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Dolat Capital Report
HDFC Bank Ltd.'s results were in-line with slightly higher net interest margin (+7 bps QoQ) and low credit costs aiding profit before tax beat of 8%. PAT was however in-line with normalized tax rate at 24% and reported return on asset at 1.9%.
Management alluded bringing down loan-to-deposit ratios much faster than anticipated earlier, while also acknowledging that deposit growth has fallen short of bank's expectations. We build in deposit growth at 18% YoY (17% growth for merged entity in FY24) and lower loan growth to 12% YoY (14% earlier) over FY25/26E. NIM improvement seen in Q1 is unlikely to sustain as LDR moderates.
Consequently, earnings have been revised lower by 7-9%. Given the LDR constraint, growth may remain lower than large private peers for longer, limiting valuations for the bank.
We consequently revise our rating to ‘Accumulate' from Buy with target price of Rs 1800 (Rs 2000 earlier). We value standalone bank at 2.3 times FY26E price-to-book value (2.5x earlier) and add value of subsidiaries. RoAs at 1.8% are settling below large private peers (>2%).
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