Buy This Large Cap Banking Stock, Shares Can Surge 29%, Says Emkay Global

Emkay Global, a leading brokerage firm, has given a buy call on the stock of HDFC Bank Limited, with a target price of Rs 1,800 per share. The brokerage sees a potential upside of 29% based on the given target price and the current Current Market Price. HDFC Bank is one of India's major private sector banks, with a market capitalization of Rs 7,81,025 crore.

Stock Outlook & Returns

The current market price of HDFC Bank Stock is Rs 1,402.05 per share, trading 0.10% up from its previous close. Today, it opened at Rs 1,403.20 per share. The stock hit the 52-week high level at Rs 1,725 and the 52 week low level at Rs 1,271.60, respectively. 
 
 HDFC Bank's stock in the past 1 week has fallen 3.31%. Whereas, over the past 1 month, it has given 5.94% negative return. It has given 13.79% negative return over a year. In the past 3 and 5 years, it has given positive returns of 17.19% and 54.49%, respectively.

Business Update - Q2FY23

HDFC Bank maintained its robust credit growth trajectory - up 23.5% YoY/6% QoQ, in Q2 (vs 21.5% YoY/2% QoQ, in Q1). This was mainly led by continued strong momentum in commercial banking (31.5% YoY/9.5% QoQ)/corporate book (27% YoY /9% QoQ). Retail growth too was healthy, at 21.5% YoY/5% QoQ. 

Mortgage book purchase from HDFC continued to be high at Rs91.5bn in Q2 (vs Rs95bn in Q1). As per our channel checks, vehicle financing too is showing signs of pick up and will, thus, be a key monitorable for the bank (being the leader in the space). 

Deposit growth was also strong, at 19% YoY, with retail deposit growth at 20% YoY; CASA growth stood at 15% YoY, which led to a slight decline in CASA ratio to 45%. "We believe strong growth in the non-retail book coupled with some slip-up in CASA ratio should keep margins and, thereby, core profitability in check," the brokerage said. 

After a slight surge in Q1, we expect the bank to report sequential improvement in headline NPAs during Q2, led by better recovery in the agri portfolio (including KCC) and accelerated credit growth. "With the bank sitting on healthy, specific + contingent provisions, we expect LLP to moderate which should, thereby, support net profitability," the brokerage said. 

Outlook - Growth accelerates further; asset quality set to improve QoQ

"We believe HDFC Bank will be the key beneficiary of the buoyant credit markets, given its strong retail orientation as well as its increasing inclination towards corporate growth. However, a positive regulatory stance on the impending merger structure and managing the merger without much disruption will be key for re-rating. Currently, the stock trades at 2.4x FY24E ABV (ex-subs valuation). We retain our BUY rating on the stock, with Target Price of Rs1,800/share (3.0x Jun-24E ABV + subs valuation of Rs78), given healthy return ratios, strong capital comfort and reasonable valuations," Emkay Global said.

Disclaimer

The stock has been picked from the brokerage report of Emkay Global. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.