Emkay Global recommends Purchasing HDFC Bank at a price target of Rs 1950

Emkay Global initiated coverage of HDFC Bank with a buy recommendation and a target price of Rs 1950. HDFC Bank Ltd.’s current market price is Rs 1414.45. The analyst has specified a one-year time frame in which HDFC Bank Ltd.’s price can reach the defined target.

HDFC Bank Ltd., founded in 1994, is a banking institution (having a market cap of Rs 812394.03 Crore).

For the fiscal year ending 31 March 2020, HDFC Bank Ltd.’s key products/revenue segments include Interest & Discount on Advances & Bills, Income From Investment, Interest On Balances with RBI and Other Inter-Bank Funds, and Interest.

The company reported a Consolidated Total Income of Rs 43364.96 Crore for the quarter ended 31-12-2021, up 4.65 percent from the previous quarter’s total income of Rs 41436.36 Crore and up 8.85 percent from the previous year’s same quarter total income of Rs 39838.73 Crore. In the most recent quarter, the bank reported a net profit after tax of Rs 10591.46 crore.

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Justification for Investment

Emkay Global HDFC Bank
Emkay Global HDFC Bank

Lifting the RBI’s restrictions on card/digital initiatives, reaccelerating retail credit growth, and concentrating on risk-adjusted margins should all be long-term positives. In terms of the merger, the bank/HDFCL will have time (two to three years) to mitigate regulatory drag by establishing buffers in both entities, but at the expense of margins in the interim. With lower NIMs/higher opex, the brokerage expects FY23-24E earnings to decline by 2-3% and the average sustainable ROE to moderate to 17% from 17.6 percent previously. Additionally, it reduces the standalone bank’s TP multiple to 3.2x on FY24E ABV, valuing the bank at Rs1,950 (previously Rs2,050), including subsidiaries at Rs78. Given the recent correction, it maintains a long-term Buy rating on the stock, which is trading at 2.5x standalone FY24E ABV (stripping subs value of Rs78). Significant risks include slower-than-expected credit growth in the face of weakening macroeconomic conditions as a result of the Ukraine-Russia conflict; further margin erosion as a result of slower retail credit growth/a regulatory buffer built up in the run-up to the merger; and a delay in obtaining regulatory approval for HDFCL’s proposed merger.

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