Buy This Large-cap Banking Stock For 25% Returns, NII Improves To Rs. 210 bn: Prabhudas Lilladher

Prabhudas Lilladher, a top brokerage firm suggests investors buying the stock of HDFC Bank. NII of the bank was a beat at Rs. 210 bn growing by 19% YoY led by better NIM at 4.6%. The increase in yields was higher compared to Cost of Funds (CoF). The bank's credit growth was reported at 23.4% YoY and deposit accretion stood at 19% YoY.

Stock To Buy: Target Price

The Current Market Price (CMP) of HDFC Bank is around Rs. 1439. Prabhudas Lilladher has estimated a Target Price for the stock at Rs. 1800. This stock has the potential to give a 25% return, in the upcoming 1 year. It is a large-cap stock with a market capitalization of around Rs. 804,497 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 1439
Target Price	Rs. 1800
Potential 1 year return	25.00%
52 week high share price	Rs. 1,725
52 week low share price	Rs. 1,271.60

Stock Upside - performance

HDFC Bank saw a good quarter with core earnings beating estimates by ~5% led by stronger NII and other income (excl. treasury) while asset quality was better. NIM was higher by 9bps due to superior yields driven by faster asset repricing, which is expected to outpace that of liabilities, suggesting that NIM would improve in near term. Retail wholesale mix remained stable QoQ at 43:57 owing to stronger growth in corporate. Targeted retail contribution is 55% however the bank would also focus on wholesale if it is RoA accretive.

Stock Valuation

Retaining the buy rating, Prabhudas Lilladher quoted, "As per its strategy, deposit flow in H1FY23 was largely led by TD (+13% YTD). The bank clarified that it would not resort to aggressive pricing in deposits. We upgrade FY23 earnings by 6% mainly led by higher NIM/NII while there is no material change in FY24/25E PAT. We remain positive on HDFCB though near term focus would remain on merger. Valuation is undemanding at 2.3x Sep'24 core ABV. We maintain multiple at 3.0x and TP at Rs. 1,800."

Credit flow

Sequential loan growth was largely driven by CRB (+8.7%) and corporate (+9.0%) while retail grew by 4.1%. Although faster retail accretion would have been preferred than corporate, pricing seems to have normalized within wholesale as NII growth is catching up with that of loans. Credit mix at 57:43 continues to be skewed towards wholesale.

Opex expected to elevate, improved GNPA

Due to focus on retail loans and with the upcoming merger, the brokerage firm expects opex to remain elevated and are factoring a 21% CAGR in opex over FY22-25E. GNPA improved QoQ as slippages reduced to Rs5.7bn or 1.7% (2.1% in Q1FY23). Bank added 8,500 employees and 121 branches during the quarter. HDFCB intends to add 900 more branches in near term.

Disclaimer

The above stock was picked from the brokerage report of Prabhudas Lilladher. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.