CMP - ₹708 | TARGET PRICE - ₹930

RESEARCH

CMP - ₹708 | TARGET PRICE - ₹930

HDFC BANK – Mean Reversion Time

14th Aug 2026

CIN NO. U67120MH1991PLC132172

MEMBER NATIONAL STOCK EXCHANGE● DEBT ● EQUITIES ● F&O

REGD. OFFICE: 91–A-MITTAL COURT, NARIMAN POINT, MUMBAI - 400 021 TEL.: 91-22-2245169666/65●

FAX: 91-22 -22048738 E-Mail: indistock@yahoo.co.in/indistock@gmail.com

HDFC BANK – RIGHT TIME TO CATCH THE

MEAN REVERSION STORY

Just a few months back, it was tough going for HDFC Bank. Their chairman had resigned, the

merger with HDFC Ltd was weighing heavily, and mis-selling concerns were growing. Also, the

MSRDC case added a new dimension. In recent days, HDFC Bank is on the hunt for a new CEO,

while the Bahrain Court rejected mis-selling allegations against the bank as baseless. Does this

provide a good time for HDFC Bank to attempt mean reversion. The worst may surely be over!

CMP (Sep-26) ₹708 Market Cap ₹10,91,324 crore

Target Price ₹930 Free Float Market Cap ₹10,81,643 crore

Upside Potential 31.4% 52-Week High/Low ₹1,020.35/₹682.00

Promoter Stake N.A. Our Recommendation Strong Buy

The overhang of HDFC Ltd merger and its impact on net interest margins (NIM) was always known.

It was always meant for the long haul. For now, the immediate concerns over leadership and the

mis-selling allegations need to be appropriately addressed. That holds the key.

Even amidst the concerns in the market over the last one year, the financial performance of HDFC

Bank has still been on track. With a balance sheet size growth of 11.6%, PAT growth of 10.9%, and

EPS growth of 10.1%, the financial numbers have not faltered. For now, it is still the most valuable

bank in India. The challenge now is to use the mean reversion potential to the hilt.

RESEARCH

CMP - ₹708 | TARGET PRICE - ₹930

HDFC BANK – Mean Reversion Time

14th Aug 2026

CIN NO. U67120MH1991PLC132172

MEMBER NATIONAL STOCK EXCHANGE● DEBT ● EQUITIES ● F&O

REGD. OFFICE: 91–A-MITTAL COURT, NARIMAN POINT, MUMBAI - 400 021 TEL.: 91-22-2245169666/65●

FAX: 91-22 -22048738 E-Mail: indistock@yahoo.co.in/indistock@gmail.com

One of the standout features in the business growth of HDFC Bank in FY26 has been the deposits

growing at a faster clip than credit. The deposit growth had been hit after the HDFC L td merger,

but that led to a renewed focus on CASA deposit mobilization. For banking as a whole, loan growth

has exceeded deposit growth by 300 -400 basis points , forcing many banks to the short -term

money market. With this kind of deposit growth; HDFC Bank has less to worry on ALM front.

HDFC Bank has an interesting revenue versus cost mix. For instance, when you look at interest

earned versus interest spent, the gap is almost 14 percentage points. Also, the income that the

bank earns from investments is sufficient to meet the substantial operating costs of the networks,

so the net interest spread becomes a direct bottom line impact for the bank. That is the sort of

comfort that few banks have in their income statements. It is likely to help the recovery process.

RESEARCH

CMP - ₹708 | TARGET PRICE - ₹930

HDFC BANK – Mean Reversion Time

14th Aug 2026

CIN NO. U67120MH1991PLC132172

MEMBER NATIONAL STOCK EXCHANGE● DEBT ● EQUITIES ● F&O

REGD. OFFICE: 91–A-MITTAL COURT, NARIMAN POINT, MUMBAI - 400 021 TEL.: 91-22-2245169666/65●

FAX: 91-22 -22048738 E-Mail: indistock@yahoo.co.in/indistock@gmail.com

Over the last few quarters, HDFC Bank has persistently enjoyed average retail deposits share in

the range of 80% to 83%. T his is important as wholesale deposits tend to be less loyal and also

entail higher cost. One outcome of the merger for HDFC Bank has been the sharp fall in CASA ratio

to 32%. In fact, CASA ratio was as high as 47% pre-merger. The positive side is that the CASA levels

are stabilizing and the merger has forced the bank to focus more on the CASA end of deposits.

