HDFC Bank touches a new high on good Q3 showing

Shares of HDFC Bank hit a new high of ~1,503, surging 2.5 per cent in intra-day trade on the BSE Sensex on Monday, after the private sector lender reported steady performance for the third quarter of financial year 2020-21 (Q3FY21), with improvement across parameters.

The stock settled 1.15 per cent higher at ~1,483.20, and was among only four gainers on the Sensex on the day. The counter saw huge trading volumes with a combined 22.2 million equity shares changing hands on the NSE and BSE.

In Q3, its net profit increased by 18 per cent yearon-year (YOY) to ~8,758 crore, driven by robust growth in net interest income and other income. The bank’s net interest income (interest earned minus interest expended) grew 15 per cent YOY to ~16,318 crore. Other income jumped over 30 per cent to ~7,443 crore, compared with ~6,669 crore in Q3. Net interest margin improved around 10 basis points (bps) sequentially at 4.2 per cent.

Asset quality remained healthy with gross non-performing asset (NPA) ratio falling 27 bps sequentially to 0.81 per cent in Q3. In the year-ago period, gross NPA was 1.42 per cent. The lender’s net NPA ratio stood at a mere 0.09 per cent, improving 9 bps sequentially and 38 bps YOY.

Steady growth in business along with steady asset quality on proforma basis bodes well for the bank, ICICI Securities said in a note.

Riding on a beat on net profit estimate, and low restructuring figures, analysts have increased their target price, and expect the stock to touch ~1,860 within a year, up 27 per cent from Friday’s close.

Betting on HDFC Bank’s strong credit growth, analysts at Emkay Global have revised their target price to ~1,850. “Overall credit growth remains healthy at 16 per cent YOY, led by continued traction in corporate book and some pickup in retail non-auto book, including cards. The bank is in discussion with the Reserve Bank of India on a remedial plan to resolve the tech-outage issue, but awaits response as to when the regulator would lift restrictions on new card acquisition,” it said in its post-result report.

Analysts at Prabhudas Lilladher, meanwhile, remain “cautiously optimistic” on the counter given that collections, though they have normalised to 97 per cent of precovid levels, vary from product to product, making growth aspects slightly cautious.

Motilal Oswal Financial Services (MOFSL) and LKP Securities have one-year target of ~1,720 and ~1,643, respectively, on hopes of outperformance on the back of healthy growth in operating income, much higher provision than regulatory requirement, strong capital cushion of 17 per cent at CET1 level, and best-in-class underwriting and risk management practices.

Kotak Institutional Equities, on the other hand, said the acceleration sequential growth in HDFC Bank’s retail loans may take longer to get back to average loan growth.