Prabhudas Lilladher has given Buy recommendation for HDFC Bank with a target price of Rs. 1800 in its research report issued on Sep 16, 2022

Prabhudas Lilladher’s research report on HDFC Bank

Our update released on 6th July’22 (link) had covered merger related aspects like liabilities’ glide path, asset mix, regulatory requirements and profitability. Discussions with investors on this merger update brought to light certain queries, following which we met HDFCB management to allay these concerns viz. 1) garnering higher market share in system deposits, 2) grandfathering of HDFC’s bank borrowings, 3) share of unsecured loans in the merged entity, 4) drag on NIM due to PSL shortfall and 5) outlook on NIM/opex. We believe that faster deposit accretion for HDFCB from a system standpoint may be achievable, while grandfathering of bank borrowings may be permitted. Unsecured share in the merged entity might remain between 11-12%, as mortgage portfolio (higher ticket size) would grow aggressively. Standalone NIM may gradually improve (4.2% in FY22), as share of retail would rise that may also protect NIM owing to lower PSL requirements. Opex could remain elevated over the medium term. As we slightly raise NII for FY24E/25E, our PAT increases by average 2.5%.

Outlook

Hence we raise SOTP based TP from Rs1740 to Rs1800 basis Sep’24 core ABV but maintain ‘BUY’.

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