Brokerages anticipate a 35% increase in the share price of HDFC Bank; here’s why.

Following the lender’s analyst day, which came in following Q4 results of FY23, HDFC Bank, the largest private sector lender in India, is a top choice of brokerages. Brokers predict gains of between 19% and 35% in the future. The management of HDFC Bank expressed confidence in key metrics following their merger with NBFC behemoth HDFC. The management of the lender has provided forecast for FY24 and anticipates that the merger of HDFC Bank and HDFC would be finalized over the next 4–5 weeks.

The share price of HDFC Bank ended the day on Friday at 1,615.50, a slight increase from the previous session. The stock price on the BSE did, however, decline by almost 2% during the trading week that concluded on May 26.

Following the analysts meeting for HDFC Bank, brokers have recommended buying the stock.

From Sashidhar Jagdishan, MD’s opening remarks, which focused primarily on the post-merger outlook, BNP Paribas outlined five significant points. Which are:

  • Management expressed optimism about the bank’s post-merger prospects and predicted that the merger with HDFC will be finalized in 4-5 weeks.
  • Maintaining a net interest margin of between 3.7% and 3.8% after the merger (very much the same as the most recent announced standalone margin).
  • After the merger, holding CASA of about 40%.
  • Achieving a Post-merger RoA of 2% on day zero of the merger. – Also, HDFC Bank plans to leverage the large distribution network and unique customer base (100m+) of the group going forward, with a strong focus on cross-sell to achieve its stated objectives.

Over the next 4-5 years, HDFC Bank intends to create 1,500 branches on average annually, and it anticipates that in 8–10 years, the additional branches will produce meaningful benefits. The management also anticipates a declining trend in the cost-to-income ratio during the following three to four years.

The report from BNP Paribas analyst Santanu Chakrabarti stated, “In what will be music to the ears of even the most ardent supporters of the bank, HDFCB plans to revamp its net-banking and mobile app by end-FY24 and both are about to go into beta testing.”

Chakrabarti continued, “HDFCB has developed a ‘buffer’ system layer for these transactions that feed into core banking with a latency of a few microseconds rather than live. This is done in recognition that UPI transaction volumes have been the primary cause of recent disruptions in its core banking system. ‘Hollow the core’ appears to be the common rallying cry for the entire data architecture.

being transferred from its antiquated platform to a cloud-native one. The top BUY in our banking coverage continues to be HDFCB.

The analyst’s target price for HDFC Bank is 2,180.

The following significant takeaways from HDFC Bank’s analyst day were further clarified by Gaurav Jani, Research Analyst, Prabhudas Lilladher.

Regardless of size, the bank would safeguard loan growth (1.5–2.0x of the system).

-The bank would grow by acquiring market share; incremental deposit accretion (18–20% market share) may not be difficult. Deposit market share is now around 10%.

  • In the event of fierce competition, the bank is willing to give up volumes on NIM; in order to maintain pricing, it sold Rs. 1 trillion worth of corporate loans in FY23.
  • The focus would change from being product-based to customer-centric after the merger. Access to the 25 million HDFC Group customers who do not bank with HDFC Bank and the 60–70% of HDFC Ltd. clients who do not have a liability connection with the bank would be the immediate benefit of the merger.

Over the next ten years, it is intended to reduce the cost to income to 30% (36% on a merged basis in FY23).

  • RoA after the merger would remain between 1.9 and 2.1%.

Jani continued, “We keep multiple unchanged at 3.0x on core FY25E ABV and retain BUY with TP of Rs1,925.” after the previous statement.

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