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Our view – Bank to remain focused on profitability for

now In the management's words, the incremental LDR will be a "tad" lower for the next couple of years: One the reasons is that the bank’s priority is to maintain reserves and repay the borrowings. Furthermore, the quantum of deposits raised will be a function of the liquidity environment (among other factors). Yield is a lever to bring down LDR and the bank would use it if required.

Commentary seemed to allude that margin would be stable to positive going forward, with sound PSL traction: Higher proportion of retail and CRB in overall book could help margin. Margin will also depend on how the bank substitutes its bonds with deposits. In high interest rate scenarios, CASA ratio has been tepid and the bank will gain market share in CASA as well. Cost of deposits is stable for now but the situation in the Middle East is being monitored. The bank has achieved 52% as opposed to the 40% PSL requirement as of FY24 and, in comparison, had achieved 45% as of FY23.

While the management remained committed, in principle, to branch expansion, they did want to be held to a specific number: The CEO stated that the number stated in the past (1500 branch openings per year) was a vision. 1481 branches were opened in FY23 and 917 in FY24, with the pace picking up recently. The productivity has also gone with Rs 2.7bn coming in per branch now compared with Rs 2.6bn earlier. The bank will not hold back on branch expansion due to cost considerations.

We maintain a recently-assigned BUY rating with an unchanged price target of Rs 1850: We value the standalone bank at 2.2x FY26 P/BV for an FY25E/26E RoE profile of 16.9/14.6/15.9%. We assign a value of Rs 216 per share to the subsidiaries, on SOTP. We had begun with a less-than-bullish ADD rating for HDFCB in our in our Sector Initiation Report dated June 2021 and upgraded to BUY recently in February 2024.

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