Buy This Largest Private Bank Stock, Leading Broking Firm Suggests Significant Growth Potential

Leading stock-broking firm Prabhudas Lilladher suggests investors to add stock of HDFC Bank to their investment portfolio for a significant potential gain of approximately 19.57%. The brokerage firm believes that several factors will boost this largest private lender's market share and even the merger will be favourable.

The overall market share in MSME is 18.5%, while HDFC Bank usually targets the top 20-25% of customers. MSME asset quality has been a challenge for the system but it has been pristine for the bank; 90+ delinquency in MSME is 20bps in vs 50bps for other top banks, the broking firm explained.

Also, the addressable market in large corporate credit is Rs 38 trillion, while the portfolio size of the bank is Rs 4.0 trillion with a 10.5% market share. HDFC Bank is second in terms of market penetration after SBI.

The current relationship manager (RM) strength is 108, and business per RM has increased by 60% over FY19-23 for the bank. Incremental income delta would come from deepening existing relationships, increasing NTB, and steering away from predatory pricing. Last year of the 617 NTB corporates, 208 were on-boarded.

Prabhudas is of the view, that the bank would protect loan growth (1.5-2.0x of the system) irrespective of its size. The deposit market share is ~10% and the bank would grow by gaining market share; incremental deposit accretion (18-20% market share) may not be a challenge.

Regarding net interest margin (NIM), the bank is willing to let go of volumes in case of intense competition; it sold down Rs1 trillion of corporate loans in FY23 to not compromise on pricing, the research note stated.

According to the broking firm, the post-merger focus would shift from product-based to customer-centric. The immediate benefit of the merger would be access to 25 million HDFC group customers that do not bank with HDFC Bank, and 60-70% of HDFC Ltd. customers do not have a liability relationship with the bank.

The bank has a target to bring down the cost of income to 30% over the next decade (36% on the merged basis in FY23). The RoA post-merger would be maintained between 1.9-2.1%, noted Parbhudas. "We keep multiple unchanged at 3.0x on core FY25E ABV and retain BUY with a target price of Rs1,925.", it added.

The bank stock price has marginally gone up by 0.37 to close at Rs 1,615.50 on Friday's trade. It has rallied by 16.09% in the last one year and in the last three years, it has surged by 78.75%. The 52-week high is at Rs 1,733.95 and the 52-week low is Rs 1,271.75.

Disclaimer

The stock has been picked up from the brokerage report of Prabhudas Lilladher. Greynium Information Technologies, the author, or the brokerage firm will not be liable for any losses caused as a result of decisions based on the write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.