Near-term caution remains on HDFC Bank merger but analysts remain bullish


HDFC Bank’s share price has declined by 1.82 per cent in the last six months. During the same period, the benchmark Nifty Bank index has given a return of 13.68 percent.

HDFC Bank’s share price declined more than six per cent in the last three sessions since the company’s analysts’ meeting to share details of the HDFC merger, due to near-term concerns over asset quality, excess liquidity and net worth. Has come. While brokerages are broadly bullish and have a favorable call on HDFC Bank stock, they advise caution in the near term, with some even cutting the target price.

Brokerage firms highlighted the decline in HDFC Bank’s standalone book value due to near-term pressure on net interest margins due to accounting changes and increase in incremental cash reserve ratio to provide additional liquidity to lenders and deal with increased competition. On September 22, HDFC Bank stock closed at Rs 1,530, 1.5 per cent lower than its previous close.

Why are brokerage firms feeling near-term pressure on HDFC Bank stock?

Impact on asset quality and earnings:

Brokerage firms have noted the potential impact on asset quality metrics, including a rise in non-performing loans (NPLs) from ex-HDFC’s real estate portfolio. Earnings estimates and net interest margin (NIM) are expected to be impacted by factors such as interest on cash reserve ratio (ICRR) and excess liquidity.

Impact of merger on net worth and book value per share:

The merger with HDFC is expected to alter net worth, with many companies noting one-time adjustments. However, these adjustments are often described as time-varying or transitional. While there may be some weakness in book value per share (BVPS), much of it is considered non-cash and transitional in nature.

HDFC Bank stock calls: Brokerages are mostly bullish; Check target prices

Kotak Institutional Equities has reduced its target on HDFC Bank stock to Rs 1,850 from Rs 1,925 earlier. “The net worth has declined taking into account policy, accounting alignment and dividend payments. NPLs in the parent entity are higher than expected but further negative surprises should be negligible. Re-rating will take some time as the bank will have to do so with net interest. Work through the margin (NIM) transition and build your thesis of differentiation, about which we are still less certain,” Kotak said.

Also read: Buy HDFC Bank; Target of Rs 2025: Prabhudas Leeladhar

Bernstein has given ‘outperform’ rating to HDFC Bank stock with a target price of Rs 2,300 per share. “Addition of additional liquidity pushes ‘normal’ return on assets (ROA) up by FY25.”

“Normal ROA for the merged entity is expected to be between 1.9-2.0 per cent. There is a slight deterioration in headline asset quality metrics. Weak earnings are expected over the next few quarters due to one-off factors. Re-rating may take a few quarters. Could. Expected.”

Macquarie has given ‘outperform’ rating to HDFC Bank with a target price of Rs 2,110 per share.

Also read: Low book value, asset quality issues and high costs: Nomura downgrades HDFC Bank after merger

Citigroup has ‘buy’ rating on HDFC Bank, but the brokerage has reduced the target price from Rs 2,200 to Rs 2,160 per share in a recent report. “HDFC Bank is focusing more on lending for affordable homes and infrastructure projects. They want to create 13,000-14,000 branches in the next 4-5 years. But how well they perform each quarter depends on finding good locations for branches, signing leases and hiring staff.

Goldman Sachs has “buy” rating on HDFC Bank with a target price of Rs 2,051 per share. The bank has recently decided to gradually withdraw I-CRR, which may have an impact of around Rs 400 crore. However, the market value of the bank has fallen by a massive Rs 29,000 crore since the announcement. Now that the uncertainty seems to be subsiding, the brokerage firm remains positive on HDFC Bank. The firm expects the bank to have the best earnings growth in its sector by FY23-26 – around 17 per cent.

UBS has given ‘buy’ rating to HDFC Bank stock with a target price of Rs 1,900 per share. The report said: “Clarity on the merged balance sheet is going to be the key driver for the bank. Q1 net interest margin (NIM) is going to be impacted by ICRR and excess liquidity.”

Jefferies has given ‘buy’ rating to HDFC Bank stock with a target price of Rs 2,030 per share. “The impact on net interest margin (NIM) will be slightly higher than expected due to higher liquidity.”

HDFC Bank Stock Performance

HDFC Bank’s share price has declined by 1.82 per cent in the last six months. During the same period, the benchmark Nifty Bank index has given a return of 13.68 percent.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.


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