BUY

Result Update HDFC Bank Ltd. Target Price

23rd January, 2025 BFSI - Banks 2,000

Progressing Well on LDR Improvement; Outlier on Asset Quality!

Est. Vs. Actual for Q3FY25: NII – INLINE; PPOP – INLINE ; PAT – INLINE (CMP as of 22nd January, 2025)
Changes in Estimates post Q3FY25 CMP (Rs) 1,665
FY25E/FY26E/27E (%): NII: -1.6/-3.8/-4.2 PPOP: -1.6/-3.5/-1.9; PAT: -1.6/-4.7/-2.9
Upside /Downside (%) 20%
Recommendation Rationale
• Progressing well on LDR improvement; Growth momentum to resume from FY26: In line High/Low (Rs) 1,880/1,363
with HDFCB’s stance of improving LDR aggressively to pre-merger levels of mid-80%, the bank Market cap (Cr) 12,73,483
has been progressing well with deposit growth outpacing credit growth. In Q3FY25, LDR stood at
98.2% vs 99.8% QoQ. The management has reiterated its guidance of limiting growth to below Avg. daily vol. (6m) Shrs. 1,84,78,984
systemic growth in FY25 to accelerate LDR improvement. FY26 growth will align with industry No. of shares (Cr) 764.8
growth, gradually improving (outpacing industry growth) from FY27E onwards. We expect the
bank’s efforts to materialise with LDR dropping to ~87% by FY27E. HDFCB continues to Shareholding (%)
calibrate growth, considering concerns about both credit quality and pricing (mainly in corporate
Jun-24 Sep-24 Dec-24
lending). The bank is re-orienting itself amidst a challenging environment, preparing to resume its
growth journey, and gaining market share as macros change. Additionally, the bank remains well- Promoter 0.0 0.0 0.0
capitalized to steer strong growth. Thus, going into FY26, HDFCB expects growth, led by the retail
FIIs 47.2 48.0 49.3
segment, to pick up. We expect HDFCB to deliver a healthy Credit/Deposit growth of ~12/18%
CAGR over FY25-27E. MFs / UTI 24.8 24.6 24.0
• Best-in-Class Asset Quality Metrics: HDFCB has maintained pristine asset quality across
Others 28.0 27.4 26.7
cycles, which can be credited to its strong underwriting practices and risk-calibrated lending. While
slippages in Q3FY25 were marginally higher, led by seasonally high agri slippages, the Financial & Valuations
management indicated that ex-agri, slippages have remained flat QoQ. The management also
emphasised that asset quality metrics across segments remain best-in-class, and the bank is Y/E Mar (Rs Bn) FY25E FY26E FY27E
confident that these trends are sustaining. We do not expect any major asset quality NII 1,219 1,364 1,580
challenges and believe credit costs are likely to be contained at ~50bps over the medium PPOP 996 1,139 1,348
term.
Net Profit 668 749 892
• Controlled Opex growth: The management has indicated that the bank will pull back from
investing in people, technology and distribution networks. However, Opex growth is expected to EPS (Rs) 87.8 98.5 117.3
remain modest, with improving productivity driving Opex ratios, thereby partially supporting ABV (Rs) 637.2 714.8 807.6
gradual RoA recovery. We expect the C-I Ratio to improve gradually and settle at <40% in FY27E. P/ABV (x) 2.6 2.3 2.1
Sector Outlook: Positive
RoA (%) 1.8 1.8 1.9
Company Outlook: The bank’s efforts at aggressively improving LDR are yielding results, and we
expect the LDR to improve to ~87% by FY27E. Amidst challenges on deposit mobilisation, especially NNPA (%) 0.4 0.4 0.4
CASA deposits, the bank continues to ensure to maintain a strong pace of TD growth to enable
HDFCB to build a sticky customer base. HDFCB remains an outlier among banks because of its Change in Estimates (%)
strong asset quality performance, given the rising stress, especially in the unsecured segment. Thus, Y/E Mar FY25E FY26E FY27E
supported (i) Adequate levers to improve NIMs, (ii) Controlled Opex growth and improving NII -1.6 -3.8 -4.2
productivity ensuring cost ratio moderation, and (iii) Pristine asset quality ensuring controlled credit
PPOP -1.6 -3.5 -1.9
costs should enable HDFCB to deliver an improving trend on return ratios. RoA/RoE is expected to
range between 1.8-1.9%/14-15% over FY25-27E. Faster improvements in LDR and NIM PAT -1.6 -4.7 -2.9
expansion remain key re-rating levers for the bank.
Current Valuation: 2.3x Sep’26E ABV; Earlier Valuation: 2.3x Sep’26E ABV Relative Performance
Current TP: Rs 2,000/share; Earlier TP: Rs 2,025/share
140
Recommendation: We maintain our BUY recommendation on the stock.
130
Alternative BUY Ideas from our Sector Coverage
120
Kotak Mahindra Bank (TP – Rs 2,140/share) 110
Financial Performance 100
▪ Operational Performance: HDFCB’s advances (net) grew by 3/1% YoY/QoQ. Deposits growth 90
improved, registering a growth of 16/3% YoY/QoQ. CASA Deposits growth was muted at 4/-1% 80
Feb-24
Jun-23

