HDFC Bank to re-rate, outperform ICICI Bank by FY28? Emkay lists 4 reasons

HDFC Bank's earnings growth is likely to converge with ICICI Bank by FY28, helping the former achieve premium valuation over the latter, Emkay Global said

HDFC Bank share price today, outlook: HDFC Bank stock is poised for a re-rating ahead, predict analysts at Emkay Global Financial Services, as the private bank goes full throttle on credit growth and market share gains.

 

Though the brokerage maintained its ‘Buy' rating and share price target of ₹1,225 per share on HDFC Bank, Emkay Global said the bank's improving credit growth trajectory and core profitability, coupled with restoring management stability, could support a re-rating.

 

"After a post-merger consolidation phase, the bank is bouncing back with a steady improvement in credit growth and aims to outpace system growth in financial year 2026-27 (FY27). This, coupled with continued moderation in share of borrowings (from 13 per cent to 6-7 per cent), deposit re-pricing, steady improvement in CASA ratio, and better loan mix, should drive up margins from FY27," the brokerage said.

 

 

It added: Better fee growth and contained operating expenditure/loan-loss provisions could likely enhance earnings growth to 15 per cent/20 per cent in FY27/FY28, along with Return on Asset (RoA) to 1.9 per cent/2.0 per cent in the respective years.  CATCH STOCK MARKET LIVE UPDATES TODAY

HDFC Bank to outperform ICICI Bank?

Not just a stock re-rating, Emkay Global also expects HDFC Bank to gain edge over ICICI Bank in the near-term.

 

This, it said, is based on two reasons. First, HDFC Bank's earnings growth is likely to converge with ICICI Bank by FY28, helping the former achieve premium valuation over the latter.

 

For instance, it forecasts HDFC Bank's RoA to rise from an estimated 1.8 per cent in FY26 to 2 per cent in FY28. ICICI Bank's RoA, on the other hand, may moderate from 2.4 per cent to 2.2 per cent during the period.

 

Similarly, HDFC Bank's estimated return on equity (RoE) is seen growing from 14.4 per cent to 16.2 per cent between FY26 and FY28, compared to a decline in ICICI Bank's RoE from 16.7 per cent to 15.4 per cent.

 

Valuation wise, Emkay Global said HDFC Bank's price to adjusted book value (P/ABV) multiple may stand at 2x as against ICICI Bank's projected P/ABV of 1.9x in FY28.

 

Secondly, HDFC Bank saw a spate of top/middle management attrition post-merger, which it expects will settle down now.

 

There, however, remains uncertainty around ICICI Bank's MD succession, which could give HDFC Bank a near-term edge, Emkay said.

 

On the bourses, HDFC Bank share price added 0.6 per cent on the BSE in the intraday trade today, while ICICI Bank share price fell 0.8 per cent.

 

4 fundamental reasons why Emkay Global is bullish on HDFC Bank:

 

1) Credit growth to pick pace

Emkay Global notes that HDFC Bank's credit growth has rebounded from a low of 3 per cent in Q3FY25 to 10 per cent year-on-year (Y-o-Y) in Q2FY26, driven by acceleration in corporate and SME lending.

 

On its part, the bank expects FY26 loan growth to be in-line with industry level, while outpacing the systemic growth in FY27, led by corporate, retail, and SME lending. 

Moreover, the management expects mortgage growth should accelerate ahead and provide a good opportunity to cross-sell liabilities as well as other loan products, including Consumer Durables, PL, Cards, Vehicle loans, etc.

 

"All these measures should help the bank claw back the market share lost over the past few years. Besides, re-orientation of its tech platform and deepening of the analytics-led underwriting in secured as well as unsecured retail loans should accelerate credit growth at incrementally lower cost of acquisition and, thus, boost core profitability," Emkay Global said.

 

2) Aggressive deposit mobilisation

Emkay Global notes that HDFC Bank accounts for roughly 11.8 per cent of total banking deposits in the system, despite having just 5 per cent of total bank branches in India, suggesting a high deposit market concentration relative to its branch footprint.

 

The bank has been growing its deposits at over 12 per cent, far higher than its own credit growth of less than 10 per cent (except in Q2FY26) and also system growth, leading to market share gain and steady reduction in loan-to-deposit ratio (LDR) falling to 98 per cent from a high of 110 per cent.

 

Going ahead, the management aims to reduce LDR further to less than 90 per cent; though it expects the trajectory to not be linear.

 

Emkay expects HDFC Bank to witness margin pressure in the near-term, though they may improve from FY27E, as the bank benefits from deposit re-pricing, continued moderation in share of borrowings, steady improvement in CASA ratio, reduced dependence on bulk deposits, and better loan portfolio mix toward higher-yielding retail, SME, and commercial loans.

 

3) Investment in 'phygital' platforms

HDFC Bank's cost-to-income (C/I) ratio (over 40 per cent) as well as cost-to-assets (C/A) ratio (over 2 per cent) have been higher since the merger, driven by strong sustained investments in its phygital platform.

 

Going forward, the management guides to continue investing in its physical distribution footprint, though at a slower pace.  

 

Emkay Global projects HDFC Bank's C/I ratio at 37.7 per cent in FY26, 38.2 per cent in FY27, and 36.6 per cent in FY28. Likewise, C/A ratio is expected to stay steady at 1.8 per cent through FY26-28.

 

4) Contained credit costs

HDFC Bank has reduced its provision coverage ratio to 66.6 per cent to write-off loans and undertake recoveries over the past few quarters.

 

Going ahead, Emkay Global anticipates HDFC Bank to recoup the PCR to 70 per cent which would lead to slightly-higher credit cost in the interim. "However, a separate contingent/floating provision buffer to the tune of ₹38,100 crore/1.4 per cent of loans should limit any impact from ECL implementation by April 1, 27 and keep credit cost in check," it said.    ============  Disclaimer: The views and investment tips expressed by the brokerage in this article are their own and not those of the website or its management. Business Standard advises users to check with certified experts before taking any investment decisions