until it had sorted out its tech problems. The lender was asked not to launch any new digital initiatives.
In August 2021, the RBI had partially lifted restrictions imposed on HDFC Bank, allowing the lender to resume issuing credit cards. The bank on March 12 told exchanges that the restrictions on the business generating activities planned under its Digital 2.0 program has been lifted.
“After removal of the ban on new credit cards sourcing in August 2021, we have seen aggression from the bank to regain its market share and lost momentum. We now expect these efforts to gain further momentum as HDFC Bank intensifies its focus to market digital initiatives to its potential and existing customers,” Motilal Oswal Securities said.
The brokerage noted that the bank has acquired a net 13 lakh new credit cards since lifting of ban and has 1.6 crore cards outstanding.
“HDFC Bank has underperformed the broader banking universe in the recent past and hence lifting of these restrictions addresses a key overhang,” Motilal said.
Kotak Institutional Equities said it has upgraded HDFC Bank to buy from add as the recent stock underperformance is not backed by any material deterioration in fundamentals in its business.
This is despite challenges that are emerging in the macro led by extraneous factors such as crude or inflation, it said.
While suggesting a fair value of Rs 1,740, it values the bank at 3.2 times book and 22 times FY2024 EPS for RoEs at 15-16 per cent levels and steady earnings growth.
“The decline in multiples can be attributed to various reasons but we are less confident that it would return to peak levels in the medium term. Unlike the past decade, the ability to differentiate on growth and return ratios is likely to be challenging which implies that the premium multiples that it had enjoyed are always likely to be tested by its peers,” Kotak said.
