'Buy' HDFC Bank Shares Maintains Motilal Oswal Post Steady Q1 Results — Check Target Price

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Motilal Oswal Report

HDFC Bank Ltd. posted a steady quarter with a slight earnings beat due to tax reversals. The net interest margin contracted 11bp QoQ and is expected to moderate further in Q2 due to the rate cut impact.

Business growth aligns with the bank’s strategy to reduce the credit/deposit ratio consistently, though the bank indicated it would improve its credit growth trajectory moving forward. Slippages increased mainly due to agri seasonality, while provision coverage ratio was stable at ~66.9%.

Further, HDFC Bank has prudently utilized the stake sale gains in its subsidiary HDB Financial and made floating provisions of Rs 90 billion and contingency provisions of Rs 17 billion to take the total stock of such provisions to Rs 366 billion (1.4% of loans).

The gradual retirement of high-cost borrowings, along with an improvement in operating leverage and the provision buffer, will support return ratios over the coming years.

We tweak our earnings estimates and project HDFC Bank to deliver an FY27E RoA/RoE of 1.9%/14.9%. Reiterate Buy with a target price of Rs 2,300 (premised on 2.6x FY27E adjusted book value + Rs 284 for subsidiaries).

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