Brokerage firm Anand Rathi has reiterated a 'Buy' rating on HDFC Bank, setting a target price of ₹963 based on current valuations. The report highlights ongoing challenges including slower loan growth and declining net interest margins compared to private sector peers like ICICI Bank and Axis Bank.
Brokerage firm Anand Rathi recently maintained its positive outlook on HDFC Bank, issuing a target price of ₹963 per share. This valuation is derived using a sum-of-the-parts method, which calculates the bank's core value at two times its estimated price-to-book ratio for the 2028 financial year, plus an additional ₹100 per share attributed to its subsidiary companies.
Operational Challenges Post-Merger
While HDFC Bank reported a 15.5% year-on-year growth in its loan book, this expansion remains behind the pace set by major competitors such as ICICI Bank and Axis Bank. A key area of focus for investors is the net interest margin—a measure of the difference between interest earned on loans and interest paid on deposits—which contracted by 13 basis points on a quarter-on-quarter basis. This decline has widened the performance gap between HDFC Bank and its peers. The brokerage pointed out that the bank is still navigating operational hurdles following its merger, particularly in terms of stabilizing its CASA ratio, which represents the low-cost funds held in current and savings accounts.
Return and Funding Outlook
Data suggests that the bank faces a disadvantage regarding its funding costs compared to ICICI Bank. Due to these factors, the brokerage does not expect the bank's return on equity or loan growth to consistently exceed 14% over the medium term. Investors should note that the bank's reliance on higher-cost funding sources to fuel loan growth creates ongoing pressure on its profitability margins. While asset quality, or the health of its loan portfolio, has remained largely stable, these operational metrics remain critical monitorables.
Leadership and Sector Context
Beyond operational metrics, there is market attention surrounding the Reserve Bank of India's stance on the potential extension of the current CEO's tenure. This, combined with the competitive pressure from other large private banks, remains a point of uncertainty for the stock. Despite these challenges, Anand Rathi continues to view HDFC Bank as reasonably valued relative to its long-term potential. However, the brokerage firm has noted that it continues to prefer Axis Bank and ICICI Bank within the large-cap private banking space.
Moving forward, investors will likely track the bank's ability to narrow the margin gap with peers and improve its deposit mobilization efforts to lower its funding costs. Future updates on leadership stability and quarterly margin trends will provide further clarity on the bank's recovery path.