Jun-24
Oct-23

Oct-24
Dec-23

Apr-24

Dec-24
Aug-23

Aug-24

YoY/QoQ, while TDs grew by 23/5% YoY/QoQ. CASA Ratio stood at 34% vs 35.3% QoQ. LDR
improved to 99.2% vs 100.8% QoQ.
▪ Financial Performance: NII grew by 8/2% YoY/QoQ, with core NIMs (reported) down marginally
by 3bps QoQ. NIMs stood at 3.43% vs 3.46% QoQ. Non-interest income growth was slower than HDFCB SENSEX
expected at 3% YoY/flat QoQ. Fee income (1.3% of loans) grew slower at 18%/flat YoY/QoQ.
Treasury gain was at ~Rs 0.7 Bn vs Rs 2.9 Bn QoQ. Slower non-interest income growth was offset Source: AceEquity, Axis Securities Research
by modest Opex growth, which grew by 7/1% YoY/QoQ. C-I Ratio stood steady at 40.6%, flat QoQ.
PPOP grew by 6/1% YoY/QoQ. Credit costs (calc.) stood at 50bps vs 43bps QoQ. PAT grew by
2% YoY/ flattish QoQ.
▪ Asset quality: GNPA/NNPA increased marginally to 1.42/0.46% vs 1.36/0.41% QoQ. Slippages
are likely to be higher due to seasonally high agri slippages. Barring agri slippages, GNPA would
have been 1.19%.
Key Financials (Standalone)
(Rs Bn) Q3FY25 QoQ (%) YoY (%) Axis Est. Variance
Net Interest Income 306.5 +1.8 +7.7 307.8 -0.4
PPOP 250.0 +1.2 +5.7 251.0 -0.4
Net Profit 167.4 -0.7 +1.5 167.4 0.0
Dnyanada Vaidya
NNPA (%) 0.5 +5 bps +15 bps 0.4 +4 bps Research Analyst
RoA (%) Email: [email protected]
1.8 -6 bps -20 bps 1.8 +1 bps
Source: Company, Axis Securities Research
Pranav Nawale
Research Associate
Email: [email protected]

1
Key Takeaways

• Benefits of merger to be visible in the coming quarters: The bank has gained substantial traction on converting incremental
new-to-bank mortgage customers to liability customers. Currently, ~1.9 Mn customers have been converted into liability
customers out of the 4 Mn eHDFC accounts. Additionally, HDFCB intends to continue to make strides to expand its wallet share
amongst these customers by cross-selling other retail products. After the merger, the bank maintained NIMs in a narrow range.
~70% of the bank’s portfolio is floating, with ~45% of loans being Repo/T-bill linked. Going forward, though the floating book
would get re-priced in a rate cut cycle, we expect NIMs to find support with (1) Tailwinds on CoF with the repayment of high-
cost borrowings (of eHDFC), (2) Increasing low-cost CASA deposits, (3) Gradually improving product mix aiding yield. We factor
in a gradual NIM improvement over the medium term, with margins ranging between 3.7-3.8%. Controlled opex growth,
improved productivity, and benign credit costs would further supplement RoA improvement. We expect RoA to improve to
~1.9% by FY27 from 1.8% over FY25-26E, with RoE ranging between 14-15% over FY25-27E.

Outlook

• Given HDFCB’s accelerated efforts to reduce LDR alongside its cautious approach in terms of credit quality and pricing, we trim
our credit growth estimates marginally, driving an NII/Earnings cut of 3-4% each over FY26-27E, while broadly maintaining our
FY25 estimates. However, backed by expectations of gradually improving margins, healthy fee income growth, controlled Opex
growth and stable credit costs, we expect HDFCB to deliver a 12/18/16% CAGR Credit/Deposit/Earnings growth over FY25-
27E.

Valuation & Recommendation

• We value the core book at 2.3x Sep’26E ABV vs. its current valuation of 2.2x Sep’26E ABV and assign a value of Rs 248/share
to subsidiaries, thereby arriving at a target price of Rs 2,000/share. This implies an upside of 20% from the CMP. We maintain
our BUY recommendation on the stock.

