Should you lap up HDFC Bank shares after solid Q1 earnings show?

After HDFC Bank reported robust Q1FY24 earnings, its first post its merger with the parent, several top brokerages came out with their view on the private lender. Foreign brokerages including JP Morgan and Morgan Stanley have maintained an ‘Overweight’ stance on the stock while Macquarie and Berstein have an ‘Outperform’ rating. Among the domestic brokerages, both Nuvama and Motilal Oswal have a ‘Buy’ view on the stock.

HDFC Bank reported a 30% year-on-year (YoY) growth in net profit for the quarter ended June to Rs 11,952 crore, which was higher than an ET NOW poll estimate of Rs 11,000 crore. The total income for the quarter increased by 39% YoY to Rs 57,817 crore. This is the first earnings of the bank following the merger with parent Housing Development Finance Corporation (HDFC).

After the merger, HDFC Bank has become the 7th largest bank in the world with a market capitalisation of over Ra 12.66 lakh crore. The stock was trading over 1% higher in early trade on Tuesday.

Here’s what brokerages recommend:

JP Morgan: Overweight | Target: Rs 2,000
JP Morgan remains ‘Overweight’ on the largest Indian private lender and places the target price at Rs 2,000. Asset quality remains solid; retail deposit accretion slowed. Merged entity’s gross loan book grew 16% YoY. It believes that the bank can steadily compound earnings with low volatility at 17% over the next 2 years.

Morgan Stanley: Overweight | Target: Rs 2,110
Morgan Stanley remains ‘Overweight’ on HDFC Bank stock and puts the price target at Rs 2,110. Strong improvement in liquidity; focus to shift on growth acceleration over next year. Core operating profit growth is strong at 16% YoY. Sequential deposit growth moderation versus last quarter reflects seasonality. Continue to expect EPS growth of 17-18% YoY after year 1.

Macquarie: Outperform | Target: Rs 2,110
Macquarie has an ‘Outperform’ rating on the stock. PAT beat estimates and was driven by lower credit costs, partly negated by higher opex. Lower deposit growth on account of seasonality, cannot extrapolate Q1 levels for FY24. Loan growth driven by CRB, personal and home loans. Merged entity ROA guidance remains unchanged at 1.9%-2.1%.

Bernstein: Outperform | Target: Rs 2,300
Bernstein has an ‘Outperform’ rating on the stock with a price target of Rs 2,300. Feeling incrementally positive with the key takeaways. No major merger-related one-offs expected next quarter. No change to the target ranges for loan growth/RoA. Aggressive LDR [loan-to-de;posit ratio] normalisation targets. Lack of a one-off/idiosyncratic reason to explain the weak QoQ deposit growth.

Motilal Oswal: Buy | Target: Rs 2,070
We reiterate our BUY rating with a target price of Rs 2,070 (premised on 2.8X FY’25E ABV + Rs 211 for subsidiaries.

Nuvama: Buy |Target: Rs 1,960
We reiterate ‘BUY’ given HDFC Bank’s strong liability and brand franchise. That said, quarterly earnings hereon become a key variable to monitor given the miss in Q1FY24 growth. Our TP is unchanged at Rs 1,960.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)