1:5 & 1:2 Splits, 1.31% Yield: Nifty's Top Weightage Stock HDFC Bank On Road To Recovery: Right Time To Buy?

HDFC Bank's 2024 started on a gloomier note with investors panic-selling to the point the stock is down by 14.61% on NSE as of now YTD. It's not just Indian exchanges, but investors have also offloaded HDFC Bank's ADR on NYSE as its YTD fall is nearly 17%. However, in the past 1 month, this Nifty 50 top weightage stock has been gaining momentum but at a slower pace.

One of the main reasons why faith in HDFC Bank has dimmed is because reports suggest that the largest bank in India in terms of market share, may report a drop in its lending growth in the near term, as a merger of HDFC shocks finally plays in the financial book of the bank.

YTD, HDFC Bank is still down by 14.61% on the NSE, while its ADR has slipped by 16.77% on the NYSE.

There were a few hiccups along the road recently as HDFC Bank's share is down by 1% and ADR lower by 2.27%.

Currently, HDFC Bank's share price is at Rs 1,449.95 on NSE with a market cap of Rs 11,01,442.59 crore. While its ADR price is at $55.45.

The latest drop in HDFC Bank shares comes after the announcement that its Arvind Kapil, Group Head of Retail Assets - Home Loans resigned from his post. Kapil will now be Poonawalla Fincorps as MD and CEO. While the exit of its top-level personnel came in as a spoilsport for the stock.

Notably, HDFC Bank's share price has been recovering since last month. This is also because of brokerages who have continued to be optimistic about HDFC Bank for its long-term growth prospects. Also, signs of recovery are visible in the stock.

In a month, HDFC Bank's fall has been marginal on the NSE. Also, the stock has rallied by 6.33% from its 52-week low of Rs 1,363.55 apiece which was recorded on February 14, 2024. Its ADR has also gained by 1.20% in a month.

In Q3FY24, HDFC Bank's net profit came in at Rs 16,372 crore, registering a growth of 33% from Rs 12, 259 crore a year ago same quarter. While its net interest income (NII) saw a growth of 24% YoY to Rs 28,470 crore. While the bank's core net interest margin was at 3.4% on total assets, and 3.6% based on interest-earning assets.

Since its Q3 results announcement, HDFC Bank's shares have been trading volatile.

Among other corporate affairs by HDFC Bank so far are:

HDFC Bank Dividend Payout: As per Trendlyne data, HDFC Bank has delivered 24 dividends since April 2001. In the last 12 months, the company paid a dividend of Rs 19 per share. Currently, it has a dividend yield of 1.31%.

HDFC Bank Stock Split: The bank has significantly split two times, becoming affordable for investors before surging in long. Stock splits increase demand for a stock, improve liquidity and further become cheap. HDFC Bank had that scenario twice. The first stock split was of a 1:5 ratio in July 2011, where its face value of Rs 10 was trimmed to Rs 2 each. Followed by another stock split of 1:2, where the face value slipped from Rs 2 to Rs 1.

Is it the right time to buy HDFC Bank's share price?

After the exit announcement of senior management personnel, Morgan Stanley while maintaining overweight on HDFC Bank's share revised its target price lower to Rs 1,900 from earlier Rs 2,110. The outlook is Neutral.

Post its Q3 results, ICICI Direct in its research note explained the near-term challenges for HDFC Bank.

As per the brokerage, given the increase in interest sensitivity of advances, utilization of excess liquidity and pressure on LDR/ LCR, margin trajectory is contingent on acceleration in liabilities accretion and focus on high yield book which is to accrue gradually.

Thus, the brokerage added, that maintaining growth momentum along with improvement in margins remains a challenge in the near term. Expect growth to continue at 15-16% CAGR in FY24-25E, though margins (calculated) could remain at 3.4-3.6% levels.

But margins to be cushioned in the long run. According to the brokerage, gradual replacement of borrowing from the parent is expected to aid margins in the long run ahead.

Moreover, after HDFC Bank touched its 52-week low, Ashika Research in its technical note stated that they expect the stock to resume its
upmove and head higher towards 1600 levels in the coming weeks/months being the 61.2% retracement of the immediate previous breather (1721-1363). Among the oscillators, the daily RSI has generated a buy signal moving above its nine-period average thus validating positive bias.

Brokerage Ashika also highlighted key fundamentals of HDFC Bank. They are:

- HDFC Bank, known for its consistency, had delivered an earnings growth of 30% YoY every quarter for a very long period and that moderated to 20% YoY in the past few years.

- During 3QFY24, it posted healthy credit growth of 17% YoY/5% QoQ on the merged basis, backed by strong momentum in retail mortgages and CRB (Commercial Rural Banking). But deposit growth was relatively moderate at 17% YoY and 2% sequentially.

- During the quarter, HDFC Bank's reported NIM as well as core NIM remained stable at 3.6% and 3.4%,
respectively.

- On the asset quality front, after a sharp jump in NPAs during 2QFY24 due to the merger, the bank's GNPA/NNPA ratio improved by 8bps/4bps QoQ to 1.3%/0.3%, respectively, due to contained slippages.

- The bank continues its strategy to focus on the aggressive strengthening of distribution capabilities. HDFC Bank has reported steady operational performance with a RoA of 2%.

- Going ahead, gradual improvement in CD ratio, decline in CI ratio to below 40% and steady credit cost is
expected to result in sustainable RoA for HDFC Bank.

While ICICI Direct's target price currently in HDFC Bank is at Rs 1,800, Ashika's target is at Rs 1,600. Moreover, the highest target price is given by Bernstein at Rs 2,110. Also, LKP Securities at the latest recommended buying for a target price of Rs 1,762.

Additionally. Motilal Oswal also continued to recommend buying for a target price of Rs 1,950. Antique Stock Broking has also maintained BUY for a target price of Rs 2,000.

Despite latest drawbacks, HDFC Bank is still among top largecaps for long-term wealth creation. The stock currently holds the highest weightage of 10.97% in Nifty 50 index, the benchmark of NSE. This is followed by Reliance Industries who has a weightage of 10.28%.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, 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.