Key Risks to Our Estimates and TP

• The key risk to our estimates remains a slowdown in overall credit momentum owing to the bank’s inability to ensure
deposit mobilisation, potentially derailing the bank's earnings momentum.

• Slower substitution of higher-cost debt with lower-cost deposits could continue to hurt margins

Change in Estimates

Revised Old % Change

(Rs Bn)
FY25E FY26E FY27E FY25E FY26E FY27E FY25E FY26E FY27E

NII 1219 1364 1580 1238 1418 1649 -1.6 -3.8 -4.2

PBP 996 1139 1348 1012 1181 1375 -1.6 -3.5 -1.9

PAT 668 749 892 679 786 919 -1.6 -4.7 -2.9

Source: Axis Securities Research

2
Valuation – SOTP Calculation

Stake Held Value Per

Valuation Methodology
(%) Share

HDFC Bank - Parent 2.3x Sep'26E Adj. BV 1,751

Subsidiaries

HDB Financial Services 94.5 3x Sep'26E BV 78

HDFC Securities 94.6 18x Sep'26E EPS 33

HDFC Life 50.3 2.3x Sep'26E EV 108

HDFC AMC 52.5 36x Sep'26E EPS 76

HDFC Ergo 50.5 25x Sep'26E EPS 14

Total Subsidiary Value 309

Less: 20% holding discount 62

Net Value of Sub. 248

Target Price 2,000

CMP 1,665

Potential Upside 20%

Source: Axis Securities Research

3
Results Review (Standalone)
Rs. Bn Q3FY25 Q3FY24 % YoY Q2FY25 % QoQ 9MFY25 9MFY24 % YoY
Net Interest Income 306.5 284.7 7.7 301.1 1.8 906.0 794.6 14.0
Non-Interest Income 114.5 111.4 2.8 114.8 -0.3 336.0 310.7 8.1
Operating expenses 171.1 159.6 7.2 168.9 1.3 506.2 454.2 11.5
-- Staff Cost 59.5 53.5 11.2 59.9 -0.6 177.8 153.0 16.2
Pre provision profits 250.0 236.5 5.7 247.1 1.2 735.9 651.1 13.0
Provisions and contingencies 31.5 42.2 -25.2 27.0 16.8 84.6 99.8 -15.3
PBT 218.5 194.3 12.4 220.1 -0.7 651.3 551.3 18.1
Provision for Tax 51.1 30.6 67.1 51.8 -1.4 154.0 108.3 42.2
PAT 167.4 163.7 2.2 168.2 -0.5 497.3 443.0 12.3

Deposits 25,638 22,140 15.8 25,001 2.5 25,638 22,140 15.8

CASA Deposits 8,725 8,357 4.4 8,835 -1.2 8,725 8,357 4.4
CASA Ratio % 34.0 37.7 -371bps 35.3 -131bps 34.0 37.7 -371bps

Advances 25,182 24,461 3.0 24,951 0.9 25,182 24,461 3.0

Retail 13,425 12,188 10.1 13,155 2.1 13,425 12,188 10.1
CRB 7,532 6,800 10.8 7,427 1.4 7,532 6,800 10.8
Agri 1,076 930 15.7 1,081 -0.5 1,076 930 15.7
Corporate 4,806 4,363 10.2 4,671 2.9 4,806 4,363 10.2

C/D Ratio 98.2 110.5 -1226bps 99.8 -158bps 98.2 110.5 -1226bps

NIM (%) 3.4 3.4 3bps 3.5 -3bps 3.5 3.6 -14bps
Cost-Income ratio (%) 40.6 40.3 33bps 40.6 2bps 40.8 41.2 -43bps

Gross NPA (%) 1.4 1.3 16bps 1.4 6bps 1.4 1.3 16bps
Net NPA (%) 0.5 0.3 15bps 0.4 5bps 0.5 0.3 15bps
PCR (%) 67.8 75.3 -746bps 69.9 -207bps 67.8 75.3 -746bps
Source: Company, Axis Securities Research

4
Financials (Standalone)
Profit & Loss (Rs Bn)
Y/E March FY24 FY25E FY26E FY27E
Net Interest Income 1,085 1,219 1,364 1,580
Non-Interest Income 492 463 542 637
Total Income 1,578 1,681 1,906 2,216
Total Operating Exp 634 685 766 868
PPOP 944 996 1,139 1,348
Provisions & Contingencies 235 115 138 155
PBT 709 881 1,001 1,193
Provision for Tax 101 213 252 301
PAT 608 668 749 892
Source: Company, Axis Securities Research **FY24 onwards are post-merger numbers

Balance Sheet (Rs Bn)

