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Analysts have largely maintained their positive outlook on HDFC Bank, as the private lender reported in-line results for the October-December quarter (Q3) of the current financial year (2024-25/FY25).
Photograph: Shailesh Andrade/Reuters
They believe the results were ‘strong’ given the tough macro environment, and relative to peers.
On the bourses, the HDFC Bank share price rose 1.2 per cent on the BSE, hitting an intraday high of Rs 1,685 per share, before settling flat at Rs 1,664.8 per share.
In comparison, the BSE Sensex ended 0.15 per cent higher.
On Wednesday, HDFC Bank reported a Q3 net profit of Rs 16,735.5 crore, clocking a growth of 2.2 per cent year-on-year (Y-o-Y), in line with estimates.
Operationally, India’s largest private bank’s net interest income (NII) improved 7.7 per cent Y-o-Y to Rs 30,650 crore, while the net interest margin contracted 3 basis points quarter-on-quarter (Q-o-Q) to 3.43 per cent; both were in line with estimates.
However, the meaningful dip in the loan-deposit ratio (LDR) surprised the Street.
As against the provisional estimate of 99.2 per cent, the LDR stood at 98 per cent at the end of December 2024.
This is the first time the merged entity’s LDR has slipped below the 100 per cent mark.
For context, a low LDR implies higher deposits or a liquidity pool with a bank, which may be used to extend loans to customers.
According to the management, HDFC Bank delivered a deposit growth of 15.8 per cent Y-o-Y to Rs 25.6 trillion, as against a 3 per cent Y-o-Y rise in advances at Rs 25.4 trillion, enabling the bank to make progress in normalising its LDR.
Analysts at Nuvama Institutional Equities thus view HDFC Bank’s Q3 as a ‘strong quarter’ given the substantial gain in deposit market share, consistent improvement in LDR, and core margins coming in line with expectations.
The brokerage maintained its ‘buy’ rating on the stock with an unchanged target price of Rs 1,950.
The management has maintained its guidance for FY25 credit growth to be slower than the system, on the back of an accelerated approach to align LDR to pre-merger levels of 86-89 per cent, and calibration in retail credit growth due to industrywide stress in unsecured credit and weak macro.
Systematix Institutional Equities has raised its share price target on HDFC Bank to Rs 2,030 (from Rs 1,945) while retaining its ‘buy’ rating, as the bank remains on course to achieve its LDR targets.
“We believe HDFC Bank is likely to revert to pre-merger LDR levels by the beginning of 2026-27 (FY27), which is likely to be the first normal year of operations for the merged entity.
“Nonetheless, we trim our FY25 credit growth estimate to 3.5 per cent Y-o-Y (from 7 per cent earlier) to incorporate the current run-rate of asset sales,” it said.
Asset quality boost
Prima facie, HDFC Bank’s asset quality deteriorated, with a gross non-performing asset (NPA) ratio of 1.42 per cent at the end of Q3, compared to 1.36 per cent in September and 1.26 per cent a year ago.
The net NPA ratio also increased to 0.46 per cent from 0.41 per cent in the second quarter of FY25 and 0.31 per cent in the year-ago period.
However, excluding the agriculture portfolio, the gross NPA ratio was largely flat Q-o-Q at 1.2 per cent, indicating a relatively resilient asset-quality performance in its retail portfolio.
The bank’s slippage ratio, excluding agriculture, was the lowest among private peers.
Including agriculture, slippage rose 13 per cent Q-o-Q but was lower than the anticipated 15-20 per cent.
“With every passing quarter, we find the company is closer to a loan growth consolidation and inflexion than before.
“Earnings growth, too, would improve from Q3 of 2025-26 (FY26), as loan growth improves,” said analysts at HSBC.
The brokerage, while maintaining its ‘buy’ call, has cut the share price target to Rs 1,980 from Rs 2,130, as it believes HDFC Bank will have to maintain high deposit growth, preferably at 15-16 per cent Y-o-Y, and transition to a favourable change in loan mix to invite rerating from analysts.
The net profit and NII estimates for FY25, FY26, and FY27 stand reduced by 0.9 per cent, 3.9 per cent, and 5.4 per cent; 1 per cent, 4 per cent, and 7 per cent, respectively.
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