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Brokerages see up to 20% upside in HDFC on a strong Q4 show

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Housing Development Finance Corporation (HDFC) posted higher than expected net profit in the March quarter but the stock was trading almost 5 percent down on May 5 morning following an update on MSCI implementation post merger.

On May 4, HDFC reported a near 20 percent growth in standalone net profit at Rs 4,425.50 crore in the March quarter, up from Rs 3,700.32 crore in the year-ago period. Net interest income (NII) for the quarter stood at Rs 5,321 crore against Rs 4,601 crore in the previous year, implying a growth of 16 percent.

HDFC was expected to post a 4.4 percent year-on-year (YoY) growth in net profit at Rs 3,854 crore, according to a Moneycontrol poll. NII was expected to rise nearly 5 percent YoY to Rs 4,752 crore.

During the conference call with analysts, HDFC said the Liquidity Coverage Ratio (LCR) is at 128 percent. The management highlighted that LCR as per RBI’s norms for banks is around 70-75 percent.

It expects the merger with HDFC Bank to be completed by July 2023.

Analysts seem to be bullish on the company’s prospects and they expect an upside potential of 4-20 percent in the financier’s stock, but MSCI’s change in adjustment factor on May 5 morning roiled HDFC twins.

Contrary to Street’s expectation of HDFC’s merged entity commanding double the current weight in MSCI, the index provider tweaked the adjustment factor on May 5, indicating the weight will remain more or less the same.

Here is what analysts have to say about Q4 performance and the stock:


The asset quality of the financier remains benign, with gross non-performing assets (NPAs) reducing 30 basis points (bps) QoQ to 1.2 percent as credit cost remained low at 25 bps. The brokerage firm has a “buy” rating on the stock with an unchanged target price of Rs 3,100.

Deposits formed 27 percent of total borrowings, down 540 bps YoY, as HDFC continues to reduce the proportion of corporate deposits and now retail deposits comprise 73 percent, up over 10 percent YoY, of total deposits.

Nuvama Institutional Equities

The brokerage firm has retained its “hold” rating but increased its EPS for FY24-FY25 by 2-4 percent, leading to a higher target price of Rs 2,820 from Rs 2,700.

“Merger narrative will drive stock price,” the brokerage firm said.

Historically, entities that are merged have traded at a discount to the merger ratio and Nuvama Institutional Equities said the risk reward for HDFC is evenly balanced.


The foreign brokerage firm has an “outperform” rating on the financier’s stock with a target price of Rs 3,060. It pointed out that the March quarter was a stable one for HDFC, while the focus would be on the merger with HDFC Bank.

Macquarie said the stable spreads, rising margin and improvement in asset quality is in-line with expectations.

Motilal Oswal Financial Services

The domestic brokerage firm expects HDFC’s margin to remain largely stable over FY24 and FY25. It has increased its EPS estimates for FY25 by 2 percent to factor in lower credit costs.

It expects HDFC’s AUM and profit after tax to grow at a compounded annual growth rate of around 14 percent each over FY23-25, which will translate into a core Return on Asset and Return on Equity of 2 percent and 14 percent respectively in FY25. It has reiterated its “buy” rating on the stock with a target price of Rs 3,290.

At 10.10 am, the stock was trading at Rs 1,650.20 on the National Stock Exchange, down 5 percent from the previous close.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.​

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