If one looks at the last few quarters, the yoy growth in net interest income (NII) had fallen from a

high of 10% to just about 3%, although the latest quarter has seen a recovery. Another impact of

the merger has been on the net interest m argins (NIMs) of HDFC Bank. The NIM, has not just

trended lower to the range of 3.3 -3.4%; but remains well below competition, which is largely in

the range of 3.6% to 4.2% for private sector counterparts. That could be a real business challenge.

RESEARCH

CMP - ₹708 | TARGET PRICE - ₹930

HDFC BANK – Mean Reversion Time

14th Aug 2026

CIN NO. U67120MH1991PLC132172

MEMBER NATIONAL STOCK EXCHANGE● DEBT ● EQUITIES ● F&O

REGD. OFFICE: 91–A-MITTAL COURT, NARIMAN POINT, MUMBAI - 400 021 TEL.: 91-22-2245169666/65●

FAX: 91-22 -22048738 E-Mail: indistock@yahoo.co.in/indistock@gmail.com

HDFC Bank has been long known for conservative lending practices and strong risk management.

Despite the merger, it was a combination of two conservative stories, so gross NPAs have

remained at a subdued level of 1.2%. Also, there are no sectoral variations in its gross NPAs with

the level of NPAs hovering around the median figure across most of its business segments.

The growth in the lending portfolio of HDFC Bank over the last 6 quarters has been fa irly broad-

based. For the period to June 2026 quarter; the yoy growth in retail loans was 7.2%, growth in

SME & mid-market loans was at 18.7%, and growth in corporate / wholesale loans was 18.6%. The

retail growth has actually been underplayed, considering the rising retail risks for banking.

RESEARCH

CMP - ₹708 | TARGET PRICE - ₹930

HDFC BANK – Mean Reversion Time

14th Aug 2026

CIN NO. U67120MH1991PLC132172

MEMBER NATIONAL STOCK EXCHANGE● DEBT ● EQUITIES ● F&O

REGD. OFFICE: 91–A-MITTAL COURT, NARIMAN POINT, MUMBAI - 400 021 TEL.: 91-22-2245169666/65●

FAX: 91-22 -22048738 E-Mail: indistock@yahoo.co.in/indistock@gmail.com

One aspect of HDFC Bank we tend to miss out is the hidden value in its subsidiaries. Even if you

ignore unlisted units; the listed entities like HDB Financial, HDFC Life Insurance, and HDFC AMC

can add about ₹120 to ₹1 30 per share to the parent. That has been factored into the final

valuation of HDFC Bank. Clearly, the sum of parts is currently bigger than the whole.

Strong Operating Cash Flows for HDFC Bank

In both the recent financial years ; FY25 an d FY26,

the net cash from operations has been between

30% and 40 % above the PBT levels. That is a very

strong indication of robust cash being generated.

For fiscal FY26, HDFC Bank is sitting on a cash stash

of over $30 billion. Th e robust cash genera tion is

only likely to add on. That kind of liquidity is a big

asset for a large bank, especially in tight conditions.

Cash Flow Details

(Last 2 fiscal years)

FY-2026

(₹ Crore)

FY-2025

(₹ Crore)

Profit Before Tax (PBT) 95,169 88,478

Net CF from Operations 1,23,617 1,45,177

Net CF from Investing 9,254 (2,039)

Net CF from Financing (75,070) (1,22,908)

Opening Cash Balance 2,39,571 2,19,147

Change in Cash Balance 58,896 20,423

Closing Cash Balance 2,98,467 2,39,570

Data Source: Company Financials

Costs falling in tandem with the yields

Since the start of 202 5, the RBI has cut repo rates

by 125 basis points from 6.50% to 5.25%. This has

led to the yield on assets coming down from 8.4%

to 7.7%. However, the cost has been managed too.

Due to the cost of funds also falling from 4.9% to

4.4%, due to a larger retail mix, the NIM spreads of

the bank have been relatively stable at around

3.3%. It is poised to benefit from a likely rate hike.

