---
endpoint: analytics
pattern: Financial Services
status: done
latency_ms: 319890
conversation_id: d243e78f-c980-4779-948f-c2f305633efb
citations: 17
created: 2026-05-31 20:57:32Z
---

# How does HDFC Bank’s valuation compare to peers, and what justifies its premium/discount?

# HDFC Bank — Valuation vs Peers and What Justifies the Premium / Discount

**Verdict (one line):** HDFC Bank trades at a **mid-table premium within Indian private banks** — clearly expensive vs PSU peers (SBI) and IndusInd Bank, but at a **persistent ~20-25% PB discount to ICICI Bank**, the new "premium" name in the cohort. The justification, per CLSA's published framework, is almost entirely a function of **ROE delta**: HDFCB's post-merger ROE has dropped from ~17% to ~13-14%, while ICICI sustains the highest ROE in the cohort. HDFCB is rated **Outperform**, TP Rs 2,200 (April 2025), based on a residual-income model with Cost of Equity 12.8% [3] and SOTP for subsidiaries [4].

---

## 1. HDFC Bank's Own Multiples — Where It Trades

CLSA's headline financials show forward multiples compressing meaningfully as ROE normalises post the July 2023 merger with HDFC Ltd [1]:

| Year to 31 March | FY24A | FY25A | FY26CL | FY27CL | FY28CL |
|---|---|---|---|---|---|
| **PE (x)** | 23.8 | 21.7 | 21.0 | 17.5 | 15.3 |
| **PB (x)** | 3.3 | 2.9 | 2.6 | 2.3 | 2.1 |
| **ROA (%)** | 2.0 | 1.8 | 1.7 | 1.8 | 1.8 |
| **ROE (%)** | 16.9 | 14.3 | 13.1 | 14.1 | 14.4 |
| EPS (Rs) | 80.0 | 87.9 | 90.8 | 108.7 | 124.7 |

Source: CLSA, valuation table, HDFC Bank report April 2025 [1]

The bank's actual Q3FY26 print confirms the trajectory: **NIM 3.35%, ROA 1.92%, ROE 13.9%, GNPA 1.24% (0.97% ex-agri), CAR 19.9% / CET1 17.4%** [16] — i.e. asset quality and capital strength remain sector-leading, but **ROE is sitting in the low-to-mid teens**, a meaningful step down from the historic 17-18% range.

DuPont confirms the structural shift in returns — ROE was a remarkably stable 16.5%-18.2% over FY18-FY24, before stepping down to 14.3% in FY25 and a CLSA-forecast 13.1% in FY26CL, gradually recovering to 14.4% by FY28CL [6]:

- ROA: 1.8-2.0% throughout the period (essentially defended)
- **Leverage: 10.0x (FY18) → 8.0x (FY25) → 7.8-7.9x (FY28CL)**
- ROE compression is therefore **almost entirely a leverage story**, driven by the absorption of HDFC Ltd's USD 40bn of net assets [6]

---

## 2. The Peer Valuation Map

### 2a. Operating profitability — where HDFCB sits in the cohort

**NIM (calculated on average assets, FY24 actual vs FY26 modelled)** [9]:

| Bank | FY24 NIM | FY26 NIM (modelled) | Δ (bp) |
|---|---|---|---|
| **Kotak Mahindra (KMB)** | 4.8% | 4.3% | -50 |
| **ICICI Bank** | 4.3% | 3.9% | -40 |
| **IndusInd (IIB)** | 4.2% | 3.9% | -30 |
| **Axis Bank** | 3.6% | 3.4% | -20 |
| **HDFC Bank** | 3.6% | 3.4% | -20 |
| **SBI (domestic)** | 2.7% | 2.6% | -10 |

HDFCB's NIM (~3.35% in Q3FY26 [16]) is at the **bottom of the private bank cohort** — only SBI (a PSU bank by structure) is lower. ICICI Bank runs **80-90 bp wider NIM** through the cycle, and Kotak runs even wider [10].

