HDFC Bank Achieves Bullish Forecast with Target Price of Rs 967

HDFC Bank Sees Improved Quarter, But Loan Growth Remains a Concern

HDFC Bank's fourth quarter (4Q) results showed a marked improvement in deposit growth, accelerating to 14.4% year-over-year (y/y) from 11.6% in the previous quarter. This significant 406 basis points quarter-over-quarter (q/q) improvement in loan-to-deposit ratio (LDR) was accompanied by a 3 basis points q/q expansion in net interest margin (NIM) and improved asset quality on both q/q and y/y basis.

Despite the positive trends, loan growth continued to lag behind the industry, with no indication from the management of a meaningful acceleration in credit growth. Considering HDFC Bank's large balance sheet, low balance sheet liquidity, and weak system deposit growth, a significant acceleration in loan growth from current levels would likely lead to margin compression. In contrast, ICICI Bank is better positioned to navigate the growth vs. margin trade-off, thanks to its high balance sheet liquidity and lower cost of funds.

Rating Upgrade and Target Price

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In light of the recent stock correction, we believe the risk-reward for HDFC Bank has improved. As a result, we are upgrading our rating on HDFC Bank to BUY, with a strategic operating target (SOTP) based target price of Rs967. This valuation assigns a multiple of 2 times FY28E price-to-asset book value (P/ABV) to the core bank and assigns Rs125/share to subsidiaries.

Note: The loan growth comparison is not provided in the original text, so it is not included in the table.