Jefferies' 'buy' rating pushes HDFC Bank shares up

HDFC Bank shares are generating significant interest after Jefferies issued a 'buy' rating with a target price of ₹1,890 per share. This comes as the bank rolls out strategies to improve its financial stability and market presence.

A buy rating is a recommendation to purchase a particular stock, indicating that analysts anticipate the stock's price will increase in the short to mid-term. Analysts typically believe that this stock has the potential to outperform similar stocks in the same sector due to factors such as the introduction of a new product or service.

For investors looking to buy shares online, this rating suggests a potentially lucrative opportunity. Jefferies believes HDFC Bank's focus on improving its loan-to-deposit (LDR) ratio and promoting strong deposit growth makes it an attractive investment.

Planning for loan-to-deposit ratio

HDFC Bank aims to reduce its LDR to between 85% and 90% over the next three years. Jefferies considers this target achievable, expecting a compound annual growth rate (CAGR) of 15% in deposits, alongside a slower loan growth CAGR of 11%. The LDR, which compares a bank's total loans to its total deposits, is crucial for assessing liquidity and overall risk.

The brokerage firm highlighted that HDFC Bank's branch expansion strategy is likely to increase its market share in deposits. However, it anticipates the bank's loan growth will remain at or below the sector average. Despite this, there is potential for HDFC Bank to lower its funding costs, which could benefit its net interest margin (NIM). Jefferies also noted that compliance with priority sector lending requirements is expected to have a limited impact on profits.

Slower loan growth

Jefferies has revised its growth estimates for HDFC Bank downwards by 4-6% due to slower loan growth. However, the bank's cautious approach to unsecured loans is expected to help manage credit costs and maintain profitability.

Investors are keenly awaiting HDFC Bank's Q2 FY25 earnings report, set for October 19. In a recent Q2 business update, the bank noted that deposit growth has outstripped loan growth.