Y/E March FY24 FY25E FY26E FY27E
SOURCES OF FUNDS
Share Capital 8 8 8 8
ESOPs 27 33 40 50
Reserves 4,368 4,916 5,515 6,229
Shareholder's Funds 4,402 4,956 5,563 6,287
Total Deposits 23,798 27,637 32,554 38,430
Borrowings 6,622 5,197 4,301 4,108
Other Liabilities & Provisions 1,354 1,511 1,696 1,952
Total Liabilities 36,176 39,301 44,113 50,776

APPLICATION OF FUNDS
Cash & Bank Balance 2,191 2,628 2,933 3,366
Investments 7,024 8,295 9,771 11,535
Advances 24,849 26,142 28,922 33,013
Fixed & Other Assets 2,112 2,235 2,487 2,863
Total Assets 36,176 39,301 44,113 50,776
Source: Company, Axis Securities Research **FY24 onwards are post-merger numbers

5
Ratio Analysis (%)
Y/E March FY24 FY25E FY26E FY27E
VALUATION RATIOS
EPS 80.0 87.8 98.5 117.3
Earnings Growth (%) 1.3 9.7 12.1 19.1
BVPS 579.5 651.4 731.2 826.4
Adj. BVPS 568.9 637.2 714.8 807.6
ROAA (%) 2.0 1.8 1.8 1.9
ROAE (%) 14.2 14.3 14.2 15.1
P/E (x) 20.8 19.0 16.9 14.2
P/ABV (x) 2.9 2.6 2.3 2.1
Dividend Per Share 19.5 15.8 19.7 23.5
Dividend Yield (%) 1.2 0.9 1.2 1.4

PROFITABILITY & OPERATING EFFICIENCY

NIM (%) 3.8 3.4 3.5 3.5
Cost/Avg. Asset Ratio (%) 2.1 1.8 1.8 1.8
Cost-Income Ratio (%) 40.2 40.7 40.2 39.2

BALANCE SHEET STRUCTURE RATIOS

Loan Growth (%) 55.2 5.2 10.6 14.1
Deposit Growth (%) 26.4 16.1 17.8 18.0
C-D Ratio (%) 104.4 94.6 88.8 85.9
Equity/Assets (%) 12.2 12.6 12.6 12.4
Equity/Advances (%) 17.7 19.0 19.2 19.0
CAR (%) 18.3 17.7 17.4 16.3
Tier 1 CAR (%) 16.3 15.9 15.7 14.8

ASSET QUALITY
Gross NPLs (Rs Bn) 311.7 361.2 414.6 474.6
Net NPLs (Rs Bn) 80.9 108.4 124.4 142.9
Gross NPLs (%) 1.3 1.4 1.4 1.4
Net NPLs (%) 0.3 0.4 0.4 0.4
Coverage Ratio (%) 74.0 70.0 70.0 69.9
Provisions/Avg. Adv(%) 1.0 0.5 0.5 0.5

ROAA TREE (%)

Net Interest Income 3.6 3.2 3.3 3.3
Non-Interest Income 1.6 1.2 1.3 1.3
Operating Cost 2.1 1.8 1.8 1.8
Provisions 0.8 0.3 0.3 0.3
ROAA 1.8 1.8 1.8 1.9
Leverage (x) 8.4 8.1 7.9 8.0
ROAE 14.8 14.2 14.4 15.2
Source: Company, Axis Securities Research **FY24 onwards are post-merger numbers

6
 HDFC Bank Price Chart and Recommendation History

Date Reco. TP Research

16-Jan-23 BUY 1,860 Result Update

17-Apr-23 BUY 1,975 Result Update

24-Apr-23 BUY 1,975 Result Update

18-Jul-23 BUY 2,050 Result Update

17-Oct-23 BUY 1,925 Result Update

17-Jan-24 BUY 1,975 Result Update

20-Apr-24 BUY 1,885 Result Update

01-Jul-24 BUY 2,000 Top Picks

22-Jul-24 BUY 1,950 Result Update

01-Aug-24 BUY 1,950 Top Picks

02-Sep-24 BUY 1,950 Top Picks

01-Oct-24 BUY 1,950 Top Picks

21-Oct-24 BUY 2,025 Result Update

01-Oct-24 BUY 2,025 Top Picks

02-Dec-24 BUY 2,025 Top Picks

01-Jan-25 BUY 2,025 Top Picks

23-Jan-25 BUY 2,000 Result Update

Source: Axis Securities Research

7
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 NEERAJ Digitally signed by NEERAJ
CHADAWAR
CHADAWAR Date: 2025.01.23 09:24:02 +05'30'

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RATING SCALE: Definitions of ratings

Ratings Expected absolute returns over 12 – 18 months

BUY More than 10%

HOLD Between 10% and -10%

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NOT RATED We have forward looking estimates for the stock, but we refrain from assigning valuation and recommendation.

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