Invest in HDFC Bank with a target price of Rs 1950, as recommended by Prabhudas Lilladher.
Invest in HDFC Bank: HDFCB had a stable quarter with core PAT improving by 1.5% compared to the previous quarter, thanks to lower operating expenses and provisions. Loan growth and Net Interest Margin (NIM) were in line with expectations. The overall Provision Coverage Ratio (PCR) decreased by 2% quarter-on-quarter to 68%, but PCR excluding agriculture loans remained stable at 71%.
The focus on reducing the Loan to Deposit Ratio (LDR) continues, despite Corporate and Retail Banking growth of 2.7% and 2.1% quarter-on-quarter respectively. The sell-down of IBPC worth Rs1.4 trillion in Q3FY25 remains high. Credit accretion is expected to normalize towards system growth in FY26/27, leading to a projected loan growth of 10% and 11% year-on-year in FY26/27, compared to 3.4% in FY25. However, NIM is facing challenges as the cost benefits from replacing HDFCL liabilities are being offset by a reduction in CASA.
Looking ahead, we anticipate NIM to improve from 3.47% to 3.61% over FY25-27, driven by retail loan growth and potentially lower funding costs due to easing system liquidity. We have adjusted our multiple to 2.3x from 2.4x based on the September 2026 core Adjusted Book Value (ABV) and revised our Target Price (TP) to Rs1,950 from Rs2,000. We maintain a ‘BUY’ rating on HDFCB.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.