On Friday, Goldman Sachs reaffirmed its Conviction Buy rating on HDFC Bank Ltd (HDFCB:IN) (NYSE: HDB) stock, with a price target of INR1,961.00. The endorsement comes in the wake of HDFC Bank's business update for the second quarter of the financial year 2025 (2QFY25), which highlighted notable growth in deposits and an improved loan-deposit ratio (LDR).
HDFC Bank's deposit growth was reported at 15% year-over-year, with the LDR experiencing a significant improvement of approximately 380 basis points to 101% on gross advances. This performance is expected to be positively received by the market, particularly given the current tight liquidity conditions, where system deposits have grown by only 1% quarter-to-date as of September 20.
Despite these liquidity challenges, HDFC Bank's deposits increased by 5% quarter-over-quarter on a period-end basis, driven largely by a 19% year-over-year and 7% quarter-over-quarter increase in time deposits. However, the current and savings account (CASA) ratio saw a decline of 100 basis points to 35.2% in the quarter.
This deposit growth positions HDFC Bank strongly against its peers, as it has outperformed other major banks that have released their business updates for the same period. For instance, Bank of Baroda and Punjab National Bank reported year-over-year growth in domestic deposits of only 7% and 11%, respectively, for 2QFY25.
The analysis further suggests that if HDFC Bank were to continue growing at a similar quarter-over-quarter rate as in the previous year, it would represent a market share gain of 24% in 2QFY25 and 15% in the first half of the financial year 2025 (1HFY25). This robust performance underscores HDFC Bank's competitive edge in the banking sector.
In other recent news, HDFC Bank has been making significant strategic adjustments. The bank is reportedly selling portions of its auto and home loans portfolio, a move aimed at rebalancing its balance sheet amid tight market liquidity and regulatory pressures. Bernstein SocGen Group has maintained its Outperform rating on HDFC Bank, expressing confidence in the bank's strategy.
On the other hand, CLSA has downgraded HDFC Bank from Outperform to Hold, reflecting the bank's focus on profitability over loan book expansion. Meanwhile, Citi has revised its price target for HDFC Bank while keeping a Buy rating, following the bank's recent financial metrics which showed a positive surprise in net interest margin and net interest income. However, Citi has moderated its loan growth forecast for HDFC Bank for the financial years 2025 and 2026.
JPMorgan has also adjusted its stance on HDFC Bank, downgrading the stock from Overweight to Neutral and reducing the price target. This revision is due to slower than expected balance sheet growth and anticipated subdued loan growth. Despite the downgrades, JPMorgan maintains that HDFC Bank has operational levers that could sustain its return on assets. These are the recent developments surrounding HDFC Bank.
InvestingPro Insights
HDFC Bank's strong performance, as highlighted in Goldman Sachs' reaffirmation of its Conviction Buy rating, is further supported by real-time data from InvestingPro. The bank's market capitalization stands at an impressive $153.08 billion, reflecting its significant position in the banking sector. This aligns with the InvestingPro Tip that HDFC Bank is a "prominent player in the Banks industry."
The bank's P/E ratio of 18.75 suggests that investors are willing to pay a premium for its shares, possibly due to its robust growth prospects and market leadership. This is particularly noteworthy given the InvestingPro Tip that the stock "generally trades with low price volatility," indicating investor confidence in the bank's stability and performance.
HDFC Bank's revenue growth is particularly striking, with a 120.79% increase over the last twelve months. This exceptional growth rate supports the positive outlook presented in the article, especially regarding the bank's deposit growth and improved loan-deposit ratio.
InvestingPro Tips also reveal that HDFC Bank "has raised its dividend for 4 consecutive years," which may be attractive to income-focused investors. However, it's worth noting that the bank is "quickly burning through cash," which could be related to its aggressive growth strategy.
For readers interested in a more comprehensive analysis, InvestingPro offers 6 additional tips on HDFC Bank, providing a deeper understanding of the company's financial health and market position.
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