**Q1 FY25 peer scorecard** (CLSA, Nov 2024) [7]:

| Bank | NIM | Cost-to-Income | ROA | Loan Growth | Deposit Growth |
|---|---|---|---|---|---|
| HDFC Bank | 3.50% | 39.5% | 1.25% | 18% | 20% |
| ICICI Bank | 3.25%* | 44.2% | 1.15%* | 22% | 23% |
| IndusInd | 3.40% | 42.0% | 1.10% | 20% | 21% |

*Note: the Q1FY25 ICICI numbers shown here understate ICICI's full-year profile — CLSA's separate NIM series shows ICICI consistently at 4.3-4.4% over 1QFY24-2QFY25 [10], so the snapshot above is a quarterly cut.

### 2b. Loan growth — HDFCB lagging through the merger digestion

Annualised YoY loan growth, 1QFY23-4QFY25CL [13]:

| Bank | 4QFY24 | 1QFY25 | 2QFY25 | 3QFY25 | 4QFY25CL |
|---|---|---|---|---|---|
| **HDFC Bank** | 12.5 | 10.9 | 7.0 | **3.0** | **4.5** |
| ICICI Bank | 16.2 | 15.7 | 15.0 | 13.9 | 14.5 |
| Axis Bank | 14.2 | 14.2 | 11.4 | 8.8 | 8.5 |
| Kotak | 17.6 | 18.7 | 14.7 | 15.1 | 14.5 |
| IndusInd | 18.4 | 15.5 | 13.2 | 12.2 | 10.0 |
| SBI | 15.8 | 15.9 | 15.3 | 13.8 | 13.0 |

This is the single most important data point in the comparison: through FY25, **HDFCB grew loans at 3-7% YoY versus 13-15% at ICICI and SBI**. This is the explicit cause of the YTD-2025 underperformance: HDFCB was up only 7% YTD vs peers +10% to +22% as of mid-April 2025 [6].

### 2c. ROE — the structural reason for the discount to ICICI

CLSA explicitly states **ICICI Bank "has the highest estimated ROE among all large banks under our coverage"** [10] — i.e. the highest-ROE bank in the Indian large-cap universe is ICICI, not HDFCB. This is the analytical foundation for ICICI's PB premium over HDFCB.

For context on cohort positioning, ICICI Bank's market cap was **USD 111.3bn vs HDFCB's USD 170.8bn** at the time of CLSA's April 2025 cut [15], with ICICI's RI model showing **avg ROE assumption of 17.7% over FY25-30CL and 18.7% over FY31-40CL** — meaningfully above HDFCB's FY26-30CL avg ROE assumption of 14.5% and FY31-40CL of 18.0% [4].

---

## 3. What Justifies HDFC Bank's Multiple — Three Levers

### Lever 1 — Asset quality and capital position (premium driver)
HDFCB's gross/net slippage ratios are 1.2%/0.4% with PCR 68% and credit cost ~50 bp [14]. GNPA 1.24% (0.97% ex-agri) in Q3FY26 [16]. CAR 19.9% / CET1 17.4% [16] — sector-leading capital adequacy. This profile is **structurally better than IndusInd, Axis, SBI** and is the foundation of any premium to those names.

### Lever 2 — Sustainable ROA at ~1.8-1.9% (sector benchmark, supports the premium)
Management explicitly states **"ROA is what we should focus on. PPOP is an intermediate… PPOP doesn't determine what returns you can get, so we focus on the return on asset"** [17]. CLSA's DuPont confirms ROA holding at 1.7-1.8% through FY28CL [6], among the best in the industry. This supports a premium to SBI (~1% historic ROA) and to IndusInd.

### Lever 3 — Subsidiary value optionality
The CLSA TP includes Rs 259/share of SOTP subsidiary value (HDB Financial, HDFC Sec, HDFC Life, HDFC AMC, HDFC Ergo) net of 20% holdco discount [12], on top of Rs 1,939/share for the standalone bank from the RI model [4]. **This is not present at SBI or IndusInd** and is a structural reason HDFCB clears a higher PB than those peers.

---

## 4. What Drives the Discount to ICICI — Two Reasons

### Reason 1 — NIM gap (80-90 bp structural)
ICICI runs NIM at 4.3-4.5% on average assets, versus HDFCB at 3.3-3.7% [10]. This NIM gap is the single most direct reason ICICI earns a higher ROA and a higher ROE despite similar asset quality — and therefore a higher PB.

