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Motilal Oswal Report
HDFC Bank Ltd. has everything in place to deliver strong profitability and growth trajectory over the coming years (similar to pre-merger levels) and the management believes that execution remains the most important factor for the bank.
HDFC Bank is confident of sustaining the steady growth momentum and has highlighted that it has been able to maintain its incremental market share of ~16-20% despite an increase in its size.
While execution at such a large scale is inherently complex, especially amid intense competition for liabilities and rates staying elevated for longer than initially thought, we expect the bank's operating performance to recover gradually over FY25/FY26.
We expect margins to recover to 3.7% by FY26E and expect improvements in cost ratios, which should enable a ~22% compound annual growth rate in pre-provision operating profit over FY24-26E, leading to return on asset/return on equity of ~2%/17% by FY26E (thus reaching back to pre-merger levels).
We maintain 'Buy' with a target price of Rs 1,950 (premised on 2.7 times FY25E adjusted book value plus Rs 209 from subsidiaries).
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