Buy This Large-Cap Banking Stock For 33% Returns: Aims Doubling Balance Sheet: Motilal Oswal

Reputed brokerage firm Motilal Oswal has recently suggested investors to buy the stocks of HDFC Bank. The bank aims to double its Balance Sheet over the next 4-to-5 years, even on a merged basis.

HDFC Bank: Target Price, Current Market Price, and Market-Cap

The Current Market Price (CMP) of HDFC Bank is Rs. 1387. Motilal Oswal has estimated a Target Price for the stock at Rs. 1850. Stock is anticipated to give a 33% return, in 1 year. This is a large-cap company with a market capitalization of Rs. 773,504 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 1387
Target Price	Rs. 1850
Potential 1 year return	33.00%
52 week high share price	Rs. 1,725.00
52 week low share price	Rs. 1,278.30

The company's NII in FY22 was recorded at Rs. 720.1 b, which is expected to be at Rs. 860.7 b in FY 23. Their NIM in FY22 stood at 3.9%, which is expected to be at 4% in FY 23. The company's operating profits in FY22 were recorded at Rs. 640.8 b, which is expected to be at Rs. 756.5 b in FY 23.

The number of digital transactions of the bank has increased 3x in FY21-22 from FY18-19 levels, with 93% of all transactions being undertaken digitally. Monthly active users/financial Mobile Banking transactions have grown 40%/51% YoY, while the same for Internet Banking grew 20%/32% YoY. The e-commerce card volumes on the payment gateway have experienced a 1.75x growth in the past 3 years, with around 45m UPI transactions being undertaken daily.

Advantages of the stock: Motilal Oswal mentions

HDFC's housing sector has reported good performances since CY20, which is expected to be the biggest contributor to GDP. The housing sector can drive retail growth. Additionally, asset quality ratios remain pristine, while the restructured book remains controlled at around 1.14% of loans. Healthy PCR and contingent provisioning buffer provide comfort on asset quality.

"Growth is likely to be broad-based, with a target to double its Balance Sheet over the next four-to-five years even on a merged basis. It explained its rationale for the merger and addressed key investor concerns. We expect ~18%/20% loans/PAT CAGR over FY22-24E, with RoA/RoE at 2.1%/17.8% in FY24. HDFC Bank remains one of our preferred picks. We expect the stock to recover gradually as revenue and margin revive over FY23, while further clarity emerges on several aspects related to its merger with HDFC. Credit demand is likely to remain healthy, led by its focus across segments such as Retail and Wholesale, with Commercial and Rural Banking growing at a higher pace (25-30%). PSU capex is likely to be unveiled over the next 8-to-10 months, while the recovery in private capex may be slightly delayed," Motilal Oswal stated.

About HDFC Bank: Company profile

HDFC Bank was incorporated in August 1994, and commenced operations as a Scheduled Commercial Bank in January 1995. HDFC Bank offers a whole bouquet of products in payments and consumer financing and has a leadership position in both the offline (44%) and online (48%) card acceptance business (POS). It has a 13%/25% market share in UPI (P2M)/EPI. HDFC and HDFC Bank on 4 April 2022 has announced their merger. The shareholders of HDFC are receiving 42 shares of HDFC Bank, for 25 shares held in HDFC. Hence, HDFC Bank will be 100% owned by the public shareholders, on the other hand, the existing shareholders of HDFC will own 41% of HDFC Bank.

The bank has delivered strong business growth v/s its peers, resulting in constant market share gains. This was propelled by sustained momentum in the Retail segment, along with robust growth in Commercial and Rural Banking and a sharp pick-up in Wholesale loans.

Disclaimer

The above stock was picked from the brokerage report of Motilal Oswal. 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.