Shares of HDFC Bank Ltd. declined over 4% in early trade on Wednesday after the management met with sell-side analysts to comment on the financials of its merged entity with Housing Development Finance Corp. and related matters on Monday.
The bank shared pro forma financial statements for the merged entity for Q1 FY24.
There was a reduction in net worth after factoring in the differences in the accounting policies of HDFC Bank and HDFC. In a presentation, the bank also noted that the net non-performing assets ratio will rise to 0.4%, from 0.3% at the end of the first quarter.
Here's What Brokerages Have To Say
Kotak Institutional Equities
Maintains a 'buy' rating but revised fair value to Rs 1,850 (Rs 1,925 earlier), implying a 13.6% upside.
The final adjustment to net worth is higher than expected.
Uncertain about the thesis of differentiation, re-rating is some time away as the bank has to work through the net interest margin transition.
The brokerage revised book value by about 7% to account for adjustments, and IGAAP alignment on operating expenses is higher than expectations.
Has cut earnings estimates by around 5% in FY25–26 to account for lower NIM but upgraded for FY24, considering stake-sale gains in the education finance subsidiary Credila.
In the short term, expects NIM to open at 3.7% levels compared to 4.1% in Q1 FY24.
Values the bank at 2.6 times book and around 17 times estimated 2025 EPS for RoEs at 16% levels and about 15% CAGR.
Goldman Sachs
Reiterates 'buy' rating with a target price of Rs 2,051, implying a 25.9% upside.
Revised Book Value Per Share stood at Rs 519, which is marginally lower than the BVPS of standalone HDFC Bank as of Q1 FY24 at Rs 525. This was due to accounting adjustments, including dividend payments.
Expects return on assets to be lower in Q2 FY24, due to suppressed incoming NIMs for erstwhile HDFC Ltd., mainly due to excess liquidity.
The brokerage's estimates do not reflect the changes, such as the RoA from Q2 onwards and the starting BVPS for the merged entity.
Forecasts sector-leading earnings growth of 17% in FY23-26E and superior return ratios and average RoA at c.2.1% over FY24-26E.
Bank will continue to grow its loan book at a c.18% CAGR and see better return ratios post-merger, according to the brokerage.
Motilal Oswal Financial Services
Maintains a 'buy' rating with a revised target price of Rs 1,950, implying 20% upside.
Has a conservative NIM projections for FY24 at 3.75%, which is in line with the pro forma merged estimates.
The brokerage cut book value projections, on account of the impact on net worth of the transition to IGAAP, credit policy harmonisation and other factors.
The drag from excess liquidity, incremental CRR, and continued unwinding of the non-individual loan portfolio of HDFC Ltd. will further impact margins and earnings.
Estimates loan growth for the merged entity to sustain at 12% over the remaining 9M FY24, while the CAGR will recover to 17% over FY24-26E.
Forecasts a about 21% CAGR in net earnings, while RoA/RoE would expand to 2%/17%, over FY24-26.
An increased customer base, a strong technological edge, and robust distribution should help the bank improve cross-selling to customers and enable growth.
Valuation and target price are premised on 2.7 times FY25E absolute book value.
DAM Capital
Maintain Buy Rating with a revised target price of Rs 1,940 (earlier Rs 2,060), implying a 19.1% upside.
Expect NIM pressure to reverse from Q3FY24 as liquidity is utilized productively and hence build 1% impact on Net Interest Income
Also build in a 7% impact on Absolute Book Value from the harmonization
Valuation based on unchanged 2.8x FY25 ABV and Rs 240 for subsidiaries.
Expect strong RoAs of 1.85%-1.90% and 15%-16% RoE over FY24-25E with further risks limited to NIMs and deposits accretion.
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