This week, shares of India’s largest bank by market capitalization gained momentum after mutual funds increased their investments in the stock. This positive movement followed Bernstein’s recommendation, which gave the company an outperform rating with a projected 24 percent upside.
At 11:30 a.m., On Friday, HDFC Bank shares were trading at Rs 1,697.65, up 1.15 percent from the previous close on the National Stock Exchange.
About the company: The Housing Development Finance Corporation Limited (HDFC) is the largest private sector bank, which is engaged in providing a range of banking and financial services including retail banking, wholesale banking, and treasury operations.
HDFC Bank is one of India’s leading private banks and was among the first to receive approval from the Reserve Bank of India (RBI) to set up a private sector bank in 1994.
The HDFC Bank shares have delivered a return of around 0.15 percent on year to date basis and 1.5 percent in the last 12 months.
Financials: In Q4 FY24, HDFC Bank reported robust financial performance, marked by a 37.1% year-on-year increase in profit to Rs 16,512 crore. Net Interest Income (NII) also grew significantly by 24.5% to Rs 29,077 crore.
Moreover, HDFC Bank reported an improved Gross Non-Performing Asset (GNPA) ratio at 1.24%. Total deposits soared by 26.4% year-on-year to with CASA deposits expanding by 8.7%. Gross advances surged notably by 55.4%, culminating at Rs 25,078 crore by the close of the March quarter.
As per the recent March quarter of shareholding pattern, Foreign institutional investors hold a 47.48 percent stake, while domestic institutional investors hold 33.33 percent and retail investors hold an 18.64 percent stake in the company.
Foreign Brokerage Bernstein has given an “outperform call” rating on HDFC Bank with a target of Rs 2,100 per share with an upside of 24 percent based on Friday’s trading price of Rs 1,700 per share.
Rationale: The foreign brokerage wrote in a note that the lender is well-positioned to regain its industry-leading profitability over the next four years. The brokerage Bernstein projects an improvement in Return on Assets (ROA) from 1.8% to 2.1%
over the next four years. Further, the brokerage said that operating leverage will also start to kick in over the next few years.
Key factors driving the brokerage’s optimism include an expected enhancement in the loan mix, normalization of the cost of funds, and the realisation of operating leverage.
The HDFC bank expects loan yields to improve by approximately 40-50 basis points and the cost of funds to decrease by 18 basis points. These improvements are seen as crucial to bolstering HDFC’s financial performance and sustaining its competitive edge in the market.
Mutual funds(MF) have consistently increased their holdings in HDFC Bank shares, with purchases totaling Rs 35,440 crore over the past five months. Specifically, they bought shares worth Rs 12,884 crore in January, Rs 8,432 crore in February, Rs 4,604 crore in March, Rs 1,886 crore in April, and Rs 7,635 crore in May.
Written by Omkar Chitnis
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