HDFC Bank - Negatives Priced In; Core Earnings Outlook Better: Prabhudas Lilladher
Transitioning to IRAC would require equity adjustment of Rs 203 billion.
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Prabhudas Lilladher Report
HDFC Bank Ltd. at its analyst meet clarified certain aspects relating to merged financials. While transition to Income Recognition and Asset Classification, credit policy harmonisation and creation of DTL reserve would impact book value per share by 5%, gains emanating from stake sale of Credila could cushion capital by 1.2%.
Creation of excess liquidity could affect Q2 FY24 net interest margin, although margins should bounce back in H2 FY24E as credit growth picks up and liquidity is utilised.
FY24 NIM could contract YoY from 3.8% to 3.6%, however, as higher cost liabilities of Housing Development Finance Corporation Ltd. are replaced, NIM could enhance over FY24-26E from 3.6% to 3.8%.
Merged loans/deposits as at Q1 FY24 were Rs 22.2/20.6 trillion suggesting a 13%/16% YoY growth.
While core earnings growth would be muted for FY24E (5.2% YoY) as NIM and loan growth normalise, core profit after tax may witness a 19.4% compound annual growth rate over FY24-26E. Basis core return on asset at 1.75% for FY26E (ICICI Bank Ltd. 1.94%) we tweak multiple from 3.0 times to 2.8 times but roll forward to core Sep-25 adjusted book value. Retain 'Buy' with target price at Rs 2,025.
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