On Monday, HSBC (LON:HSBA) updated its stance on HDFC Bank Ltd (HDFCB:IN) (NYSE: HDB), increasing the price target to INR 1,850 from the previous INR 1,750, while reiterating a Buy rating for the stock. The financial institution has adjusted its earnings per share (EPS) estimates slightly, with a decrease of 0.7% for the fiscal year 2025 and increases of 0.7% and 0.4% for fiscal years 2026 and 2027, respectively.
The revision in the price target reflects HSBC's recalibrated growth forecasts for HDFC Bank. The bank's deposit growth estimate has been slightly reduced to a compound annual growth rate (CAGR) of 17% from the earlier projection of 18% over the period from the fiscal year 2024 to 2027. Similarly, the loan growth forecast has been adjusted to a 13% CAGR down from the previous estimate of 14%.
HSBC anticipates that the net interest margin (NIM) for HDFC Bank will stabilize, maintaining the level achieved in the fourth quarter of the fiscal year 2024 at 3.44% for the fiscal year 2025. Furthermore, the NIM is expected to see a modest increase of 10 basis points over the period from the fiscal year 2025 to 2027.
The rationale behind the increased price target also includes a raised target multiple for HDFC Bank's banking business. This adjustment by HSBC is based on the expectation of a gradual improvement in the core performance of the bank, which has led to the new target price of INR 1,850.
HDFC Bank's stock performance and investor sentiment will likely be influenced by these revised estimates and the maintained Buy rating by HSBC, as market participants digest the updated financial outlook provided by the firm.
InvestingPro Insights
Recent data from InvestingPro shows HDFC Bank Ltd (NYSE: HDB) with a market capitalization of $137.98 billion and a P/E ratio of 16.89, which is slightly higher when adjusted for the last twelve months as of Q4 2024, at 17.96. The bank's significant revenue growth over the last twelve months stands at 102.45%, a testament to its strong performance in a competitive industry. Additionally, the bank has managed an impressive operating income margin of 33.46% over the same period.
InvestingPro Tips highlight HDFC Bank as a prominent player in the Banks industry, with analysts predicting profitability this year and noting a high return over the last decade. These insights are particularly relevant given HSBC's updated price target and earnings revisions. The bank's ability to raise its dividend for three consecutive years, despite concerns over cash burn and a high P/E ratio relative to near-term earnings growth, reflects a balance between rewarding shareholders and investing in future growth.
To gain deeper insights into HDFC Bank's financial health and future prospects, interested investors can explore additional InvestingPro Tips. There are currently 6 more tips available, which can help in making a well-informed investment decision. For those looking to further their analysis, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.