Should you buy HDFC Bank post Q1 results?

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Analysts retained their bullish view on HDFC Bank after the lender on Saturday posted 16% growth in net profit at Rs 7,729.64 crore for the quarter ended June 30, The bottom line was supported by strong growth in non-interest income and stable cost-to-income ratio. The core fee income of the bank has jumped 74% on a low base, but the second covid wave and consequent lockdowns in various parts of the country caused a sharp decline in core fee income on a sequential basis.

Meanwhile, the bank has exhibited a slight deterioration in the asset quality with the higher fresh slippages of loans in the quarter ended June 2021. Gross non-performing assets were at 1.47% of gross advances end June 2021 as against 1.32% end March 2021 and 1.36% in the same quarter last year. Shares of the lender traded 2.32% lower at Rs 1,486.35 at around 10.15 am (IST). On the other hand, the benchmark BSE Sensex was down 366 points, or 0.69%, at 52,773 at around the same time.

Should you buy?

Sharekhan: The brokerage is positive on HDFC Bank with a target price of Rs 1,810. “We expect the bank to further leverage technology/reach to gain market share across business lines, buoyed by better efficiencies and, thereby, deliver superior return on assets. We expect HDFC Bank’s business quality and franchise strength will help it tide over near-term challenges and to be well-placed to benefit from normalcy in business. We have fine-tuned our estimates and the target multiple for the bank considering the dynamic environment,” Sharekhan said.

Edelweiss: The brokerage also holds a ‘Buy’ call on HDFC Bank with a target price of Rs 1,820. However, it added that the bank reported lower-than-expected Q1FY22 PAT owing to the greater-than-anticipated impact of the second covid wave–from both lower disbursements and softer collections. “Uncertain times put a premium on resilience, which is what HDFC Bank offers—a strong balance sheet and likely higher residual capital than most. This higher residual capital ensures that its best-in-class franchise can support an adequately large balance sheet after this crisis and fulfil its earnings potential,” Edelweiss Securities said.