While the state-run insurance company may not immediately go ahead and raise its stake from 5.19% to 9.99%, investors know that if the stock falls further, LIC will be there to eventually buy the stock from weaker hands.
In an exchange filing, HDFC Bank has informed shareholders that LIC has got RBI nod to hike stake up to 9.99% within the next one year.
LIC’s intention to seek RBI approval shows that India’s largest domestic institutional investor may be finding some value in the stock after the sharp decline. With investors worried about the impact of the reverse merger with parent entity HDFC, which came into effect in July 2023, the stock has given flat returns in the last two years.
HDFC Bank stock is trading at decadal-low valuations of about 2.1 times to book value. Not just LIC, but other long-term investors are finding value in the stock.
Global broking firm Macquarie has maintained an outperform rating on HDFC Bank with a target price of Rs 2075. The global investment bank is of the view that it will take another couple of quarters before one can see NIM improvement and core PPOP growth.
Earlier, CLSA had hiked its target price on HDFC Bank to Rs 2,025 from Rs 1,900 while Axis Securities to Rs 1,975 from Rs 1,800. Bernstein has maintained an outperform rating on HDFC Bank with a target price of Rs 2,200. ICICI Securities has also gone ahead to raise targets from Rs 1,750 to Rs 1,850.HDFC Bank is expected to overcome the merger overhangs gradually led by healthy balance sheet growth, much higher provision than regulatory requirements in the balance sheet, best-in-class underwriting and risk management practices.
Analysts are confident that while the near term may be weak, the stock will witness recovery sooner than later.
“While the quarter’s disappointment is undeniable, we see no structural red flags in terms of profitability consciousness in loan-segment choices, CASA market share traction and operating cost control – the keys to our central thesis of NIM/RoA expansion to 3.9%/2% by FY26,” said Santanu Chakrabarti of BNP Paribas.
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