HDFC Bank hits new record high; here's how analysts interpret Q3 results

Asset quality remained healthy with gross non-performing assets falling 27 bps sequentially to 0.81 per cent in Q3FY21

Shares of HDFC Bank hit a new high of Rs 1,503, surging 2.5 per cent in the intra-day trade on the BSE on Monday, after the private sector reported steady performance for the October-December quarter (Q3FY21) with net profit increasing by 18 per cent year on year (YoY) to Rs 8,758 crore, driven by robust growth in net interest income and other income.

The stock settled 1.15 per cent higher on the BSE, at Rs 1,483 apiece, and was among the only four gainers on the Sensex today. The counter saw huge trading volumes with a combined 22.21 million equity shares changing hands on the NSE and BSE.

The bank's net interest income (interest earned minus interest expended) grew 15 per cent YoY to Rs 16,318 crore. Other income of the lender rose upwards of 30 per cent to Rs 7,443 crore in Q3FY21, compared to Rs 6,669 crore in Q3FY20. Net interest margin improved around 10 basis points (bps) sequentially at 4.2 per cent.

Asset quality remained healthy with gross non-performing assets (NPAs) falling 27 basis points (bps) sequentially to 0.81 per cent in Q3FY21. In Q3FY20, gross NPA of the bank was 1.42 per cent. Net NPAs of the lender stood at 0.09 per cent, improving 9 bps sequentially and 38 bps year on year.

Steady growth in business along with steady asset quality on proforma basis bodes well for the bank, ICICI Securities said in a note.

Riding on a beat on net profit estimate, and low restructuring figures, analysts have increased their target price on the stock, and expect it to hit up to Rs 1,860 levels within a year, up 27 per cent from Friday's closing price on the BSE.

Betting on the lender's strong credit growth, analysts at Emkay Global have revised their target price on the stock to Rs 1,850. "Overall credit growth remains healthy at 16 per cent YoY, led by continued traction in corporate book and some pick-up in retail non-auto book, including cards. The bank is in discussion with the RBI on a remedial plan to resolve the tech-outage issue but awaits response as to when the regulator would lift restrictions on new card acquisition," it said in its post result report.

Those at Prabhudas Lilladher, meanwhile, remain "cautiously optimistic" on the counter given that collections, even though, have normalized to pre-Covid levels of 97 per cent, they vary from product to product, making growth aspects slightly cautious. 

Motilal Oswal Financial Services and LKP Securities have one-year target of Rs 1,720 and Rs 1,643, respectively on hopes of outperformance on the back of healthy growth in operating income, much higher provision than regulatory requirement in the balance sheet, strong capital cushion of 17 per cent at CET1 level, and best in class underwriting and risk management practices. 

Kotak Institutional Equities, on the other hand, observed that HDFC Bank's acceleration in sequential growth in retail loans may take a longer time to get the bank’s average loan growth.

"We have upgraded our earnings estimates by 5-12 per cent for FY2021-22 and our earnings forecast for FY2022 is closer to what we had projected in the quarter (3QFY20) prior to Covid. The headroom for disappointment is far lower today. That said, the two key risks to the lender's growth are growth recovery is slower resulting in lower-than-expected revenue growth, and a delayed presence of Covid impact on banks resulting in a revisit to our credit cost estimates," it said in its report.

Among global brokerages, Credit Suisse has revised its target price on HDFC Bank from Rs 1,400 to Rs 1,700, and has revised EPS for FY21-23 by 2-7 per cent on the back of lower credit costs. 

BROKERAGE	RATING	TARGET PRICE (in Rs)
Goldman Sachs	Buy	1,681
Morgan Stanley	Overweight	1,775
JPMorgan	Overweight	1,850
Jefferies	Buy	1,800
Emkay Global	Buy	1,850
Investec	Buy	1,680
Motilal Oswal FS	Buy	1,720
IDBI Capital	Buy	1,740
Kotak Institutional Equities	Add	1,550
Prabhudas Lilladher	Buy	1,690
Elara Capital	Buy	1,860
Antique Stock Broking	Buy	1,675
LKP Securities	Buy	1,643
Axis Securities	Buy	1,710

Source: Respective brokerage reports