Foreign brokerage UBS has added HDFC Bank to its APAC Key Call list, recommending a 'Buy' rating for the private lender's shares with a target price of Rs 1,000. This implies a significant 37% potential upside from current levels, according to a recent note by the firm.
UBS analysts suggest that several 'bear case' scenarios, particularly concerns around leadership succession, are already factored into the bank's current share price. They anticipate the resolution of leadership issues in the coming weeks, following the submission of names to the Reserve Bank of India (RBI) for the CEO position.
Leadership Clarity to Drive Re-rating
The brokerage believes that clarity on leadership will be a key catalyst for a near-term re-rating of HDFC Bank shares. Investors' focus is expected to shift back to the bank's strong fundamentals once this uncertainty is resolved.
A significant factor highlighted by UBS is HDFC Bank's aggressive branch expansion over the past three to four years. The firm noted that 42% of HDFC Bank's branches are less than five years old, a considerably higher proportion compared to 5-30% for other large banks. As these newer branches mature, UBS expects them to drive improved productivity and robust deposit growth, outperforming peers.
Strong Growth and Margin Improvement Expected
UBS observed early signs of recovery in loan growth, which stood at 15.6% in Q1FY27. The brokerage projects loan growth to improve towards 15% over FY27-29E. Deposit growth is also anticipated to remain healthy, supported by RBI measures and improved liquidity conditions.
Furthermore, UBS expects HDFC Bank's margins to improve towards 3.5%, primarily driven by faster growth in high-yielding retail loans. Return on Assets (RoA) is forecast to improve to 1.9% in FY27/28E. The foreign brokerage finds the risk-reward for HDFC Bank shares favorable at 1.4 times estimated FY28 book value, with business growth and Net Interest Margin (NIM) trends identified as critical indicators for a potential stock re-rating.
Branch Expansion and Deposit Outperformance
HDFC Bank's strategy includes deeper penetration into semi-urban locations, marked by industry-leading branch additions in recent years. Despite this rapid expansion, HDFC Bank maintains its leadership in per-branch deposits (both total and CASA), underscoring the strength of its franchise. UBS forecasts a 15.5% deposits CAGR over FY26-28E, with margins cyclically recovering from current levels.