Shares of HDFC Bank climbed over 1% in early trade on Monday after the private sector lender reported strong earnings for the third quarter ended December 2022, which was in line with D-Street estimation. The stock also got a boost as most analysts suggest buying or holding the counter following the Q3 earnings report.

Cheering Q3 results, HDFC Bank share price gained as much as 1.5% to ₹1,624.40 in early trade against the previous closing price of ₹1,600.85 on the BSE. The market capitalisation increased to ₹8.95 lakh crore. In comparison, the BSE Sensex was trading 34 points higher at 60,295 levels. The largecap stock touched its 52-week high of ₹1,721.85 on April 4, 2022, while it slipped to its 52-week low of ₹1,271.75 on May 17, 2022.  

HDFC Bank, the country’s largest private sector lender by assets, has underperformed the banking index in the last one year by delivering a muted return of 4.2% as compared to 10.3% growth in the BSE Bankex index. The banking heavyweight has risen 19.7% in a six month period and 11.9% in a month. In the last one week, the counter has risen 2% as against 0.1% and 0.5% growth in the BSE benchmark Sensex and BSE Bankex index, respectively.

For the third quarter ended December 31, 2022, HDFC Bank posted a 19.9% year-on-year (YoY) growth in consolidated net profit to ₹12,698 crore on the back of strong improvement in interest income as well as lower provisions. The net interest income (NII) climbed 25% YoY to ₹22,987.8 crore, supported by rise in lending rates following RBI’s interest rate hikes.

On the asset quality front, the banking major saw its gross non-performing asset (NPA) ratio falling to 1.23% from 1.26% in the year-ago period. The net NPA too declined to 0.33% from 0.37% in the same period last year. However, on a sequential basis, the NPA ratios were flat. The bank’s provisions and contingencies fell marginally to ₹2,806 crore in Q3 FY23 from ₹2,994 crore last year.

As of December 31, the bank’s total advances rose to ₹15.07 lakh crore, up 19.5% YoY, while total deposits jumped 19.9% to ₹17.33 lakh crore from the year ago period. Domestic retail loans rose 21.4% YoY, while commercial and rural banking loans climbed 30.2%. The current account savings accounts (CASA) deposits of the bank climbed 12% YoY during the quarter under review, with savings deposits at ₹5.35 lakh crore and current account deposits at ₹2.28 lakh crore.

Analysts view on Q3 results

LKP Securities has recommended “BUY” on the stock with a price target of ₹1,869, a potential upside of 17% from Friday’s closing price, citing the bank's superior underwriting practices, higher liquidity, adequate coverage and strong capital position. “HDFC Bank is expected to outperform the sector in the long run led by healthy balance sheet growth; much higher provision than regulatory requirement in the balance sheet; best in class underwriting and risk management practices. Given these strengths we expect HDFC Bank to remain one of the best among all the lending business,” the brokerage said in its report.

ICICI Direct also remained positive and retained “BUY” rating on the HDFC Bank shares with a target price of ₹1,920, an upside of 20% from the current market price. Building of distribution capabilities and business growth to remain buoyant though merger with HDFC Ltd to remain in focus in the near term, the agency said.

“HDFC Bank is expected to deliver higher than industry growth along with RoA of around 2% in FY25E. Rolling to FY25E, we value HDFC Bank at around 2.8x FY25E ABV & ₹50 for subsidiaries and revise our target price from ₹1,750 to ₹1,920 per share,” it said in a note. 

Analyst at Prabhudas Lilladher has also given “Buy” rating to HDFC Bank with a price target of ₹1,850, saying that earnings beat led by better interest income and lower provisions. “We upgrade FY23 earnings by 3% led by higher NII and lower provisions. Valuation is at 2.6x Sep’24 core ABV. Maintaining multiple at 3.0x, we raise TP to ₹1,850 from ₹1,800. Retain BUY,” it said.

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