Axis Capital raises HDFC Bank stock price target on growth outlook

Axis Capital raised its price target on HDFC Bank (HDB) to INR2,300 from INR2,205, maintaining a Buy rating, based on expectations of loan growth recovery to 12% and stable asset quality. The firm projects net interest margin (NIM) to bottom out in Q2FY26E and return to FY25 levels by Q4FY26E, with incremental return on assets (RoA) potentially exceeding 1.8% by Q4FY26E and reaching 1.9% in FY27E. The target price reflects a sum-of-the-parts valuation, with the core bank valued at 2.5 times 24-month-forward book value per share, and the firm sees potential for valuation improvement if HDFC Bank narrows the gap with ICICI Bank on growth and RoA.

Analysis

Axis Capital has revised its outlook on HDFC Bank Ltd (NSE:HDBK), increasing the price target to INR2,300.00 from INR2,205.00 while reiterating a Buy rating. This optimism is predicated on an anticipated recovery in HDFC Bank's loan growth to approximately 12%, a significant acceleration from the current 5% year-over-year, alongside expectations of stable asset quality and improving operating leverage. Growth is expected to be driven by a healthier loan mix tilted towards SME/BB, unsecured, and mortgage segments, which should also mitigate drag from the corporate loan book. Axis Capital projects HDFC Bank's net interest margin (NIM) will reach its trough in Q2FY26E and subsequently normalize to FY25 levels by Q4FY26E, supported by an improving liability structure characterized by lower borrowings and increased CASA deposits. Furthermore, incremental return on assets (RoA) is forecasted to surpass 1.8% by Q4FY26E and reach 1.9% in FY27E. The new price target is derived from a sum-of-the-parts valuation, valuing the core banking operations at 2.5 times its 24-month-forward book value per share. Notably, HDFC Bank currently trades at an approximate 14% valuation discount to ICICI Bank, and Axis Capital suggests this gap could narrow, potentially leading to a valuation re-rating, if HDFC Bank improves its growth and RoA metrics relative to its peer.

Key Decisions for Investors

• Investors may consider the reiterated Buy rating and increased price target from Axis Capital as a positive signal for HDFC Bank, reflecting an optimistic outlook on its recovery and growth prospects.
• Key performance indicators to monitor include the pace of loan growth acceleration towards the projected 12%, the trajectory of net interest margins particularly around the Q2FY26E bottoming-out period, and the achievement of forecasted return on asset improvements towards 1.9% by FY27E.
• Investors should also observe HDFC Bank's performance relative to ICICI Bank, as a narrowing of the growth and RoA gap could unlock further valuation upside, potentially reducing the current approximate 14% discount.