The bank talked in detail about the merger with
and said its focus remains on improving market presence in each line of business, new initiatives in the retail business via launch of PayZapp 2.0 and Smarthub Vyapar and strengthening of the back-end infrastructure.
Analysts maintained their ‘buy’ rating on the stock post the meet and a few of them even see it as their top banking sector pick. This is even as they believe the bank stock may keep trading at lower premium valuations than in the past amid developments relating to the merger .
Their price targets on the counter suggest 18-46 per cent potential upside on the counter.
Kotak Institutional Equities said that the private lender’s execution capability has been tested against cycles and the bank shows that it deserves premium valuation.
“However, the near term merger issues dominate discussion which would probably lead to a much lower multiple than what it has enjoyed previously,” it said while maintaining an unchanged target at Rs 1,650.
Post-merger, HDFC Bank does not see (cash reserve ratio) CRR and statutory liquidity ratio (SLR) requirements as a challenge, and plans to add half of the priority sector lending requirement via internal sourcing including affordable housing, with the rest via other sources, predominantly priority sector lending certificates (PSLCs).
“Given focus on liability generation and
sourcing, HDFC Bank is likely to be aggressive on branch addition, gold loans, SME loans and housing loans. Over the medium-to-long term, we expect HDFC Bank to be extremely competitive on wholesale loans as well; its strong net-worth is likely to be an advantage. Overall, we remain positive on HDFC Bank and reiterate it as our top pick,” said while suggesting a 12-month target of Rs 1,980.
For
, HDFC Bank is its top pick as it feels merger negatives are priced-in while the high scale and better than peers’ RoA is not.
“Post-merger, RoA will remain at nearly 2 per cent while RoE will get diluted due to higher capital. RoE will come back to pre-merger levels in 3-5 years. In the longer-term, there will be scope to improve RoA beyond 2 per cent as HDFC’s liabilities get repriced and operating leverage kicks in; the excess will be used for further investments,” Edelweiss.
is factoring in an 18 per cent CAGR (compounded annual growth rate) in loan and 20 per cent growth in PAT over FY22-24E, with RoA of 2.1 per cent and RoE of 17.8 per cent in FY24. It has maintained ‘Buy’ on the stock with a target of Rs 1,850/share.
It said HDFC Bank explained its rationale for the merger and addressed key investor concerns in the analyst meet. Inclusion of mortgages will improve the portfolio mix while the drag of meeting PSL, SLR and CRR requirements is likely to be controlled, it said.
Given the expected liability build-up, Nirmal Bang expects intermittent impact on margins, but the structural outlook remains positive given the high market share in unsecured segments. This brokerage has a target of Rs 2,042 on the stock.
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)
