HDFC Bank business growth intact despite sanctions; brokerages see 27% upside on share price

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HDFC Bank said that its advances grew 13.9% on-year basis in the previous quarter, while deposits grew 16.3% over the same period.
(Image: REUTERS)

HDFC Bank’s share price was trading flat with a positive bias on Tuesday morning, a day after the largest private sector lender informed the bourses of its quarterly performance. HDFC Bank said that its advances grew 13.9% on-year basis in the previous quarter, while deposits grew 16.3% over the same period. The bank has reported strong quarterly numbers despite facing sanctions by the Reserve Bank of India (RBI), for repeated IT failures. Leading domestic brokerage firms see the quarterly business update as a positive for HDFC Bank. The private sector bank currently trades at Rs 1,448 apiece.

Advances at the end of March 2021 stood at Rs 11.32 lakh crore for HDFC Bank, against Rs 9.94 lakh crore in the year-ago period. Retail loans grew 7.5% on-year basis, while domestic wholesale loans grew at a staggering 21%. 

Business update encouraging

Analysts at Motilal Oswal wrote that the developments are “encouraging given the RBI restrictions on the Credit Card business”. “HDFC Bank continues to deliver healthy growth in advances, led by an uptick in retail loans; this is likely to further support fee income,” they added. CASA deposits of the bank grew 27% on-year basis. “We expect HDFC Bank to maintain a positive margin trajectory, aided by an improving CASA mix and healthy loan growth trends,” the note said. Motilal Oswal has a ‘Buy’ rating on the scrip with a target price of Rs 1,800 per share. 

On the other hand, Emkay Global believes HDFC Bank’s business momentum has moderated in the previous quarter. “On the asset quality front, we believe agri and CV portfolios could show some stress, but overall NPA ratios should remain range-bound,” they said. Emkay Global too has a ‘Buy’ rating on the stock with a target of Rs 1,850 per share, translating to 27% upside from current levels.

Card business restrictions — an overhang

The RBI has placed restrictions on HDFC Bank, barring it from acquiring new credit card business. The restrictions come after HDFC Bank failed to solve the problem of repeated tech outage that customers faced. Emkay Global believes that this could remain an overhang for the stock. “In our view, the restriction imposed by the RBI on the bank’s credit card business is likely to remain an overhang on the stock as any relief in form of the early lifting of the suspension could be delayed in the wake of recent tech outages,” they added.

(The stock recommendations in this story are by the respective research and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)

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