HDFC Bank shares, which have been underperforming Sensex Nifty as well as peers in the last two years, fell up to 9% to day’s low at Rs 1,527 on BSE, eroding over Rs 1 lakh crore or $12 billion wealth in the process.
While describing the private sector lender’s Q3 results to be solidly reassuring, Mukherjea said institutional investors will also see the logic of coming back to HDFC Bank which, he said, are at mouth-watering valuations.
Also Read | HDFC Bank shares tank 7% post Q3 earnings. What irked investors?
“I appreciate that some people are worried that the deposit growth is not as high as expected. But my reckoning is that it will come through. Operationally, the bank is in good shape, deposit growth, whilst less than what the market was expecting, is still on an increment. CASA basis, they’re pulling in 15% of India’s CASA, which I think is very impressive. So, we remain happy with the position. We think something like 8-9%, perhaps even close to 10% of our flagship product is in HDFC Bank. And we will stay invested, perhaps look to buy a bit more, given that it is trading at 20-year lows on price to book,” Mukherjea told ET Now.
HDFC Bank is one of the top bets of Mukherjea-run Marcellus which handles HNI money worth over Rs 10,000 crore.
The private sector lender’s bottomline was well above the Street expectation as it rose 34% YoY to Rs 16,372.54 crore on higher profit on investments (stake in Bandhan Bank & G-Secs) and tax refunds.But deposit growth was modest at 1.9% QoQ and NIM (net interest margin) was flat QoQ at 3.4%.
Analysts at Kotak Institutional Equities also noted that valuations are attractive at this point.
“The bank needs more time to deliver best-in-class return ratios. We are building a marginally better loan growth than the industry average given its size. In a benign credit cost environment, we are yet to see a key differentiation in underwriting across the top banks. We are not too comfortable to build an investment thesis on relative operating profit growth as the valuation differential is not conducive to making this argument,” the brokerage said while reducing the target price to Rs 1,800 from Rs 1,860.
Street veteran Chakri Lokapriya is also willing to give it another quarter.
“HDFC Bank’s results were slightly weak, but that is alright because it reflects the transition that the bank is going through. You need to increase the share of loans with retail, SMEs, which are all higher-margin loans and the traditional HDFC book has to be balanced out. So, this is a process which will take time and the economy is in transition, so which means loan growth for the bank, for the sector, will kind of pick up in the coming quarter. So, against this backdrop, I think the valuations are alright,” he said.
The institutional selloff in HDFC Bank shares has been driven by fears of the impact of the reverse merger with parent entity HDFC Ltd.
“My reading is that as the selling abates and as the company stabilizes, we will see institutional appetite returning. Remember, merger synergies have not yet kicked in. Without merger synergies kicked in, HDFC Bank is doing around 1.9% ROA. If that trickles up to 2% ROA, assume gearing of nine times, this is an 18% ROE bank. We are looking at an 18% ROE bank, even without meaningful merger synergies kicking in. And an 18% ROE bank growing consistently at 20% at this scale, we do not have too many other lenders operating on this scale, at this level of profitability anywhere in the world,” Mukherjea said.
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