HDFC Bank is one of the largest banking services companies in India. It is also the most valuable banking company in the country as per market capitalization. The bank has maintained superior return ratios compared to its peers resulting in premium valuations. The loan book of HDFC Bank is Rs 15 lakh crore, which is set to increase as it merges with mortgage firm Housing Development Finance Corporation.
In the past many years, the lender has delivered a consistent performance with over 4 per cent net interest margins (NIM) and over 15 per cent return on equity (RoE).
The bank is famous on Dalal Street for its consistent financial performance and has maintained 20 per cent growth each year. The HDFC Bank share price has also multiplied money for many investors. This makes the lender one of the favorite stocks of investors. In the quarter ending December 2022, it reported healthy loan growth at 19.5 per cent year on year (YoY) while deposit growth was 19.9 per cent. Net interest income was up 24.6 per cent YoY, NIM was a steady quarter on quarter at 4.1 per cent.
Meanwhile, credit cost declined to 0.74 per cent and net profit was up 18.5 per cent YoY. Gross non-performing assets and net NPAs were steady at 1.23 per cent and 0.33 per cent QoQ, respectively.
Another growth driver for HDFC Bank could be assets that it will own after the merger completes. Mortgage assets are prized possession and are considered to be the stickiest assets returning money for the long term. However, the first couple of years could be difficult following the merger as the bank will have to keep extra money aside for the assets it will get as per Reserve Bank of India rules.
Analysts at ICICIdirect said the bank’s building of distribution capabilities and business growth will remain buoyant though a merger with HDFC will remain in focus in the near term.
A factor that can hurt the bank’s prospects is stiff competition from other private banks. Thanks to their aggressiveness, some of them have shown excellent growth numbers, often surpassing that of HDFC Bank. The market has also acknowledged its growth trajectory, which may make investors tilt towards them at the cost of HDFC Bank.
Analysts, though, are unperturbed. Those at ICICIdirect have a ‘BUY’ rating on the counter with a target price of Rs 1920, which means a potential upside of 21 per cent in 12 months from levels in mid-January 2023.They said HDFC Bank share price is expected to deliver higher than industry growth along with a return on assets of about 2 per cent in FY25.
Steady asset quality and enough provision buffer provide comfort, they added. Analysts also see the bank’s physical and digital capabilities to keep the lender ahead of its competitors.