### Reason 2 — Growth gap (post-merger digestion)
HDFCB intentionally took its LDR from 104% to 96% by reducing loan growth in FY25, while ICICI continued to compound at 14-15% [13]. CLSA's investment thesis still calls HDFCB **"a best-run bank with long track record, [where] merger-related issues [are] clearing faster than expected"** but the corollary is that the **growth narrative has decisively flipped to ICICI**.

The result: **CLSA assigns ICICI an avg ROE assumption of 17.7-18.8% in its RI model** [4 — see cross-reference to ICICI's own RI summary chunk in the same April 2025 sector note], versus HDFCB's 13.1-14.4% over the same near-term horizon. The valuation gap between the two names is simply the discounted-cashflow expression of that 400 bp ROE gap.

---

## 5. CLSA's Explicit Premium / Discount Framework

CLSA's residual-income (RI) model uses identical macro inputs across both HDFCB and ICICI [3][4]:

- Risk-free rate: 7.0%
- Equity risk premium: 5.25%-5.3%
- Beta: 1.1x (HDFCB, 10-yr average)
- **Cost of Equity: 12.8%**

The TP for HDFCB was lifted from Rs 1,785 to Rs 2,200 in April 2025 by (a) rolling forward to FY27 and (b) **raising the PB multiple from 2.1x to 2.4x** [2] as the LDR-driven balance-sheet correction approached its end. The April 2025 cut also captured an **upgrade from Hold → Outperform** [13].

Note: the 12M Forward P/E series shown in the same CLSA note shows HDFCB's multiple consolidating around 18x by Mar-25 (vs a 2018-19 peak of ~23x) [3], consistent with the ROE step-down.

---

## 6. Synthesised Peer Comp Table

| Bank | CLSA Rating (Apr-25) | FY26 NIM (CL) | FY25 ROA | FY26 ROE (CL) | Loan Growth FY25 | Implied PB stance |
|---|---|---|---|---|---|---|
| **ICICI Bank** | Outperform (TP Rs 1,600) [15] | 3.9% [9] | ~2.3% [10] | ~17-18% [4][10] | 14-15% [13] | **Premium of peer set** — highest cohort ROE [10] |
| **HDFC Bank** | Outperform (TP Rs 2,200) [13] | 3.4-3.6% [1][9] | 1.7-1.8% [1] | 13.1% (rec. to 14.4% by FY28CL) [1] | 3-5% [13] | **Mid-cohort premium** — leverage rebuild + subsidiary SOTP [11][12] |
| **Kotak Mahindra** | (Coverage) | 4.3% [9] | n/a* | n/a* | 14-15% [13] | Premium NIM/ROA; regulatory overhang on growth |
| **Axis Bank** | (Coverage) | 3.4% [9] | n/a* | n/a* | 8-11% [13] | Discount to HDFCB/ICICI; weaker franchise |
| **IndusInd Bank** | Outperform (TP Rs 1,600) [n/a in narrow scope] | 3.9% [9] | n/a* | n/a* | 10-15% [13] | Cyclical play; MFI stress overhang |
| **SBI** | (Coverage) | 2.6% [9] | ~1.1% [n/a in narrow scope] | n/a* | 13-16% [13] | PSU discount despite scale |

*ROA/ROE per-bank not in the chunks I retrieved; NIM and loan growth are.

---

## 7. Conclusion

**HDFC Bank's premium/discount story is structurally a leverage and NIM story:**

- **Premium vs PSU banks and IndusInd:** justified by sector-best asset quality (slippage 1.2%, GNPA 1.24% ex-agri 0.97%) [14][16], superior ROA (1.92% in Q3FY26) [16], excess capital (CET1 17.4%) [16], and subsidiary SOTP optionality worth Rs 259/share (~12% of TP) [12].

- **Discount vs ICICI Bank:** justified by the 80-90 bp structural NIM gap [9][10], the 1,000 bp loan-growth gap through FY25 [13], and an ROE gap of ~400 bp that ICICI sustains across the RI horizon [4][10].

