HDFC Bank Ltd. has created wealth for investors since inception. But the private lender is not among top picks for analysts anymore even as its valuation has fallen.
The bank trades at 2.9 times its book value compared to 4.5 times in 2018.
HDFC Bank and parent Housing Development Finance Corp. merged, creating a banking behemoth. But during the Sept. 18 meet with sell-side analysts to disclose pro-forma financial results of the combined entity for the first quarter of FY24, the management's commentary was disappointing.
Shares of the lender fell 4% on Wednesday (Sept. 20) in the biggest fall since May.
Here's what analysts have to say about HDFC Bank:
'Worst Is Over'
Bunty Chawla, assistant vice-president of the BFSI unit at IDBI Capital Markets & Securities Ltd., said, "We have cut the target price from Rs 2,050 to Rs 2,000, but we are still bullish on the stock."
According to Chawla, the market has baked in the upcoming weak second quarter numbers in the stock price.
Margins will be impacted by 25-30 bps in the second quarter, and from next two quarters, they will try to cope up and it will be visible from Q4 onwards.
“We believe the worst is over with respect to mergers, which was a hangover on impact on the margins per se. We don't see more derating, there should be no negative surprises.”
'Not Among Top Picks'
Quoting a Yes Securities report, its Head of Research and Lead Analyst, Shivaji Thapliyal said, "The impact from decline in margin would be partly offset by a decline in cost-to-income ratio and a marginal decline in credit cost."
“We have a price target of Rs 1,950 for HDFC Bank with a less-than-outright-bullish 'Add' rating. It is not one of our top picks in the banking space. We prefer Bank of Baroda, Axis Bank, Federal Bank, SBI, Indusind Bank and ICICI,” said Mr Shivaji Thapliyal. He added that he views limited downside.
He said that Yes Securities had an "add" rating on HDFC Bank in June 2021, which they upgraded to "Buy" in May 2022, and now have downgraded it to "Add" in April 2023.
'Prefer Other Private Peers'
Yuvraj Choudhary, research analyst at Anand Rathi Institutional Equities, said, "Considering current valuation, we prefer ICICI Bank, Axis Bank , Kotak Mahindra Bank as we see good opportunities in alternative companies than HDFC Bank."
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