HDFC Bank’s share price has had a volatile time in 2024.
After a rough start to the year, the stock has made some recovery in the second half of the year.
Brokerage firm Emkay Global remains bullish on stock to continue its up move.
The analysts have maintained the ‘buy’ recommendation on HDFC Bank, revising its target price upwards to ₹2,100, from the earlier ₹2,000.
The target indicates an around 18% upside from the stock’s last closing price of ₹1,771.50.
The stock has gone up around 6% in the last six months.
HDFC Bank’s transformation strategy
The analysts at Emkay Global highlighted that HDFC Bank has outlined a strategy shift from being product-centric to customer-centric, built on five transformation pillars that leverage modern technology.
The bank’s ‘Shift Right’ strategy aims to improve customer engagement while reducing regulatory friction.
The analysts noted that while upgrading its technology infrastructure poses challenges, HDFC Bank remains focused on reducing vendor dependency and internalizing its tech stack.
This includes upgrades to its Core Banking System (CBS), cloud infrastructure, and mobile apps like Payzapp, which serves over 7.5 million customers.
The analysts also pointed out that the bank is seeing growing traction with SmartHub Vyapar for merchants, which now has over 1.6 million users.
Additionally, the analysts observed that the bank is experiencing success with chat banking via WhatsApp, which engages around 9 million customers monthly.
These technology-driven initiatives, the analysts argued, should continue to enhance HDFC Bank’s customer base and engagement over time.
HDFC Bank’s growth strategy
The analysts at Emkay Global indicated that in response to changes in the loan-to-deposit ratio (LDR), HDFC Bank has adjusted its strategy to slow down credit growth to sub-system levels, reducing the LDR from 114% last year to around 100% in Q2 FY25, with plans to bring it down to pre-merger levels of about 85% over time.
The analysts pointed out that to achieve this, the bank is shedding its corporate book and securitizing retail loans, which is expected to lead to a reduction in LDR and help lower the Priority Sector Lending (PSL) burden.
On the deposit side, the analysts noted that HDFC Bank is focusing on expanding its retail deposit base through an enhanced ‘phygital’ network.
This, they argued, should position the bank well for future credit growth, including in unsecured loans.
The analysts expect the bank’s credit growth to be in line with the system in FY26 and to outperform the system by FY27, once regulatory constraints ease.
While the analysts acknowledged that the bank has managed to maintain stable margins, they highlighted that the falling LDR, along with regulatory changes and potential rate cuts, could put some pressure on net interest margins (NIMs).
However, the analysts expressed confidence that improvements in the bank’s funding profile and portfolio mix will support a better margin trajectory in the long term.
HDFC Bank’s valuation
The analysts at Emkay Global have fine-tuned their earnings estimates, trimming FY25 PAT by 1% to account for slower growth and the impact of reduced bancassurance fees.
However, they maintained their positive outlook, highlighting HDFC Bank as a defensive play within the banking sector, offering strong return on assets (RoA) of around 1.8-1.9%.
The analysts also pointed out that the bank’s planned IPO of its NBFC subsidiary, HDB Financial Services, is expected to further improve regulatory compliance and unlock value for shareholders.
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