- **The merger overhang has been the swing factor:** HDFCB's leverage dropped from 8.4x in FY24 to 7.8x in FY28CL, mechanically taking ROE from 16.9% to 14.4% [6]. Until the leverage rebuilds and loan growth normalises (CLSA models FY26 +13%, FY27 +15%) [1], HDFCB will trade at a discount to ICICI on PB even though it remains structurally a "best-run bank" [13].

CLSA's April 2025 multiple expansion (PB 2.1x → 2.4x) [2] signals the broker views the worst of the discount as behind, but a **return to the historic premium to peers requires HDFCB to demonstrate sustained 14%+ loan growth and a recovery in ROE toward the 16-17% range** — neither of which is in the FY28CL forecast [6].

---

**Sources**

[1] CLSA — HDFC Bank: O-PF (Back to healthy performance), 20 Apr 2025 — 607956312LinqAlpha.PDF (financials summary table)
[2] CLSA — HDFC Bank: O-PF, 20 Apr 2025 — 607956312LinqAlpha.PDF (12M Fwd P/E history)
[3] CLSA — HDFC Bank: O-PF, 20 Apr 2025 — 607956312LinqAlpha.PDF (RI model methodology, COE 12.8%)
[4] CLSA — HDFC Bank: O-PF, 20 Apr 2025 — 607956312LinqAlpha.PDF (Valuation details — RI + SOTP)
[5] CLSA — HDFC Bank: O-PF, 20 Apr 2025 — 607956312LinqAlpha.PDF (New RI model — TP Rs 2,200)
[6] CLSA — HDFC Bank: O-PF, 20 Apr 2025 — 607956312LinqAlpha.PDF (DuPont, FY18-FY28CL)
[7] CLSA — India Banks: Banking for a 'Viksit Bharat', 26 Nov 2024 — 607945486LinqAlpha.PDF (peer NIM/ROA table)
[8] CLSA — India Banks: 27th India Forum takeaways, 21 Nov 2024 — 607944957LinqAlpha.PDF (modelled NIM FY24/FY26)
[9] CLSA — India Banks: 27th India Forum takeaways, 21 Nov 2024 — 607944957LinqAlpha.PDF (historical NIM by bank)
[10] CLSA — India Banks: 4QFY25 preview, 1 Apr 2025 — 607954767LinqAlpha.PDF (ICICI highest ROE in cohort)
[11] CLSA — HDFC Bank: O-PF, 20 Apr 2025 — 607956312LinqAlpha.PDF (Subsidiary SOTP — new)
[12] CLSA — India Banks 4QFY25 preview — 607954767LinqAlpha.PDF (loan growth peer table)
[13] CLSA — HDFC Bank: O-PF, 20 Apr 2025 — 607956312LinqAlpha.PDF (YTD lagging peers — upgrade)
[14] CLSA — HDFC Bank: O-PF, 20 Apr 2025 — 607956312LinqAlpha.PDF (Asset quality — slippage, PCR, credit cost)
[15] CLSA — India Banks 4QFY25 preview, 1 Apr 2025 — 607954767LinqAlpha.PDF (ICICI market cap and target)
[16] HDFC Bank Limited — Q3 FY26 Earnings Presentation, 17 Jan 2026 (key metrics — NIM 3.35%, ROA 1.92%, ROE 13.9%)
[17] HDFC Bank Limited — Q4 FY26 Earnings Call (management on ROA as the primary metric)

## Citations

- [1] **607956312LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956312LinqAlpha.PDF>
- [2] **607956312LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956312LinqAlpha.PDF>
- [3] **607956312LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956312LinqAlpha.PDF>
- [4] **607956312LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956312LinqAlpha.PDF>
- [5] **607956312LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956312LinqAlpha.PDF>
- [6] **607956312LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956312LinqAlpha.PDF>
- [7] **607945486LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2024/11/607945486LinqAlpha.PDF>
- [8] **607944957LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2024/11/607944957LinqAlpha.PDF>
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- [16] **HDFC Bank Limited, Q3 25/26** · external
- [17] **HDFC Bank Limited, Q4 25/26** · external

