HDFC Bank: Analyst Sets Bullish Target of Rs 1011

HDFC Bank Outlook Remains Positive Amid Ongoing NIM Recovery and Operating Leverage

HDFC Bank's prospects for net interest margin (NIM) expansion and operating leverage are expected to drive growth in the coming years. As per a recent report, the bank's NIM is forecast to recover through FY27 to FY28E, primarily due to the incomplete deposit repricing (~40-50 bps vs 125 bps rate cuts on assets) and the gradual run-down of high-cost legacy borrowings. This is expected to lower the cost of funds (CoF) from ~4.99% to ~4.60% by Q4FY28E, thus underpinning a NIM expansion from 3.38% to ~3.55%.

The report highlights the significance of operating leverage as a key earnings driver. With a maturing ~4,800-branch network and technology-led efficiencies, HDFC Bank is expected to compress its Cost-to-Income ratio from 39.9% to ~39% by FY28E. This is anticipated to drive a sharp acceleration in pre-provision operating profit (PPOP) growth to ~20% in FY28E, outpacing revenue growth.

Valuation Remains Attractive

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The stock currently trades at ~1.8x FY28E asset-based valuation (ABV) for the core bank, which is a meaningful discount to historical averages. The bank has delivered steady returns on assets (RoA) of ~1.8% and returns on equity (RoE) of 14-15%. Our strategic option pricing (SOTP)-based target price of INR 1,011 (2.0x ABV for standalone + INR 110 for subsidiaries, net of holdco discount) implies a ~25% upside. Considering these factors, we reiterate a BUY recommendation.