India's largest lender, HDFC Bank has witnessed robust buying in a month. It is not just stock price, but also its American Depositary Receipts have seen double-digit upside. In a month, HDFC Bank stock and ADR have surged between 12-13%. Does that mean that the largest lender which witnessed huge selling pressure in early 2024 due to its bleak growth outlook, is finally out of the woods? What is the reason behind the latest bullish trend, and should you buy HDFC Bank?
HDFC Bank Share Price, ADR:
After market hours of June 25, HDFC Bank's share price stood at Rs 1710.90 apiece, up by 2.32% with a market cap of Rs 13,01,673.64 crore on BSE. The stock is nearing its 52-week high of Rs 1,757.80 apiece.
In a month, HDFC Bank recovered from losses it witnessed in early 2024 after Q3FY24 earnings. So far, in a month, the stock zoomed by 12%. Similar has been the case of its ADR.
On the NYSE, HDFC Bank's ADR surged by 1.3% on June 25 and traded at $65.05. In a month, ADR has gained by 12.60% as of now.
HDFC Bank Outlook, Risks:
The latest uptrend can be attributed to HDFC Bank's growth outlook which is robust. However, there are certain risks as well. In its latest report, CLSA said, "HDFC Bank is the best-run bank with a track record of strong growth and profitability for over two decades."
However, CLSA observed that return ratios and loan growth have moderated due to the merger and would take a few years to normalize. Valuations have come off significantly, in the past five years thus making risk-reward healthy, despite the lower profitability.
As per CLSA, improvement in deposit accretion, especially CASA deposits, and an increase in NIMs would be key catalysts for HDFC Bank stock.
On the valuation, CLSA said, "We value the lending business using a long-term residual income model till FY40. We use a cost of equity of 12.8% and an average RoE over FY25-40 of 16%. In addition to the lending business, we value the subsidiaries based on our target prices (for the listed subsidiaries)."
Whether HDFC Bank is out of the woods will be keenly watched. As per CLSA, investment risk in HDFC Bank would be its inability to garner adequate deposits at competitive rates is the key risk to the stock. Also, slower CASA accretion could lead to higher cost of funds, and consequently, lower NIM.
JM Financial has set a 12-month target price of Rs 2,010 with a BUY recommendation.
Among corporate actions, HDFC Bank has delivered 25 dividends since April 2001. In 2024, the bank paid dividend of Rs 19.50 per share which is final for FY24, and also highest ever by the lender. HDFC Bank turned ex-dividend on May 10, 2024.
Although, HDFC Bank has n0t delivered any bonus shares, it has carried two stock splits. The first split was of 5:1 ratio in July 2011, followed by 2:1 split in September 2019.
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.
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