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Despite lower growth in fee income, brokerages have increased price targets for HDFC Bank shares. The country’s largest private bank reported an 18% year-on year (Y-o-Y) rise in its October-December net profit to Rs 10,342.2 crore – primarily backed by stable asset quality and a healthy rise in the net interest income (NII).
Shares of the bank dipped in Monday’s trading session and closed at Rs 1,521.55 on the BSE, down Rs 23.70 or 1.5%. “The numbers overall looked okay for the private bank, even on the provisioning side; however, it broadly failed to excite the market. Further, the fee income has been negative for the bank, however, this is not durable and will improve in the coming quarters.
Going ahead, bottom line performance for the industry is expected to improve amid a decline in the credit cost in H1CY22, while revival in credit offtake is seen to be instrumental in driving earnings trajectory from H2CY22 onwards,” Pankaj Pandey, head of research, ICICIdirect, told FE.
YES Securities, while maintaining an ‘Add’ rating on HDFC Bank, revised its target price downward to Rs 1,735 from Rs 1,750 earlier, saying weakness in fees from payments business is a new challenge. “Management explained that the overall payments business fee growth was negative YoY due to fee waivers being given out as incentive. It also said the practice of fee waivers could be adopted again going forward on an intermittent basis. At the same time, they emphasized that there is no pressure on MDR (merchant discount rates) or interchange fee from a rate point of view. They expect a long-term CAGR of mid to high teens for card fees and reversion to such trajectory could take 2-4 quarters. They explained that the profitability of the credit card business could be retained, even if fees declined, by adjusting reward points and cash-backs,” it noted.
HDFC Bank’s bottom line was led by a healthy pick-up in the retail segment, Motilal Oswal said, adding that growth in commercial and rural banking also remained robust and broadly the earnings were in line, despite additional contingent provisions. “Asset quality ratios have improved, while the restructured book too moderated to ~1.4% of loans. Healthy provisioning coverage and a contingent provision buffer provide comfort on asset quality. Pick up in loan growth, particularly Retail, would aid NII and margin, which would drive profitability in the coming quarters,” it said.
Foreign brokerage firm CLSA believes that the private lender will continue to post strong earnings in the coming quarters as the Covid-related risks are largely behind, and the bank also currently trades 6-7% lower than its historical average multiples. “We expect earnings to be resilient with an 18% EPS CAGR over FY22-24CL as the bank carried large provisioning buffers on our credit cost assumption of c.100 bps for FY23/24CL,” the brokerage said, with a ‘BUY’ rating and a target price of Rs 2,025.
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