HDFC Bank Recommended as a Buy by Prabhudas Lilladher with a Price Target of Rs 1100

HDFC Bank Posts Soft Quarter, Prabhudas Lilladher Maintains Buy Call

HDFC Bank's recent quarter has been described as soft, with core profits at the Asset Management arm missing projections by around 5%. This underperformance can be attributed to lower net interest income (NII) and fees. However, the bank's asset quality has remained under control, resulting in lower provisions. The bank's deposit growth was strong, with an 8.6% quarter-on-quarter increase, which it attributed to its focus on granular deposits.

In terms of liquidity, the bank's loan-to-deposit ratio (LDR) is not a constraint, but its liquidity coverage ratio (LCR) is slightly lower at 114%. Prabhudas Lilladher's research report has factored in a loan-deposit compound annual growth rate (CAGR) of 12% and 13% for HDFC Bank over the period of FY26-28E. This may translate to a deposit requirement of INR 4.0-4.5 trillion. As a result, the research firm has trimmed its net interest margin (NIM) and fees estimates for FY27 and FY28, leading to an average cut in core profits by 3.0%.

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In light of the cautious sector outlook on growth and NIM, Prabhudas Lilladher has trimmed its multiple to 2.2x from 2.5x but rolled forward to FY28 core absolute book value (ABV). Consequently, the research firm has tweaked its target price to INR 1,100 from INR 1,150. Despite the soft quarter, the firm has maintained its 'BUY' call on HDFC Bank.