HDFC Bank Shares In Free Fall, Loses Over Rs 49,000 Crore M-Cap; Brokerages Estimate Muted FY24

The shares of HDFC Bank sunk on Wednesday, becoming the top bear on exchanges and even pushing Sensex and Nifty 50 off the cliff. In a free fall, HDFC Bank shares have nosedived by 4% and lost over Rs 49,000 crore market cap in a single-day. Not even the RBI's approval for the re-appointment of Sashidhar Jagdishan as MD and CEO could lure any bulls. The reason behind the sharp selling in HDFC Bank can be attributed to the analysts' meet it held after which brokerages are expecting a muted overall FY24 fiscal, due to the merger shocks in the system.

But as the saying goes, pain before gain! HDFC Bank is somewhat in a similar boat. Although, the near term growth outlook is estimated to be under pressure for HDFC Bank, however, the third largest firm in terms of market share in India, is also expected to bounce back on track from FY25. And that has brokerages like the stock, but they have lowered their target price.

HDFC Bank shares erased its critical Rs 1,600 mark and plunged by 4.02% with an intraday low of Rs 1,599 apiece on BSE. At the current intraday low, the market cap comes to around Rs 11,84,493 crore, an erosion of nearly Rs 49,611 crore compared to the market cap of Rs 12,34,104 crore as of September 18, 2023.

At the time of writing, the stock traded at Rs 1,570 apiece, down by Rs 59.05 or 3.62% on BSE. The market cap at this rate was Rs 11,89,294.30 crore, down by nearly Rs 45,000 crore from the previous session's market cap.

On Tuesday, RBI approved the reappointment of Sashidhar Jagdishan as the Managing Director and Chief Executive Officer of the bank for 3 years with effect from October 27, 2023, to October 26, 2026.

However, the re-appointment of the MD and CEO did little to nothing to boost the stock. It would be the private sector banking giant's 'Analyst Day' where it gave perspective on the merged financials.

Kotak Institutional Equities in its research note highlighted that HDFC Bank made the following disclosures in the meeting:

Net worth addition is lower by 15% due to alignment in accounting policies, improving coverage ratio and dividend payments while there is a positive impact due to equity conversion and tax impact.

Gross NPL is marginally higher by 20 bps at 1.4% and net NPL is largely unchanged at 0.4%.

For 1QFY23, NIM was at 3.7-3.8% for the merged entity and 2.7% for HDFC Ltd. There is a 10-20 bps impact on RoA post the merged entity. The opening NIM is lower as the parent had been building most of the incremental requirements to meet the SLR ratio.

Also, HDFC Bank sees margin pressure of ~30-40bp in FY24F amid excess liquidity of Rs1 trillion post-HDFC merger, which should normalize post-liquidity utilization, as per the Incred Equities report. It also expects non-individual loan books to be under pressure as NPAs from the outstanding loans increased to ~6.7% as of 1 Jul 2023 against ~2.9% in March 2023.

Should you buy HDFC Bank shares after Analyst Day?

Gaurav Jani - Research Analyst, Prabhudas Lilladher estimates the following for HDFC Bank ahead:

While the impact of harmonization to IRAC seems to be higher at ~5% of BVPS, post-tax gain on 90% stake sale in Credila amounting to Rs50.2bn (may be recognized in Q2/Q3 of FY24) would be capital accretive (1.2% of BV)

The rise in non-individual GNPA of HDFCL (by Rs35-40bn) is certainly a negative surprise and the bank has made the necessary adjustment to equity to align PCR to 74%.

Basis disclosed merged balance sheet as at 1st July, loan/deposit stood at Rs22.21/20.64trn growing by 13.2%/16.2% YoY; balance sheet size is Rs32.55trn

Driven by excess liquidity NIM for Q2FY24E could dip sharply by 40bps to 3.6%; however, as loan growth picks and liquidity is utilized NIM would normalize to 3.88% by Q4FY24E.

Hence RoA for Q2FY24E could dip OoQ from 2.0% to 1.7%. However, it could normalise to 1.98% by Q4'24.

FY24 performance would be muted given a sharp fall in NIM. However, as high-cost liabilities of HDFCL are replaced over FY24-26E, NIM would improve leading to likely healthy earnings CAGR.

On a merged basis stock trades at 2.3/2.2x on Mar/Sep'25 core ABV suggesting a ~2% discount to ICICB.

Further, JM Financial in its research note said, "Given the adjustments to cost ratios and lower NIMs, we tweak our below consensus EPS estimates slightly (we had already built in higher opex). However given changes to the incoming network, our BVPS estimates are reduced by ~3-4%. Maintain BUY with revised TP of Rs 1850."

Antique Stock Broking also lowered its estimates on HDFC Bank shares. Its research note said, "We lower our target price to Rs 1,925 (Rs 2,025) valuing the core bank at 2.7x FY25 BV and Rs 185 for subsidiaries. In our view, while the initial impact and merger accounting could create some volatility in the near-term earnings, core PPP (like to like) could accelerate in FY25, with RoA to settle at 1.8%-1.9% (lower than the pre-merged levels but still strong) and RoE to be ~15%-16% over FY24-25E. Execution on liability management would be key for re-rating."

Also, lowering its target price, Kotak's note said, "Re-rating is some time away as the bank has to work through the NIM transition and build its thesis of differentiation, which we are still less certain about. Maintain BUY rating but revise FV to Rs1,850 (Rs1,925 earlier)."

Meanwhile, Incred's note said, "We are concerned about the probable margin compression and volatility in the asset quality profile of HDFC Bank in the near term. However, the healthy provision coverage provides some relief. We believe HDFC Bank has enormous growth opportunity post-merger of HDFC amid the bank's competitive edge in mortgage financing business as well as a probable cross-selling opportunity to existing HDFC customers. We also appreciate HDFC Bank's expanded presence, which will allow it to maintain market penetration-led growth."

However, Incred's note also said, "HDFC Bank remains our top stock pick with a target price of Rs2,000 (~2% plus RoA & 16% RoE). Retain ADD rating on the stock. We have valued the standalone bank at ~2.7x FY25F ABV and its subsidiaries at Rs200/share. Downside risks: Slower-than-expected growth and a weak profitability trend post-HDFC merger."

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.