Brokerages cheer HDFC Bank shares, but remain muted on Kotak Mahindra Bank despite stellar Q3 results

Global brokerage firms Nomura and Macquarie cheered for the shares of HDFC Bank, after India’s leading private lender reported a record quarterly profit, an annual 20.11 per cent growth in net profit at Rs 4,642.60 crore, for the October- December quarter. At the same time, Macquarie has maintained a neutral rating on the shares of Kotak Mahindra Bank, after the bank reported a 28.23% rise on year in consolidated net profit at Rs 1,624.24 crore for the quarter ended December.

Interestingly, both the banks have registered improvement in asset quality. On the bad loans front for HDFC Bank, the gross NPAs (non-performing assets) for the quarter ended 31 December 2017 came in at 1.29% from 1.26% in the July-September period of 2017-2018. In case of Kotak Mahindra Bank, gross bad loans as a percentage of total loans stood at 2.31 percent at end-December, compared with 2.47 percent in the previous quarter and 2.42 percent in the same period a year ago.

Macquarie says that HDFC Bank is a strong compounding story with no asset quality issues. The global firm has raised the earnings estimate by 2-4% for FY18-20. Macquarie says that the company remains a strong pick among financials. Macquarie has raised the target price on the shares of HDFC Bank to Rs 2,676, with an outperform rating. HDFC Bank shares were trading at Rs 1,974.4, up by more than 1.1% on NSE this morning. The global firm’s target price implies an upside of more than 35% from the current market prices. Meanwhile, Nomura expects the company to deliver best in class PPOP growth over FY17-20. Further, the firm observed that the current valuation of 18x FY20 EPS is not demanding.

In case of Kotak Mahindra Bank, Macquarie has maintained a neutral rating on the shares with a target price of Rs 1,111. Taking stock of the results, Macquarie said that it was a stable quarter, and consolidated net profit beat estimates. According to the firm, the bank’s net profit was 20% ahead of its earlier estimates. Macquarie says that its likes the bank, but the valuations leave limited room for upside.

Meanwhile, Deutsche Bank too maintained a hold on the shares of Kotak Mahindra Bank, with a target of Rs 1,100. The shares were trading at Rs 1,073 on NSE this morning. Deutsche Bank observes that the delay in economic recovery is is a key downside for the stock. Taking stock of Q3 results, Deutsche Bank said that CASA traction remains strong and fast profitable growth after the merger are key upside risks for the shares.