HDFC Bank nears record high on Q3 earnings; analysts bullish on the stock

The stock hit its highest level since August 1, 2018, of Rs 2,165, was trading close to its record high level of Rs 2,219 touched on July 18, 2018, on BSE in the intra-day trade.

Shares of HDFC Bank hit an over five-month high of Rs 2,165, up 1.6 per cent on BSE in the intra-day trade on Monday, after the company reported a 20.3 per cent year-on-year (YoY) growth in net profit at Rs 5,586 crore in December quarter (Q3FY19). The private sector lender had posted a profit of Rs 4,643 crore in the year-ago quarter.

Net interest income (interest earned less interest expended) during the quarter under review grew by 21.9 per cent to Rs 12,577 crore from Rs 10,314 crore in previous year quarter, driven by asset growth of 23.7 per cent and a core net interest margin for the quarter of 4.3 per cent.

The bank’s gross non-performing assets (GNPA) and net NPA ratio increased by 5bp/2bp at 1.4 per cent and 0.4 per cent, respectively. The bank made contingent provisions of Rs 322 crore to insulate itself against any stress in the agri portfolio in view of the impending general elections/recent waivers.

“HDFC Bank saw strong beat on pre-provision operating profit (PPOP) of Rs 10,780 crore up 27.5 per cent YoY on the back of strong other income (fees/treasury/misc income) and slightly better than expected NII (net interest income) growth of 21.9 per cent YoY,” analysts at Prabhudas Lilladher said in results update.

Bank continues to deliver 20 per cent CAGR earnings with stable margins, low-cost liabilities and strong asset quality which leads us to retain BUY rating but stock is currently trading at 3.3x Sep-20 ABV and recent outperformance restricts upside to 10-11 per cent with target price of Rs 2,371 (from Rs 2,310) based on 3.7x Sep-20 ABV, it added.

“HDFC Bank has been consistently gaining market share across retail product segments (personal loans, business banking, credit cards and auto loans). Strong capitalization and liquidity levels should enable HDFC Bank to sustain this growth momentum over the next few years. Operating expenses have been under control and digital initiatives have aided consistent decline in the cost to income (C/I) ratio,” Motilal Oswal Securities said in a results update. The brokerage firm maintains ‘buy’ rating on HDFC Bank with a target price of Rs 2,500 per share.

“We reiterate our 'Accumulate' rating on the stock based on sustainability of higher asset yield, strong core fee income momentum on the back of traction seen in payment business and credit cards and sustained credit growth in retail segment with stable credit quality,” analysts at Elara Capital said in quarterly update with target price of Rs 2,423 per share.

At 11:45 am, HDFC Bank was trading at Rs 2,154, up 1 per cent on BSE, as compared to a 0.66 per cent rise in the S&P BSE Sensex. The stock hit its highest level since August 1, 2018. It was trading close to its record high level of Rs 2,219 touched on July 18, 2018, in the intra-day trade. A combined 2.46 million equity shares changed hands on the counter on the BSE and NSE so far.