Is HDFC Bank stock nearing the end of its underperformance spell? Here’s the Street view

The stock has been under pressure over the last one-and-a-half years on account of weaker pre-provision operating profit (PPOP) growth and merger-related execution risk.

“With

Bank’s multiple 30% lower than in the past, improving core PPOP growth and a good start to its deposit mobilisation journey, we believe it is at the end of its underperformance period,” global brokerage firm CLSA said.

While the ramp-up in deposit mobilisation will remain a steep task, its current standalone valuation at 2.4x FY24CL book and consolidated valuation of 2.1x FY24 book are undemanding, and incremental risk-reward is favourable, it said.

Kotak Institutional Equities, which has maintained its buy rating on the stock with an unchanged target price of Rs 1,750, values the bank at 2.5X book and 16X September 2023E EPS for RoEs at 15-16% levels and 15% CAGR (adjusted for merger).

“We believe that the long-term investment thesis of the bank looks quite solid. However, we acknowledge the Street’s concern on the near-term overhang and availability of better alternatives to be justified as well,” Kotak said.

Citing these 3 triggers, domestic brokerage ICICI Direct has increased its target price on HDFC Bank to Rs 1,750 per share from Rs 1,650:

1) Continued focus towards CRB & retail and further rate transmission to aid margins

2) Deposits accretion will be supported by branch expansion and relationship building, though it will keep opex elevated in the near term.

3) Steady asset quality, adequate provision with contingent provision positive. No substantial impact of regularisation of moratorium book.

said HDFC Bank’s asset quality ratios remained robust and witnessed a sequential decline led by moderation in slippages and healthy recoveries and upgrades.

“We expect the stock to perform gradually as revenue and margin revive further while the merger-related overhang ebbs as HDFC Bank looks to complete the merger by 1Q/2QFY24E,” it said. The domestic brokerage has a target price of Rs 1,800 on the stock.

, which also has the same target price of Rs 1,800, said the bank offers the best play on India’s consumption story and is also a good defensive bet in the topical turbulent markets.

“We increase our earnings estimate for FY23-25 by 1%, factoring-in better growth/margins, albeit partly offset by higher opex as the bank accelerates investment in branches, people and technology,” the brokerage said.

Among global brokerages, Nomura hasn’t changed its target price on HDFC Bank of Rs 1,690, implying a 17% upside potential.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)