Brokerage firm CLSA has issued a positive “buy” rating for HDFC Bank, setting a target price of Rs. 2,025, reflecting a substantial 35% increase from its current levels.
The recommendation comes after the bank’s shares experienced an 11% decline in two days following disappointing Q3 results.
Challenges in Q3 Results
The bank’s Q3 results revealed challenges such as a strain on margin, sluggish deposit growth, and a decade-low earnings per share (EPS). HDFC Bank’s EPS saw a 4% quarter-on-quarter decrease to Rs. 22 from Rs. 21.1. CLSA analysts noted dissatisfaction among domestic clients with the bank’s performance, though some foreign investors believed that the “EPS cuts” cycle for HDFC Bank might be nearing its end.
Margin and Deposit Growth Concerns
HDFC Bank’s Q3 core profitability fell short of expectations, with the margin remaining flat at 3.4% due to higher borrowing costs. Notably, the bank faced slow deposit growth compared to robust credit growth, resulting in a loan-to-deposit ratio (LDR) of 110%, up from 107% quarter-on-quarter. This emphasizes the need for increased deposit mobilization to fortify the bank against unforeseen crises.
Market Impact and Future Prospects
The decline in HDFC Bank’s stock also influenced Bank Nifty and Nifty50, given the bank’s substantial weightage in both indices. However, CLSA’s optimistic outlook suggests that the current challenges may be transient, with the potential for a significant upside.
Despite the recent hurdles, HDFC Bank remains a prominent player in the banking sector, and CLSA’s recommendation implies confidence in its long-term growth prospects. As the bank navigates challenges and strategizes for the future, investors await further developments in the market.