HDFC Bank shares on Thursday fell up to 3.7% to the day’s low at Rs 1,480 on BSE as it failed to attract enough dip buyers after Wednesday’s crash. In the last two trading days, the Nifty heavyweight stock has lost about Rs 1.3 lakh crore of its market capitalisation following the 12% decline since yesterday.
More than one-third of today’s decline in Nifty and Sensex was directly because of the weak performance by HDFC Bank shares.
Most investor concerns around the private sector lender are around its flat NIM (net interest margin) on a QoQ basis despite the withdrawal of ICRR and a sharp decline in LCR to 110%. The average growth of deposits was too low compared to the guidance.
Following the sharp correction, Jefferies said HDFC Bank’s valuation is now at an interesting level of 2.1x FY25E adj. PB and 14x PE.
“Growth in EPS (down 2% YoY in 3Q) that is contingent on NIM expansion will be key to stock moves. For FY25, we see a 16% rise in loans, 17% in deposits & 4QFY25E NIM of 3.55% vs 3.4% now. This drives EPS of Rs 95 with sensitivity to 5bps lower terminal NIM at 1.5-2%. We see PE/EPS based valuation taking prominence & delivery inline with guidance will be key,” said Prakhar Sharma of Jefferies.
Also read | HDFC Bank shares record worst day since Covid crash
Despite trimming earnings estimates for loan growth and NIMs for the bank for FY25-26, Jefferies has factored in a decent 16% YoY growth in loans for FY25 (implying a 3.8% quarterly rise), 17% rise in deposits and 10bps YoY expansion in NIMs (starting 1QFY25).
Global broking firm Nomura, which has downgraded the stock to neutral rating, has reduced NIM estimates by 15 bps across FY25-26, as the benefit of funding mix improvement appears to be a significant challenge and a much more of longer-term story. “As a result, we cut FY25-26F PAT by ~6%, with RoA cut 10bp to 1.7%,” it said.
HDFC Bank shares had yesterday recorded its worst trading session since the Covid crash in March 2020 as it ended the session 8.5% lower.
There have been a few bulls too. CLSA has hiked its target price on HDFC Bank to Rs 2,025 from Rs 1,900 while Axis Securities to Rs 1,975 from Rs 1,800. Bernstein has maintained an outperform rating on HDFC Bank with a target price of Rs 2,200.
While a few long-term investors have been lapping up the counter, the outlook remains foggy in the near term.
“For any broader pickup in NIM going ahead, HDFC Bank needs deposit growth to significantly outpace loan growth (in order to reduce wholesale borrowings in funding mix), which is not the current trend and will stay a challenge, as 1) system liquidity remains tight and deposit mobilization stays tough; and 2) HDFC Bank scales down its branch opening target (800-1,000 for FY24F vs 1,500-2,000 guided previously). This is a key challenge, which makes the road ahead tough, and is driving the cuts to our balance sheet growth and NIM assumptions,” said Param Subramanian of Nomura.
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