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Buy HDFC Bank; target of Rs 1,850: ICICI Securities appeared on www.moneycontrol.com by .
Broker Research
April 23, 2024 / 02:44 PM IST
Buy
ICICI Securitie’s research report on HDFC Bank
Post the merger, the bank has seen structural changes to the balance sheet in the form of sharp rise in LDR, lower CASA share and significant rise in the share of borrowing. The merger has also catapulted banks’ loan market share (m/s) by 330 bps to 14.5% while rise in deposits m/s is slower at 110bps YoY to 11.0%. We estimate the bank to deliver solid 18% CAGR in deposits for FY24-26 (absolute rise of INR 4.0-5.0 trillion per year) which also accounts for changed competitive landscape. Despite strong deposits growth, the bank is likely to focus on balanced LDR and borrowing substitution; thus we cut our loan growth estimate to 13% CAGR for FY24-26 with LDR easing to 100/96% for FY25/26 vs 104% now. Our implied incremental LDR comes at 74-75%. Overall, deposits accretion remains key variable impacting growth and NIM.
Outlook
While Q4FY24 NIM outcome was slightly better than expected, it appears partly driven by seasonality. We cut our EPS estimate by 5% for both FY25/26, mainly due to cut in growth estimates. We estimate the bank to deliver healthy RoA of 1.7% for FY25/26 with 14–15% RoE. Our target price remains unchanged at INR 1,850. Due to the sharp correction in stock price (down 10% YTD), we upgrade the stock to BUY. The re-rating is likely to be gradual as despite strong deposits growth, credit growth is likely to remain bit slower versus system and borrowing substitution is also likely to be gradual.
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