HDFC Bank (NS:) recently released its quarterly results, showing remarkable growth with core pre-provision operating profit (PPOP) growing by 3% quarter-on-quarter (QoQ). Impressively, the bank’s underlying return on assets (ROA) and PPOP ROA were approximately 2.6% and 1.9%, respectively, closely matching Goldman Sachs (NYSE:) estimates.
During the quarter, HDFC Bank strategically focused on three key areas: deposit dynamics, loan-to-deposit ratio and net interest margin. Despite difficult macroeconomic conditions, the bank effectively addressed these problems. Notable achievements include a significant 17% increase in deposit market share in the fourth quarter compared to the previous quarter, as well as a 140 basis point increase in the current account savings account (CASA) ratio to approximately 29%.
Additionally, HDFC Bank increased its loan-to-deposit ratio by about 600 basis points to 104% while increasing its liquidity coverage ratio (LCR) by 500 basis points to 115%. Beating expectations, the bank also posted a marginal improvement in margins of 4 basis points, despite an expected contraction due to an unfavorable asset mix.
Goldman Sachs’ interactions with investors have revealed a range of earnings per share (EPS) results. While sellers’ valuations fluctuated between INR 87-101, buyers’ valuations stabilized at INR 90. Despite this diversity, Goldman Sachs expects these expectations to converge following management’s comments.
Looking ahead, Goldman Sachs expects HDFC Bank to undertake strategic initiatives to drive growth and profitability. These include controlling deposit costs, optimizing loan rates and capitalizing operating leverage. Notably, the potential reduction in the bank’s lending growth is intended to increase its focus on profitable opportunities in a competitive and uncertain market environment.
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Moreover, HDFC Bank’s proactive measures such as increasing priority sector loans (PSL) and improving productivity at branches highlight its resilience and adaptability.
Goldman Sachs maintains a positive view on HDFC Bank, highlighting its strong performance and strategic acumen. With a projected recovery in core PPOP-ROA and prospects for accelerated growth, HDFC Bank is poised for continued success. Goldman Sachs therefore reiterates its Buy rating on HDFC Bank, forecasting compelling upside potential of 27%.
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But how can you track the average consensus of all analysts covering HDFC Bank or any other stock for that matter? The easiest way is to go to InvestingPro, which takes the aggregate of all analysts’ targets and creates an average to show the average consensus of all of them.
Analyst target ranges are also intended to help investors gauge the volatility of opinions on the Street. This not only helps in making investment decisions but also helps reduce risk.
A total of 40 analysts cover HDFC Bank and have targets ranging from INR 1,545 per share to INR 2,410 per share, with an average of INR 1,885 per share.
And to know the true intrinsic value of a stock, investors can always look to the fair value section, which gives an accurate idea of the valuation status of the counter. In the case of HDFC Bank, after analyzing 5 financial models, the fair value is INR 1,779 per share, which represents a good upside of 17.5% over CMP.
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X (formerly Twitter) – Aayush Khanna