HDFC Bank not Covid proof but asset quality is still best in class – The Economic Times

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Brokerage JPMorgan said HDFC Bank’s asset quality bump was because of the lender’s safety-first approach.

NEW DELHI: HDFC Bank‘s June quarter earnings were a miss on nearly every front. Despite being a strong player, the bank showed the bruises of Covid 2.0 second wave in June quarter earnings. This caused the entire banking pack to bleed in Mumbai trading on Monday morning.

Brokerage JPMorgan said HDFC Bank’s asset quality bump was because of the lender’s safety-first approach. Most of them maintained or even revised upward their price targets on the banking stock post June quarter earnings. The lifting of the credit card ban and recovery in asset quality would be near-term triggers to watch out for, they said.

“A soft Q1FY22 notwithstanding, HDFC Bank showed lesser asset quality vulnerability than peers even during Covid times, which testifies for its risk selection and capital productivity consciousness,” Edelweiss said and revised upward its target on the bank stock to Rs 1,820 from Rs 1,730.

Antique Stock Broking said while the near-term earnings trend can be lower than in the past, bottoming out of NIM, peaking of credit cost and normalised fees would offset the rise in cost growth and a lower share of non-core income. This brokerage expects resumption of 18-20 per cent earnings growth by March quarter. Antique Stock Broking has maintained a price target of Rs 1,725 on the HDFC Bank stock, based on 3.5 times FY23 book value.

June was the sixth straight quarter when the private lender reported a sub-20 per cent profit growth. Weakness in asset quality was quite visible as gross non-performing asset (NPA) as a percentage of gross advances came in at 1.47 per cent from 1.32 per cent in the March quarter, and 1.36 per cent in the year-ago quarter. The bank made provisions and contingencies worth Rs 4,830.8 crore for the quarter compared with Rs 3,891.5 crore in the year-ago quarter and Rs 4,694 crore in the March quarter.

Net interest margin for the bank came in at 4.1 per cent. This was only the third time since the beginning of FY17 that the bank’s NIM came in this low.

Calling the bank “not-so-Covid proof,” Nirmal Bang said higher provisioning and lower revenues pushed HDFC Bank’s sequential profit 5.6 per cent lower. The brokerage, however, believes the bank’s performance in the June quarter should be viewed in the context that business activities were severely curtailed for two-third of the quarter and noted that the incremental retail demand trend looks encouraging. Besides, it said HDFC Bank’s asset quality is still is best in class, even as the bank’s gross NPA ratio remained at a 46-quarter high.

Prabhudas Lilladher said the bank has a strong balance sheet with a PCR of 67-70 per cent and ability to absorb higher credit losses. HDFC Bank’s earnings, it said, should improve as visibility remains high post-pandemic leading to superior projected ROEs of 17-18 per cent over FY23-FY24. The brokerage has revised its price target for the stock to Rs 1,872 from Rs 1,735 as it rolled estimates to September FY23 book value.

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