Shares of HDFC Bank on Wednesday, January 17, declined to their lowest level since December 1 following the release of the company’s third-quarter results. It fell nearly 7 per cent in early trade on BSE. Opening at Rs 1,583.85, down from its previous close of Rs 1,678.95, the stock dropped to Rs 1,570.
BSE Bankex was down 1,166 points or 2.25 per cent around 11am on January 17 and HDFC Bank was found to be contributing 70 per cent to the fall in the index.
“Post correction, the stock (HDFC Bank) is available at attractive valuations if you have a 3 to 5 years investment horizon. Staggered manner buying may be a good idea for HDFC Bank. The risk reward ratio is getting favourable now,” Monarch Networth Capital said. All BSE Bankex constituents were trading in the red with HDFC Bank topping the laggards.
The metal index was the second worst-performing index after Bankex on January 17. BSE Metal index slipped 1.37 per cent intraday. Tata Steel, SAIL and Hindalco are trading down by more than 2 per cent each. “For Steel manufacturers, this quarter is good, however, the next quarter will be a little difficult due to cost pressures. The spread will be adversely impacted. At current levels one needs to be cautious as the valuations are not attractive,” Monarch Networth Capital said.
The bank reported a net profit of Rs 16,372 crore, marking a sequential increase of 2.5 per cent and a yearly rise of 33.5 per cent.
It is important to note that HDFC Bank merged with Housing Development Finance Corp (HDFC) in June 2023.
Brokerage firm Bernstein has an ‘Outperform’ recommendation on the lender, setting a target of Rs 2,200 per share. It acknowledged the bank’s weak set of numbers, noting the first year-on-year earnings per share (EPS) decline in a decade. Flat Net Interest Margins (NIMs) quarter-on-quarter (QoQ) and a 2 per cent year-on-year decline in EPS were highlighted by the firm. The use of lower tax expenses to maintain a 2 per cent Return on Assets (RoA) was mentioned.
Morgan Stanley (MS), with an ‘Overweight’ recommendation and a target of Rs 2,110 per share, positively noted a 2 per cent QoQ growth in Profit After Tax (PAT), beating estimates by approximately 4 per cent. It described the Net Interest Income (NII) as in line with estimates and stable margins QoQ. A stable core Pre-Provision Operating Profit (PPoP) and higher credit costs due to one-time contingency provisions were observed by the brokerage.
Jefferies recommended ‘Buy’, setting a target of Rs 2,000 per share.
It commended the bank’s core Profit Before Tax (PBT) growth and net profit exceeding estimates with a lower tax rate. An uptick in retail deposit mobilisation and lending was emphasised as crucial to lifting Net Interest Margins (NIMs). Stable asset quality and the importance of retail growth were acknowledged by the brokerage.
What should investors do?
The brokerages present a diverse range of perspectives on HDFC Bank’s Q3 results, reflecting both positive and cautious sentiments.
However, speaking of market experts, Ashutosh Mishra, Head-Research, Instl Equitiesm, Ashika Stock Broking, said that the current valuation is ‘quite compelling’ particularly when considering not only HDFC’s standalone performance but also the collective performance of its subsidiaries post-merger. Mishra emphasised the successful execution of the substantial merger, noting the absence of significant negative impacts.
According to him, this positions HDFC Bank as a “screaming buy” at its current level, offering substantial potential gains over the next two to three years.
Deven Choksey, MD, DR Choksey Finserv, highlighted the role of growth in influencing stock prices. For Choksey, the current results present an opportunity to invest in HDFC Bank at corrected and lower levels. He views this as a meaningful buying opportunity, foreseeing potential gains ranging from 25-30 per cent going forward.
