HDFC Bank outperforms market, rallies 5% in 4 days post Q2 results

HDFC Bank share price today: In the two days, the stock of the largest private sector lender has gained 3 per cent on the NSE

HDFC Bank share price today was trading higher for a second straight day, up 1.8 per cent to Rs 1,767.5 per share on the NSE in Thursday's intraday trade. In the two days, the stock of the largest private sector lender has gained 3 per cent on the NSE. With this, HDFC Bank share has inched towards its record high level of Rs 1,791.90, touched on July 3, 2024.

 

Since October 8, HDFC Bank has rallied 9 per cent as compared to over 2.3 per cent decline in the NSE Nifty50 index. Thus far in the current month, HDFC Bank stock gained 2 per cent as against 5.3 per cent decline in the benchmark index.

 

 

HDFC Bank is a leading private sector bank with consistent growth and operational performance over various cycles. Post merger, the bank has become the second largest bank, in terms of size, with a diversified portfolio. The bank has maintained superior return ratios resulting in premium valuations.

 

Thus far in the current week, HDFC Bank has surged 5 per cent after the lender reported better-than-expected July-September quarter (Q2) results for the financial year 2024-25 (FY25).

 

The management plans to bring back the credit-deposit ratio (C/D) to the pre-merger level of 86 per cent-87 per cent within two to three years, faster than initially planned (4-5 years) by calibrating loan growth, particularly in larger ticket sizes. The bank is strategically positioning itself to capture future growth opportunities by accelerating the reduction of its loan-to-deposit ratio.

 

While focus on bringing C/D ratio is seen to cap growth, resilience in terms of asset quality and diverting strength in shoring up liabilities franchise will gradually improve positioning of the bank in the long run, according to analysts at ICICI Securities. The brokerage firm maintains a 'hold' rating on HDFC Bank with a target price of Rs 1,900 per share.

 

The management stance of accelerating the C/D ratio adjustment and positioning for the next cycle implies the bank will undergo an elongated period of balance sheet realignment with a sustained lower growth, and, thus, near-term outcome would be onerous, analysts at Elara Capital said in their Q2FY25 result update.

 

"We are still away from bottoming of core earnings, and the stock may see time correction," the brokerage firm said with a 'Accumulate' rating on the stock with a revised target price of Rs 1,898 based on a SOTP method.

 

A merger of this scale is an onerous task with several variables at play, but HDFC Bank is doing a commendable job, according to analysts. The brokerage firm sees the bank still under a transition with near-term uncertainty persisting.

 

“We believe valuation rerating in the absence of growth outcomes is rather challenging. Another school of thought is better asset quality outcomes in heightened security environments; however, we believe the cycle is still some time away,” analysts said.

 

According to Sharekhan, improvement in net interest margins (NIMs), strong retail deposit mobilisation resulting in the normalisation of C/D ratio in turn leading to a sustainable loan growth path, building strong reach and distribution, broadening customer base, and enabling technology remain key monitorables in the near term.

 

The bank has a track record of strong execution capabilities. The bank has consistently delivered a superior performance, and its track record is unmatched across the sector, the brokerage firm said.

 

Meanwhile, HDFC Bank's board has given its nod to the Offer for Sale (OFS) of equity shares of up to Rs 10,000 crore and fresh issue of Rs 2,500 crore in the HDB Financial Services IPO. Currently, it holds around 94.64 per cent stake in the company. The bank is required to list HDB financials as per regulatory requirements and the IPO is expected by the end of the current financial year. Media reports suggest that the offering could fetch a valuation of Rs 67,000-70,000 crore.