RESEARCH

CMP - ₹708 | TARGET PRICE - ₹930

HDFC BANK – Mean Reversion Time

14th Aug 2026

CIN NO. U67120MH1991PLC132172

MEMBER NATIONAL STOCK EXCHANGE● DEBT ● EQUITIES ● F&O

REGD. OFFICE: 91–A-MITTAL COURT, NARIMAN POINT, MUMBAI - 400 021 TEL.: 91-22-2245169666/65●

FAX: 91-22 -22048738 E-Mail: indistock@yahoo.co.in/indistock@gmail.com

Cost management comes to the rescue

The latest quarter ended June 2026 shows that the

focus on cost management has been a big help. The

core cost to income ratio has stayed at 39.2%, while

the retu rn on assets have been strong at 1.8 5%.

This helped NIMs to stay stable at around 3.3%.

One of the factors in maintaining a steady level of

profitability has been CASA deposits. Despite falling

to around 32%, the strong focus on CAS A over the

wholesale deposits has helped to keep the cost s

low. It brought down costs in tandem with yields.

If one considers a four -quarter rolling EPS of ₹50,

then we are look ing at the current stock price of

HDFC Bank discounting the earnings at 14X. That is

not only lower than most peer banks , but also

much lower than the 20X that HDFC Bank averaged.

Financial Data Q1-FY27 Q4-FY26 Q1-FY26

Interest Earned 79,363 76,610 77,470

Total Income 92,184 89,809 99,200

Interest Costs 45,829 43,528 46,032

Operating Costs 18,188 18,478 17,434

Total Spending 64,016 62,006 63,466

Operating Profits 28,168 27,803 35,734

Provisions 3,060 2,610 14,442

Profit Before Tax 25,108 25,193 21,292

Profit After Tax 19,060 19,221 18,155

Capital Adequacy 19.57% 19.71% 19.88%

Diluted EPS (₹) 12.35 12.45 11.79

Gross NPA Ratio 1.17% 1.15% 1.40%

Net NPA Ratio 0.41% 0.38% 0.47%

Return on Assets 0.46% 0.48% 0.48%

Debt to Assets 10.50% 11.21% 12.90%

Source: Quarterly Filings (₹ Crore)

Profit growth predicated on stable spreads

Despite the NIMs coming down in the last few

quarters, the net margins have progressively gone

up over the last 3 years. This is largely due to much

better cost control , with focus on CASA deposits ,

and better control over the bank’s operating costs.

The interesting part of HDFC Bank balance sheet is

credit deposit (CD) ratio coming d own from 104%

in FY24 to 94.5% in FY26. This ratio is expected to

further go down to 92 % over next two years. This

will be a bi g boost to profitability as the deposit

focus is largely on the CASA side, with lower costs.

Between FY24 and FY26, the cost to i ncome (CI )

ratio has come down from 40.2% to 38.0%. In the

same period, the ratio of cost to assets (CA) is also

down from 1.75% to 1.65% . These 2 factors are

representative of cost minimization efforts.

Financial Data FY26 FY25 FY24

Total Revenues 3,70,055 3,46,149 3,07,582

Op. Expenses 72,660 68,175 63,386

Op. Profits 1,18,558 1,00,128 94,388

OPM (%) 32.03% 28.93% 30.69%

Total Expenses 2,95,383 2,78,802 2,46,769

EBITDA 1,22,216 1,03,507 97,198

EBITDA Margin 33.03% 29.90% 31.60%

Interest Cost 1,78,836 1,77,847 1,49,808

Interest/Revenue 48.33% 51.38% 48.71%

Depreciation 3,658 3,380 2,810

PBT 95,169 88,478 70,895

Net Profits 74,671 67,347 60,812

PAT Margin (%) 20.18% 19.46% 19.77%

EPS (₹) # 48.40 43.70 39.50

P/E Ratio 14.6X 16.2X 17.9X

Source: Annual Report (₹ Crore) # Adjusted for EO variables

RESEARCH

CMP - ₹708 | TARGET PRICE - ₹930

HDFC BANK – Mean Reversion Time

14th Aug 2026

CIN NO. U67120MH1991PLC132172

MEMBER NATIONAL STOCK EXCHANGE● DEBT ● EQUITIES ● F&O

REGD. OFFICE: 91–A-MITTAL COURT, NARIMAN POINT, MUMBAI - 400 021 TEL.: 91-22-2245169666/65●

FAX: 91-22 -22048738 E-Mail: indistock@yahoo.co.in/indistock@gmail.com

NIMs remain the big challenge for the bank

Here are some takeaways over the last 3 years.

• The NIMs have progressively come down for

the bank; and this can be attributed to the

merger. However, the NIM is now stabilizing.

