HDFC Bank- Stock to Buy Today

High Conviction Investment Idea – HDFC Bank (CMP: INR1503   TP: INR1800, 20% Upside, Buy).   
HDFC Bank’s credit demand is likely to remain healthy and broad-based, led by its focus across segments such as Retail/Wholesale, with Commercial/Rural Banking growing at a higher pace (25-30%). The bank targets to double its Balance Sheet over the next 4-5 years even on a merged basis. We expect loan growth of 18% CAGR over FY22-24.

Deposit growth remains strong, led by CASA, which should support the margin. We expect a gradual increase in margin, led by rising interest rates, lower cost of funds as well as a strong and granular liability franchise, and higher Retail loan growth. Strong capitalization and liquidity levels should help HDFC Bank sustain its growth momentum.

HDFCB reported an in-line NII and PAT, while PPOP and asset quality saw some blips due to higher treasury losses and slippages. Loan growth was driven by sustained momentum in the Retail segment, along with steady growth in Commercial and Rural Banking. The margin stood flat QoQ and is expected to improve gradually. Asset quality ratios have deteriorated marginally, while the restructured book moderated to 76bp of loans. Healthy PCR and a contingent provisioning buffer provide comfort on asset quality. We expect HDFCB to deliver ~20% PAT CAGR over FY22-24, with an RoA/RoE of 2%/17.5% in FY24. We maintain our Buy rating with a TP of INR1,800 per share (premised on 3x FY24E ABV). HDFCB remains among our preferred picks. We expect the stock to perform gradually as revenue and margin revive over FY23, while clarity emerges on several aspects related to the merger with HDFC.

We expect HDFC Bank to deliver ~20% PAT CAGR over FY22-24, with an RoA/RoE of 2%/ 17.5% in FY24. Strong cost control, led by further digitalization, is likely to drive an overall improvement in return ratios. We expect the stock to perform gradually as revenue/ margin revive over FY23, while clarity emerges on several aspects related to the HDFC merger.

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Source:- Motilal Oswal Financial Services.