ICICI Securities Recommends HDFC Bank Buy Rating with Target Price of Rs 1080
Detailed Analysis
HDFC Bank Reports Resilient Q4FY26 Amidst Uncertain Times
HDFC Bank (HDFCB) delivered a strong fourth quarter of fiscal year 2026, with a profit after tax (PAT) of INR 192.2 billion, marking a 9% year-over-year (YoY) increase and a 3% beat. This impressive performance was driven by contained operating expenses (up 5% YoY) and a lower tax rate. Despite the sudden exit of the chairman and challenging macroeconomic conditions, HDFCB reported multi-quarter low slippages (<1%), credit costs (35 basis points), and stable treasury/forex gains.
Key highlights of HDFCB's Q4FY26 performance include a significant jump in deposits growth, reaching 9% quarter-over-quarter (QoQ), with the loan-to-deposit ratio (LDR) improving to less than 95%. The share of borrowings also improved, while the net interest margin (NIM) remained stable at 3.53% QoQ. However, net interest income (NII) growth was weak, at 1.4% QoQ, missing the expected mark by 1%. Loan growth accelerated to 12% YoY, outpacing the 5% YoY growth seen in the previous fiscal year, although it still lags behind systemic growth. Meanwhile, the liquidity coverage ratio (LCR) dipped to 114%.
Valuations and Outlook
Despite slower-than-systemic growth and near-term uncertainties, HDFC Bank's historically low valuations are an attractive proposition. The stock trades inexpensively at approximately 1.7x and 1.5x its estimated core asset-based value (ABV) for fiscal years 2027 and 2028, respectively, comparable to Covid-low valuations. Based on this analysis, we maintain our buy recommendation with a revised target price of INR 1,080 (previously INR 1,120), valuing the core banking business at approximately 2.1x (previously 2.2x).
| Metric | Q4FY26 | Q4FY25 | Change | | --- | --- | --- | --- | | PAT (INR billion) | 192.2 | 176.3 | 9% YoY | | Opex Growth (YoY) | 5% | 3% | 2% | | NIM (QoQ) | 3.53% | 3.53% | Stable | | NII Growth (QoQ) | 1.4% | 3.5% | -2.1% | | Loan Growth (YoY) | 12% | 5% | 7% |
Investor Takeaway
Investors should consider buying HDFC Bank due to its historically low valuations.
