HDFC Bank shares in Friday’s (January 19) trade recovered from steep losses of about 11 percent over the last two days on the back of disappointing December results (Q3FY24). Broader market optimism and CLSA’s positive outlook from global brokerage led to the recovery.
The stock rose about 2 percent to its intraday high of ₹1,486.80. It later reddened and fell about half a percent.
While earnings of the country’s largest private sector lender remained a concern, global brokerage CLSA reiterated its ‘buy’ rating on the stock with a target of ₹2,025 per share, which implies an increase of nearly 38 percent.
“While most domestic customers were unhappy, we felt it was a little different for foreign investors, many of whom believe we are nearing the end of the EPS reduction cycle. Some of the key concerns for HDFC Bank lie on slower than expected. deposit growth and margin compression. But some customers believed it was lower deposit growth was more of a macro problem and not internal to HDFC Bank alone,” it said.
On deposits, some customers believed that it was a macro problem and not internal to HDFC Bank. The brokerage expects the RBI to reduce the $2,000 liquidity deficit through a mix of FX purchases, a possible 50-bp CRR cut and OMOs.
Meanwhile, domestic brokerage LKP Securities also maintained its “buy” call on the stock with a 1-year target of ₹1,762, indicating 18.5 percent up. The brokerage believes the lender may see a marginal reduction in ROA/ROE for FY24E due to higher C/I ratio and margin pressure.
“However, we believe that superior underwriting practices, adequate coverage and a strong capital position make the bank well placed,” it added.
The lender reported a net profit of ₹16,372 crore in the third quarter of FY24, registering a growth of 33 percent from ₹12,259 crore in the year-ago period. Its net interest income rose 24 percent YoY to ₹28,470 crore in the December quarter. However, the lender’s net interest margin (NIM) of 3.6 percent missed expectations.
HDFC Bank’s gross non-performing assets (NPAs) were reported at 1.26 percent in Q3 of FY24, up from 1.23 percent last fiscal year. Net NPAs in Q3 of FY24 stood at 0.31 percent, compared to 0.33 percent last year.
“The performance of the third quarter appears flat, however, the higher credit-to-deposit ratio (CDR) of 110 percent and lower liquidity coverage ratio (LCR) of 110 percent in Q3 versus 126 percent in Q2 is the cause for concern. The lower LCR and slower deposit growth may limit NIM expansion going forward. The lower LCR, CDR bottleneck and slower deposit growth may push NIMs forward,” said Ajit Kabi, Research Analyst at LKP Securities.
Post the recent correction, HDFC Bank shares are now more than 15 percent away from their record high ₹1,757.80, hit on July 3, 2023. It is trading near its annual low and is only about 2 percent above its 52-week low of ₹1,460.55, hit on October 26, 2023.
In the last year, the stock has lost about 9 percent. Meanwhile, it has burst nearly 14 percent in January 2024 year to date.
Disclaimer: The opinions and recommendations made above are those of individual analysts or trading companies, and not of Mint. We advise investors to check with certified experts before making any investment decision.
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Published: 19 Jan 2024, 15:04 IST