Brokerages see potential upside of 35% in HDFC Bank’s share price; post-merger guidance, FY24 outlook, key factors here

On Friday, HDFC Bank’s share price closed at ₹1,615.50 apiece marginally up from the previous session. In the trading week that ended on May 26th, the stock price however dipped by nearly 2% on BSE.

On Friday, HDFC Bank’s share price closed at ₹1,615.50 apiece marginally up from the previous session. In the trading week that ended on May 26th, the stock price however dipped by nearly 2% on BSE.

Brokerages have given buy recommendations on HDFC Bank’s share price after its analysts meeting.

Brokerages have given buy recommendations on HDFC Bank’s share price after its analysts meeting.

BNP Paribas highlighted five key takeaways from Sashidhar Jagdishan, MD’s opening remarks which involved majorly post-merger outlook. These are:

– Management expects the merger with HDFC to be completed in 4-5 weeks and sounded upbeat on the post-merger prospects of the bank.

BNP Paribas highlighted five key takeaways from Sashidhar Jagdishan, MD’s opening remarks which involved majorly post-merger outlook. These are:

– Management expects the merger with HDFC to be completed in 4-5 weeks and sounded upbeat on the post-merger prospects of the bank.

– Maintaining a 3.7-3.8% net interest margin post-merger (pretty much the same as the last reported standalone margin).

– Maintaining a 3.7-3.8% net interest margin post-merger (pretty much the same as the last reported standalone margin).

– Holding CASA of around 40% post-merger.

– Holding CASA of around 40% post-merger.

– Achieving a Post-merger RoA of 2% on day zero of the merger.

– Achieving a Post-merger RoA of 2% on day zero of the merger.

– Also, HDFC Bank plans to leverage the large distribution network and unique customer base (100m+) of the group going forward, with a strong focus on cross-sell to achieve its stated objectives.

– Also, HDFC Bank plans to leverage the large distribution network and unique customer base (100m+) of the group going forward, with a strong focus on cross-sell to achieve its stated objectives.

HDFC Bank is planning to add an average of 1,500 branches/ year over the next 4-5 years and it expects the new branches to deliver material results in 8-10 years. Further, the management expects the cost-to-income ratio to trend down over the next 3-4 years.

HDFC Bank is planning to add an average of 1,500 branches/ year over the next 4-5 years and it expects the new branches to deliver material results in 8-10 years. Further, the management expects the cost-to-income ratio to trend down over the next 3-4 years.

Santanu Chakrabarti analyst at BNP Paribas in the note said, “In what will be music to the ears of even the most ardent supporters of the bank, HDFCB plans to revamp its net-banking and mobile app by end-FY24 and both are about to go into beta testing.”

Santanu Chakrabarti analyst at BNP Paribas in the note said, “In what will be music to the ears of even the most ardent supporters of the bank, HDFCB plans to revamp its net-banking and mobile app by end-FY24 and both are about to go into beta testing.”

Chakrabarti added, “Recognizing that UPI transaction volumes have been the key cause of recent outages in its core banking system, HDFCB has designed a ‘buffer’ system layer for these transactions that feed into core banking with a lag of a few micro-seconds rather than live. In general, ‘hollow the core’ seems to be the battle cry with the entire data architecture

Chakrabarti added, “Recognizing that UPI transaction volumes have been the key cause of recent outages in its core banking system, HDFCB has designed a ‘buffer’ system layer for these transactions that feed into core banking with a lag of a few micro-seconds rather than live. In general, ‘hollow the core’ seems to be the battle cry with the entire data architecture

being migrated to a cloud-native system from its legacy platform. HDFCB remains the top BUY in our banking coverage.”

being migrated to a cloud-native system from its legacy platform. HDFCB remains the top BUY in our banking coverage.”

The analyst has set a target price of ₹2,180 for HDFC Bank.

The analyst has set a target price of ₹2,180 for HDFC Bank.

Further, Gaurav Jani – Research Analyst, Prabhudas Lilladher shed some light on the following key takeaways from HDFC Bank’s analyst day.

– Bank would protect loan growth (1.5-2.0x of the system) irrespective of its size.

Further, Gaurav Jani – Research Analyst, Prabhudas Lilladher shed some light on the following key takeaways from HDFC Bank’s analyst day.

– Bank would protect loan growth (1.5-2.0x of the system) irrespective of its size.

-Deposit market share is ~10% and the bank would grow by gaining market share; incremental deposit accretion (18-20% market share) may not be a challenge.

-Deposit market share is ~10% and the bank would grow by gaining market share; incremental deposit accretion (18-20% market share) may not be a challenge.

– On NIM, the bank is willing to let go of volumes in case of intense competition; it sold down Rs1trn of corporate loans in FY23 to not compromise on pricing.

– On NIM, the bank is willing to let go of volumes in case of intense competition; it sold down Rs1trn of corporate loans in FY23 to not compromise on pricing.

– Post-merger focus would shift from product-based to customer-centric. The immediate benefit of the merger would be access to 25mn HDFC group customers that do not bank with HDFC Bank while 60-70% of HDFC Ltd. customers do not have a liability relationship with the bank.

– Post-merger focus would shift from product-based to customer-centric. The immediate benefit of the merger would be access to 25mn HDFC group customers that do not bank with HDFC Bank while 60-70% of HDFC Ltd. customers do not have a liability relationship with the bank.

– Target is to bring down the cost to income to 30% over the next decade (36% on the merged basis in FY23).

– Target is to bring down the cost to income to 30% over the next decade (36% on the merged basis in FY23).

– RoA post-merger would be maintained between 1.9-2.1%.

– RoA post-merger would be maintained between 1.9-2.1%.

Following the above, Jani said, “We keep multiple unchanged at 3.0x on core FY25E ABV and retain BUY with TP of Rs1,925.”

Following the above, Jani said, “We keep multiple unchanged at 3.0x on core FY25E ABV and retain BUY with TP of Rs1,925.”