HDFC BANK FALLS 4% AFTER WEAK Q1 BUSINESS UPDATE. SHOULD YOU BUY THE DIP?
Shares of HDFC Bank fell sharply on Friday, declining 4% in early trade after a weak business update. This not only led to a substantial erosion in its market capitalisation but also raised doubts among analysts about the bank's future performance.
Historically, the June quarter has been seasonally soft for the private lender, but the latest reported numbers are slightly lower than the usual 1-3% sequential growth range, said brokerage firm Nomura.
HDFC Bank Q1 business update
The bank reported 11% year-on-year growth or flat sequential growth in its gross assets under management (AUM) on a pro-forma basis.
Net of loan sell-downs, gross loans declined 0.8% sequentially, while year-on-year growth stood at a modest 10.8%.
Deposit growth was soft during the quarter, with a 15.3% year-on-year increase on a pro-forma basis and flat sequential growth.
The current and savings account (CASA) deposits declined 5% sequentially, causing the CASA ratio to drop 190 basis points to 36%.
Should you buy the dip?
Several brokerages said the latest quarterly business update from HDFC Bank was disappointing.
Analysts at Jefferies described the flat deposit growth as "slightly disappointing," contributing to the negative sentiment around the bank's stock.
Meanwhile, Nomura India noted that HDFC Bank's loan and deposit growth (on a pro-forma basis) are tracking below their FY25F estimates of 12% year-on-year and 17% year-on-year, respectively.
The brokerage believes that while the bank's balance sheet course correction is underway, it will be a gradual process.
At current valuations of 2.3 times one-year forward book value per share (BVPS), Nomura does not see a case for significant outperformance compared to other private banks and maintains a "neutral" rating with a target price of Rs 1,660.
Meanwhile, Morgan Stanley, which has an 'Overweight' recommendation and a price target of Rs 1,900 per share, stated that HDFC Bank's volume growth was expected to be soft due to seasonality in the June quarter.
The brokerage noted that HDFC Bank reported loan growth, which was down 0.8% quarter-on-quarter, largely due to the wholesale segment.
The liquidity coverage ratio (LCR) in Q1 improved sharply to 123%, compared to 115% in the previous quarter.
Motilal Oswal Financial Services (MOFSL) has maintained a "Buy" rating on the stock, suggesting a more optimistic outlook for investors considering HDFC Bank.
Another brokerage, CLSA, highlighted that Q1 is seasonally weak, but deposit accretion was weaker-than-expected in June.
Despite this, CLSA maintained an 'Outperform' rating with a target price of Rs 1,725 per share.
CLSA mentioned that the total deposit book remained flat quarter-on-quarter, unlike previous quarters which saw an accretion of Rs 30,000-45,000 crore, attributing this to a significant run-down of current account deposits from the previous quarter.
(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. India Today Group does not take responsibility for any investment or trading decisions made based on the information provided in this article. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)
2024-07-05T05:37:54Z dg43tfdfdgfd
