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Shares of private lender HDFC Bank have been somewhat of a dull performer as the stock is up just 9% in a year’s period as compared to around 24% rise in benchmark Sensex. And now, brokerage house Emkay sees upside on the bank stock after its third quarter business update.
HDFC Bank reported healthy but in-line credit growth of 16% year-on-year (YoY) and 5% on a sequential basis in Q3FY22, which looks much more balanced and broad based, the brokerage and research firm said.
“The stock has underperformed by its own standards as well as that of the peers after the management change, more so due to the RBI’s embargo on its card/digital initiatives and Covid-induced growth/asset-quality disruption. The risk of fresh Covid wave induced lockdowns could once again disrupt business/asset-quality normalization,” the note highlighted.
However, analysts at Emkay believe that the bank has built reasonable Covid buffers and should be relatively resilient. After the recent correction, the stock is trading at a reasonable valuation. They have a Buy rating on HDFC Bank with a target price of ₹2,050, given its proven track record in managing asset quality across cycles, strong franchise/capital profile, and the ability to deliver superior return ratios.
“We expect overall NPAs to trend down due to better collection efficiency, mainly in the retail segment. However, agri NPAs would be the main monitorable. Moreover, assetquality outcomes at its NBFC subsidiary, HDB Financial Services, will also be closely monitored, in view of the relatively risky customer/credit profile,” the brokerage added in its note.
Notably, as per Emkay, the bank has started regaining market share in card, and should see further acceleration, along with PL, subject to absence of or partial lockdown situation.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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