• With cost of funds falling in tandem with the

yield on loans, the bank does fi nd itself in a

sweet spot to gain from widening spreads as

the RBI hikes repo rates in sync with inflat ion.

• Being a bank, only the standalone numbers

have been considered. HDFC Bank also has

deep value in subsidiaries, making a SOTP case.

• The gross NPAs and the net NPAs have been

sustained in the range of 1.2% and 0.4%. This is

underscored by a slippage ratio of just 1.1%.

Financial Data FY26 FY25 FY24

PROFITABILITY

ROE (%) 13.26% 13.43% 13.81%

ROA (%) 1.71% 1.72% 1.68%

NIM (%) 3.3% 3.5% 3.4%

Deposit Cost 4.8% 4.9% 4.7%

Yield on Loans 8.6% 9.3% 8.8%

BUSINESS

CASA Ratio 34.1% 34.8% 38.2%

Fee Ratio 22.0% 23.1% 21.2%

Cost to Assets 1.7% 1.7% 1.7%

Capital Adequacy 19.7% 19.6% 18.9%

VALUATION

Price to Book 2.0X 2.2X 2.5X

Dividend Yield 1.9% 1.3% 0.8%

Earnings Yield 6.85% 6.17% 5.59%

EPS Growth 10.2% 9.9% 1.1%

Source: Annual Report & Investor Presentations

What time mean reversion in P/E valuations?

• At the current price, the stock is available at

around 11.75X 2 -year forwards valuations.

This is not only the lowest P /E you recollect,

but way below its historical averages, and also

well below the P/E of smaller competitors.

• The stock of HDFC Bank has corrected nearly

30% from peak price. The combination of turn-

around in NIMs, rising yields on loans, and

steady costs puts HDFC Bank in a sweet spot.

• Recent concerns over governance have led to

a more-than-warranted correction in price. It

is now the time for mean reversion; which will

be much slower due to the merger overhang.

• The key factor could be the turnaround in

CASA and the S OTP valuation of subsidiaries.

That has been steadily improving for the bank.

Looking Ahead FY27-P FY28-P

Interest Income 3,38,450 3,80,200

Net Interest Income (NII) 1,40,600 1,62,360

NII Margins 41.54% 42.70%

Operating Expenses 76,250 84,370

PBT # 1,05,250 1,21,300

PBT Margins 31.09% 31.90%

Profit After Tax # 80,550 92,080

Net Margins 23.80% 24.22%

Net Worth 6,12,300 6,90,400

EPS (₹) 52.40 60.25

Dividend Yield 1.4% 1.5%

ROE (%) 13.8% 14.2%

ROA (%) 1.72% 1.85%

P/E at CMP 13.51X 11.75X

Price to Book 1.84X 1.66X

CASA Ratio 33.1% 34.0%

Net Interest Margin (NIM) 3.3% 3.5%

Source: Annual Report (₹ in Crore) # - Before EO variables

RESEARCH

CMP - ₹708 | TARGET PRICE - ₹930

HDFC BANK – Mean Reversion Time

14th Aug 2026

CIN NO. U67120MH1991PLC132172

MEMBER NATIONAL STOCK EXCHANGE● DEBT ● EQUITIES ● F&O

REGD. OFFICE: 91–A-MITTAL COURT, NARIMAN POINT, MUMBAI - 400 021 TEL.: 91-22-2245169666/65●

FAX: 91-22 -22048738 E-Mail: indistock@yahoo.co.in/indistock@gmail.com

EVALUATING THE COMPETITIVE LANDSCAPE AND RISKS FOR HDFC BANK

Key Strengths

• HDFC Bank still has one of the lowest cost

structures in Indian banking. This has helped

them to keep the spread steady, despite the

side effects of the merger deal with HDFC Ltd.

• Cheap valuations remains a big strength. The

current P/E of 14X is not only a historical low,

but also well below the 20 -year average. The

P/E is also much lower than the peer group.

• HDFC Bank does not have any identified

promoter group and is a professionally owned

and managed business. Most of its owners are

domestic funds or international FPI investors.

• The change in the management and the recent

Bahrain court verdict should lay to rest the

recent concerns over governance, as well as

the issue of mis-selling of AT-1 bonds in GCC.

Key Weaknesses

• HDFC L td merger has been an overhang on the

stock performance, as it has boosted its loan book

without adequately boosting deposits. This forced

the bank to indulge in a focused pursuit of CASA.

