Whalesbook
HDFC Bank's Strong Fourth Quarter Performance
HDFC Bank's fourth-quarter results revealed key improvements that prompted Anand Rathi to revisit its rating. Deposit growth surged to 14.4% year-on-year, a notable acceleration from the previous quarter's 11.6%. The bank also saw a significant 406 basis points quarter-on-quarter improvement in its loan-to-deposit ratio (LDR) and a 3 basis points quarter-on-quarter expansion in net interest margins (NIMs). Asset quality metrics improved compared to the previous quarter and a year ago.
Analyst Preference: ICICI Bank Still Favored
Despite HDFC Bank's positive report card, Anand Rathi maintained a preference for ICICI Bank. The firm noted that HDFC Bank's loan growth trails industry peers, with management not anticipating a substantial acceleration. Anand Rathi warned that HDFC Bank could face margin compression if it significantly ramps up loan growth, given its large balance sheet and tight system liquidity. In contrast, ICICI Bank is seen as better placed to balance growth and margins, benefiting from higher liquidity and lower funding costs.
Upgrade Rationale and Valuation
Even though Anand Rathi prefers ICICI Bank, the recent drop in HDFC Bank's stock price has improved its risk-reward balance, prompting the upgrade. Anand Rathi's ₹967 price target comes from a Sum of the Parts (SOTP) valuation. This method values the core banking operations at 2 times their estimated FY28 price-to-book value (P/ABV) and adds ₹125 per share for its subsidiaries.