HDFC Bank Shares Near 52-Week Low: Analysis of Target Price, Technicals, Valuation, Financial Metrics, and More

HDFC Bank shares were trading at Rs 1406 in early trade today, indicating a potentially oversold condition as per the relative strength index (RSI) of 27.8.

The stock price of HDFC Bank experienced a decline following the company’s Q3 results announcement. It closed at Rs 1678.95 on January 16 but fell to Rs 1403.20 on February 9, reaching its 52-week low of Rs 1382.40 on January 24, 2024. This decline in stock price reflects the impact of the earnings report on investor sentiment.

Shares of HDFC Bank Ltd, a private sector lender, have been trading near their 52-week low recently. This decline started after the company announced its earnings on January 16. Prior to the earnings announcement, the stock was trading at Rs 1678.95. However, after the Q3 results, the stock price dropped to Rs 1403.20 on February 9. The earnings report negatively impacted investor sentiment, leading to a further decline in the stock price, reaching its 52-week low of Rs 1382.40 on January 24, 2024.

The price-to-book (P/B) ratio of HDFC Bank stands at 3.7, indicating its market value relative to its book value. Additionally, the bank’s PEG (price/earnings to growth) ratio is 0.5.

Here are some key financial metrics reflecting the health of HDFC Bank:

1. CASA Ratio: As of December 31, 2023, the CASA (Current Account Savings Account) ratio was 37.7%, down from 44% reported on December 31, 2022. This ratio indicates the proportion of low-cost deposits in relation to total deposits.
2. Net Interest Margin (NIM): The NIM, a measure of the difference between the interest income generated by banks and the amount of interest paid out to their lenders, decreased to 7.7% in the last quarter compared to 8.1% in the December 2022 quarter.
3. Yield on Assets: HDFC Bank’s yield on assets, representing the income generated by the bank’s assets relative to its total assets, increased to 8.3% in Q3 compared to 7.7% in the same quarter of the previous fiscal year.

Here are additional key financial metrics for HDFC Bank:

1. Capital Adequacy Ratio (CAR): As of December 31, 2023, the bank’s CAR stood at 18.4%, down from 19.4% reported on December 31, 2022. CAR is a measure of a bank’s capital in relation to its risk-weighted assets.
2. Net Interest Income (NII): HDFC Bank’s NII increased by 24% to Rs 28,470 crore in the third quarter compared to Rs 22,990 crore in the same quarter of the previous fiscal year. NII represents the difference between interest earned and interest expended.
3. Total Deposits: Total deposits of HDFC Bank grew by 27.7% to Rs 22,14,000 crore in the third quarter compared to Rs 17,33,200 crore in the third quarter of the previous fiscal year. This metric indicates the amount of funds held by the bank.
4. Provision Coverage Ratio (PCR): The PCR of HDFC Bank improved to 75% in the last quarter compared to 73% in the third quarter of the previous fiscal year. PCR reflects the percentage of potential losses a bank has covered with its provisions.

HDFC Bank’s stock was trading at Rs 1406 in early trade, indicating a 14.26% fall in a month. The banking stock is currently in the oversold territory with an RSI of 27.8. HDFC Bank’s market cap is Rs 10.67 lakh crore amid a broader market correction today.

HDFC Bank saw a turnover of Rs 26.60 crore on BSE, with 1.89 lakh shares changing hands. The stock has low volatility with a one-year beta of 0.6. It’s currently trading below its 5-day, 10-day, 100-day, 150-day, and 200-day moving averages.

Antique Broking maintains a buy call on HDFC Bank, revising its target slightly lower to Rs 2,000. They largely maintain their earnings estimate and marginally revise the target price.

The brokerage highlighted that post-merger, a weaker liability construct is impacting HDFC Bank’s net interest margins (NIMs), although high productivity, lean cost of operations, and low credit costs are offsetting this to some extent. Consequently, return on assets (RoAs) is expected to remain similar to pre-merger levels, but with a different profit and loss (P&L) flow. However, concerns may arise regarding growth and NIMs due to the larger balance sheet and weaker liability mix.

BNP Paribas considers HDFC Bank as its top banking pick amid the significant correction post Q3 earnings and has assigned a target price of Rs 2,410 for the lender. Despite conservative assumptions regarding key fundamentals like return on assets (ROA) and return on equity (ROE), they anticipate ROA to reach 1.9% by end-FY25 and ROE to approach the pre-merger steady state of 17% by 2HFY26.

On the other hand, CLSA maintains a buy call on HDFC Bank with a target price of Rs 2,025 following the Q3 earnings. Despite domestic clients expressing dissatisfaction, foreign investors seem more optimistic, believing that the end of the earnings-per-share (EPS) cuts cycle is near. However, key concerns persist regarding deposits and net interest margins (NIM).

Brokerage firm KR Choksey sees further upside potential in HDFC Bank’s stock following its Q3 earnings.

They value the bank’s standalone business at 2.2 times the estimated FY26 earnings price-to-adjusted book value (P/ABV), resulting in a valuation of Rs 1,716 per share. Additionally, they value the subsidiaries at Rs 233 per share. Combining these, they arrive at a total valuation of Rs 1,950 per share, which represents a 26.8% upside from the current price.

Based on this assessment, KR Choksey maintains a “BUY” rating on HDFC Bank shares and sets a target price of Rs 1,950 for the banking stock.

Nuvama Institutional Equities has revised its earnings estimates downward for HDFC Bank and lowered its target price to Rs 1,730 from Rs 1,770. They have downgraded the stock to a ‘hold’ rating post Q3 earnings, citing concerns such as the bank’s exhausted Liquidity Coverage Ratio (LCR), the need to lower its Loan-to-Deposit Ratio (LDR), and slower-than-expected deposit growth.

In contrast, financial services firm Motilal Oswal remains bullish on HDFC Bank, assigning a target price of Rs 1,950. They expect the bank to report healthy return ratios in the coming years, driven by an improvement in Net Interest Margins (NIMs). Despite HDFC Bank’s margin standing largely flat, slightly below expectations, Motilal Oswal believes the bank’s deployment of excess liquidity and drawdown of the LCR ratio are positive indicators.

The brokerage highlighted that HDFC Bank demonstrated healthy loan growth, primarily fueled by retail expansion and sustained momentum in Commercial and Rural Banking segments. Additionally, the bank’s asset quality ratios improved, and its provision coverage ratio (PCR) increased to 75%.

HDFC Bank also maintained a buffer of 0.6% for floating plus contingent provisions, offering additional reassurance. Management indicated optimism regarding the gradual improvement of Net Interest Margins (NIMs) in the coming years, coupled with enhanced operating leverage, which is expected to contribute to the bank’s healthy return ratios.

In the third quarter of the fiscal year 2023-24, HDFC Bank recorded a significant increase in its standalone net profit, rising by 34% to Rs 16,373 crore compared to the same quarter of the previous fiscal year, where it stood at Rs 12,259 crore. Total income for the quarter also saw a substantial rise to Rs 81,720 crore, up from Rs 51,208 crore in the corresponding period last year.

Net interest income (NII) grew by 23.9% year-on-year to Rs 28,470 crore. Pre-provision operating profit witnessed a 24.3% increase to Rs 23,650 crore. However, provisions for the quarter surged to approximately Rs 4,220 crore from Rs 2,810 crore in the same quarter of the previous year.

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