• Momentum has not been in favour of the stock

with mo st of the FPIs also selling heavily in the

HDFC Bank counter over governance issues. That

selling may take some more time to stabilize.

• The stock has clearly underperformed other

private sector banks in the last couple of years. This

has led to ICICI Bank and SBI coming tantalizingly

close to HDFC Bank in terms of market cap.

• The very large net worth of the bank has been a key

reason for the low ROE of the bank. A low ROE has

also been a major reason for weak stock price and

the valuations of the stock not picking up quickly.

Key Opportunities

• While FPIs pared holdings in HDFC bank, there

has been a surge in mutual fund and domestic

buying. This is likely to make the stock price of

HDFC Bank less vulnerable to volatile moves.

• With a strong cus tomer franchise in its core

banking business, HDFC Bank has the room to

boost the ROI per customer by cross -selling

products and solutions to the bank customers.

• The bank has strong corporate and wholesale

franchise and the opportunity is right for the

bank to strengthen that side more at thi s

stage, when most banks are chasing retail.

Key Challenges

• The changes to the board, the new CEO, and the

full impact of the HDFC merger a re the majo r X -

factors for HDFC Bank. At this stage, the post -

merger story is not too clear for shareholders.

• The big risk is that the bank has lost out on the NIM

game to competition, and it will take some time for

the bank to get back to market levels. It remains to

be seen if valuation story can be held on till then.

• There is a major perception risk for the bank. There

is a market view that aggression and the focus on

compliance have reduced in recent years. That can

be a major risk for the bank in regulatory dealings.

RESEARCH

CMP - ₹708 | TARGET PRICE - ₹930

HDFC BANK – Mean Reversion Time

14th Aug 2026

CIN NO. U67120MH1991PLC132172

MEMBER NATIONAL STOCK EXCHANGE● DEBT ● EQUITIES ● F&O

REGD. OFFICE: 91–A-MITTAL COURT, NARIMAN POINT, MUMBAI - 400 021 TEL.: 91-22-2245169666/65●

FAX: 91-22 -22048738 E-Mail: indistock@yahoo.co.in/indistock@gmail.com

VALUATION THOUGHTS: (WHY A “STRONG BUY” ON HDFC BANK)

• Some of the recent challenges to the bank like corporate governance, management perception,

and mis-selling concerns have been addressed. There has been collateral damage and the actual

image has taken some beating. However, the changes initiated by the bank on a war footing are

likely to bring investor confidence back to the bank. Valuations may take time to pick up.

• In a global investment scenario that is racked by geopolitical uncertainty, trade is undergoing a

major shift. In these circumstances, domestic stories are robust and for India, banking is the

best proxy for domestic consum ption. From a macro perspective, the institu tional interest in

the banking stocks will continue. Low valuations will be an added edge for HDFC Bank.

• The com pany has shown a sharp focus on CASA deposits in the last few quarters, which is

evident from the rate of deposit growth ex ceeding the rate of loan growth. That is contrary to

what is happening in the banking industry as a whole. That works in favour of HDFC Bank.

• On a 2 -year forward basis, the stock is expected to be valued at around 11.5 times P/E. With

the stock price having corrected by nearly 30% from its yearly highs, there is safety room for

the investors. This is not only lower than the historic mean valuations of HDFC Bank, but also

lower than most of the private banks in the peer group. That is a case for mean reversion.

We recommend a Buy on HDFC Bank at the current market price with a 31-32% upside on the stock

with a price target in the range of ₹92 5-₹935. That would still be well below the yearly high price

of the stock. A lot will depend on how it manages the HDFC merger impact and the perception risk

post the resignation of the Chairman. At least, downside risks will be restrained for investors.

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RESEARCH

CMP - ₹708 | TARGET PRICE - ₹930

HDFC BANK – Mean Reversion Time

14th Aug 2026

CIN NO. U67120MH1991PLC132172

MEMBER NATIONAL STOCK EXCHANGE● DEBT ● EQUITIES ● F&O

REGD. OFFICE: 91–A-MITTAL COURT, NARIMAN POINT, MUMBAI - 400 021 TEL.: 91-22-2245169666/65●

FAX: 91-22 -22048738 E-Mail: indistock@yahoo.co.in/indistock@gmail.com

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RESEARCH

CMP - ₹708 | TARGET PRICE - ₹930

HDFC BANK – Mean Reversion Time

14th Aug 2026

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