Buy HDFC Bank Ltd For Target Rs.1,170 By Axis Securities Ltd
Recommendation Rationale
* On Track to Accelerate Growth: HDFCB’s credit growth lagged systemic growth, driven by its conscious decision to reduce LDR. With the LDR now <100%, the bank will look to resume its growth journey, with FY26 pegged at par with systemic growth and a further acceleration going into FY27E, with growth ahead of systemic growth. HDFCB’s growth will come from segments where the bank is comfortable lending without diluting its credit standards. The bank has also seen signs of growth revival in the SME segment. The management expects a healthy growth pick-up in the segment by leveraging its footprint and clientele.
* NIM to Improve Hereon: In Q2, the bank’s NIMs contracted by 8bps QoQ, aided by a 20bps reduction in CoF, while the yield contraction was sharper at ~30bps QoQ. The management has indicated that a bulk of the asset repricing is behind, and NIMs should benefit from the downward repricing of TDs. The rate cut actions taken by the bank have been reflected in SA rates. However, given the longer duration of TDs, the repricing benefit has yet to fully reflect. However, the management is confident exiting FY26 with better NIMs vs Q2. We expect NIMs to improve to 3.8% over FY27-28E vs 3.6% in FY26E.
* Focus on Granular Deposit Growth: HDFCB’s focus remains on building a granular retaildominated deposit base, while exercising a pricing discipline. The bank will look to source granular deposits by leveraging its branch network and is comfortable growing at ~15% YoY on an average deposit basis in FY26. The bank will now particularly focus on mobilising CASA deposits by up-selling to its mortgage customers, as a savings account is attached to every home loan.
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