Shares of HDFC Bank surged nearly 3% in early trade on Monday after the country’s largest private sector lender (in terms of market capitalisation) reported better than expected earnings in June quarter of FY25. Overall, the Sashidhar Jagdishan-led bank put on a good show in June quarter, aided by better interest income, operating expenses, and lower provisions.
Cheering Q1 numbers, HDFC Bank shares opened higher at ₹1,615.05, up 0.5% at ₹1,615.05 on the BSE, snapping four sessions losing streak. In the first two-hour of trade so far, the banking heavyweight rose as much as 2.7% to ₹1,650.75, while the market capitalisation climbed to ₹12.53 lakh crore.
Driven by robust Q1 numbers, HDFC Bank shares were back in green today after falling over 1% in the past four sessions as investors booked profit at higher levels.
Earlier this month, the share price of HDFC Bank hit its 52-week high of ₹1,791.90 on July 3, 2024, rebounding 31% from its 52-week low of ₹1,363.45 touched on February 14, 2024. In the calendar year 2024, the stock has fallen 3.5%, while it dropped over 2% in the past 12 months. In the last six months, the counter rallied nearly 15%, whereas it fell nearly 2% in a month.
HDFC Bank released its June quarter earnings on Saturday, posting 33.17% year-on-year growth in consolidated net profit at ₹16,474.85 crore as compared to ₹12,370 crore on a consolidated basis in the year-ago period. On the sequential basis, the profit dropped by 2% compared to ₹16,511.9 crore in the preceding January-March quarter of FY24.
The private lender’s total income rose 44.77% to ₹83,701.25 crore in Q1 FY25 from ₹57,816.67 crore in the corresponding period last year. On a quarter-on-quarter (QoQ) basis, the income was up 6.62%.
The net interest income (NII), the difference between interest earned and paid, stood at ₹29,837 crore in Q1 FY25, up 26.4% from the year ago period, aided by robust growth in advances. Sequentially, NII grew 2.6% from Q4 FY24. Net interest margin improved to 3.47% as compared to 3.44% in March quarter of FY24.
The lender’s provisions were down 9% YoY to ₹2,602 crore in Q1 FY25, while it dropped significantly by over five times from ₹13,511 crore in Q4 FY24.
On the asset quality front, the bank’s gross non-performing asset (NPA) ratio increased by 9 basis points (bps) sequentially to 1.33% in Q1 FY25. Similarly, net NPAs also rose by 6 bps to 0.39% during the June quarter of the current fiscal.
Analysts view on HDFC Bank Q1
Post Q1, JM Financial has maintained ‘BUY’ call on HDFC Bank shares with a revised target price of ₹1,950 (valuing core bank at 2.3x FY26E BVPS and subsidiaries being valued at ₹218/share). The brokerage in its report says that Q1 numbers reflected slower growth momentum on headline business (0.9% QoQ loans, flat QoQ deposits) but core parameters (reported NIMs at 3.5%, +6bps QoQ; GNPA at 1.33%, +8bps QoQ) remained stable.
“Deposit accretion trajectory and loan-to-deposit ratio (LDR) reduction will remain an overarching factor w.r.t HDFC Bank valuations in the near-term. This is likely to result in slightly slower loan growth than past trends as the bank balances growth vs profitability while implementing a balance sheet course correction (amidst a challenging deposit environment in the system),” it says.
Motilal Oswal has reiterated ‘Buy’ call on HDFC Bank with a target price of ₹1,850, citing in-line performance, characterised by slight margin improvement and controlled provisions. “We estimate HDFCB to deliver an FY26E RoA/RoE of 1.9%/15% and reiterate our BUY rating on the stock with a TP of ₹1,850 (premised on 2.3x FY26E ABV + INR256 for subsidiaries).”
Another domestic brokerage Prabhudas Lilladher retained ‘Buy’ on the stock and maintained target price at ₹2,000. “We expect NIM for FY26E to increase by 12bps YoY to 3.67%. Bank suggested that decline in LDR could be faster, and hence, we cut loan growth by 2% each in FY25/26E. Factoring deposit CAGR of 16%, LDR is likely to reach 94% by FY26 end (earlier 96%),” it says in a note.
The brokerage says that priority sector lending (PSL) requirement would be a key monitorable that could affect core PAT going ahead.
Axis Securities also maintained a ‘Buy’ recommendation on the stock with a price target of ₹1,950. “We value the core book at 2.4x FY26E ABV vs. its current valuation of 2.2x FY26E ABV and assign a value of ₹220/share to subsidiaries, thereby arriving at a target price of ₹1,950/share, implying an upside of 21% from the CMP.”
The agency has trimmed its advances growth estimates by 2-4% over FY25-27E, factoring in a slowdown in credit growth amidst challenges on deposit mobilisation. It also cut earnings estimates by 5-6% over FY25-26E, owing to slower growth and a gradual improvement in NIMs.
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