HDFC Bank hits 52-week low; slips 18% in 1 month wiping out Rs 2.3 trn mcap

Shares of HDFC Bank hit a 52-week low of Rs 1,363.45, down 2%, falling below its previous low of Rs 1,382.40 touched on January 24.

Shares of HDFC Bank hit a 52-week low of Rs 1,363.45, down 2 per cent on the BSE in Wednesday’s intra-day. The stock of the country’s largest private sector lender was quoting at its lowest level since July 2022 (pre-HDFC merger). It fell below its previous low of Rs 1,382.40 touched on January 24. 

In past one month, HDFC Bank has underperformed the market by falling 18 per cent after the bank reported a disappointing set of numbers for the quarter ended December (Q3FY24). HDFC Bank has seen a market capitalisation (m-cap) erosion of Rs 2.34 trillion during this period. In comparison, the S&P BSE Sensex was down 3 per cent. 

HDFC Bank continued to deliver strong loan growth, however, deposit accretion remained weak which led to jump in credit deposit (CD) ratio at ~110 per cent. Utilization of excess liquidity resulted in decline on LCR (Liquidity Coverage Ratio) from 121 per cent to ~110 per cent quarter-on-quarter. 

Given increase in interest sensitivity of advances, utilization of excess liquidity and pressure on loan to deposit ratio (LDR)/liquidity coverage ratio (LCR), margin trajectory is contingent on acceleration in liabilities accretion and focus on high yield book which is to accrue gradually. Thus, maintaining growth momentum along with improvement in margins remains a challenge in near term, analysts at ICICI Securities said in result update. 

Going ahead, gradual improvement in CD ratio, decline in cost-to-income (CI) ratio to below 40 per cent and steady credit cost is expected to result in sustainable RoA of 1.8-1.9 per cent in FY24-25E, the brokerage firm said and maintains ‘buy’ rating on the stock. 

Analysts at Axis Securities believe deposit mobilization will remain an uphill task given tight liquidity and stiff competition. While margin pressures will persist, improvement in net interest margins (NIMs) will be largely driven by shifting portfolio mix towards retail lending. Gradually improving cost ratios and benign credit cost given the unabated focus on credit quality will support RoAs as margins face headwinds. NIM recovery remains a key re-rating trigger for HDFC Bank, the brokerage firm said,adding strong deposit growth remains a critical factor in enabling the bank to sustain its higher credit growth. 

Analysts believe current valuations are attractive given HDFC Bank’s ability to deliver a healthy ~21 per cent CAGR earnings growth over FY24-26E. They expect the bank to deliver RoA/RoE of 1.8-1.9 per cent/15- 17 per cent over FY25-26E. 

The key challenge remains at this point of time is CD ratio is higher than the industry. The brokerage firm Sharekhan believes loan growth is expected to be in low mid-teens in the near term and deposit growth should outpace loan growth by 300-400 bps, which should bring the CD ratio to a normalised level gradually. 

The brokerage firm, however, retains its Buy rating on the stock with an unchanged price target of Rs 1,900, as valuations are reasonable and have priced in all the barring factors that could weigh down the earnings trajectory of the merged entity. Key monitorable remains NIM progression and retail deposit mobilization, it added.