IGI Logo

Journey from an imperfect present to a better future

HDBFS posted an overall weak Q2FY26, with AUM growth (13% YoY), asset quality (GS3 +25bps QoQ to 2.81%), and credit cost (2.7%) coming in worse than consensus’ and our estimates. The management pinned the reason of the poor show in Q2 to the CV/CE segments that saw increased stress due to heavy monsoon-led excessive idle time of vehicles (35% vs 20%). MSME The overall segment saw stabilization. Per the management’s assessment, growth and asset quality bottomed out in Q2; H2 should see (already started) an improvement, supported by good monsoons and festive-season demand, and credit costs should normalize downward. Margins in the quarter improved by ~20bps QoQ mainly on account of CoF moderation. Beyond the H2 recovery, the mgmt remains confident of its ability to deliver steady growth (~18-20% CAGR over 3-5 years) with contained credit costs (~2.2%) ahead. Factoring in the Q2FY26 developments and management commentary, we marginally trim FY26E/28E AUM growth by ~1%/2.5%, and slightly increase our credit cost estimate by ~20bps which results in an EPS cut of 6-8% over FY26-28E. We maintain BUY on the stock while revising down Sep-26E target price by ~6% to Rs850 (Rs900 earlier), implying FY27E P/B of 2.8x.

CV/CE segment problems drive an all-around weak show

HDBFS reported a softer quarter in terms of AUM growth, credit cost, and asset quality, while NIM and opex were sequentially better. The muted disbursement and AUM growth are owing to continued stress in some segments (especially CV and CE), which are a major contributor to credit cost. Disbursement for the quarter stood at ~Rs155bn (muted YoY; ~3% growth QoQ), resulting in AUM growing 2%/13% QoQ/YoY to Rs1.1trn. NIM expanded by ~20bps mainly on account CoF moderation. Credit cost for the quarter stood at ~2.7% (vs 2.5% in Q1FY26), largely due to stress in the CV/CE segments, while other asset classes were steady along with MSE and USL. Overall asset quality slightly declined, with GS3 inching up by ~25bps, while a healthy PCR of ~55%.

With early signs of improvement, the mgmt remains hopeful of a better H2FY26

The mgmt indicated that it is seeing some early signs of credit demand growth across the segment (barring CV) in early-Q3FY26 and expects the trend to continue, along with recovery in the CV segment. The management expects H2 to see better growth, along with improvement in credit cost led by a good monsoon, strong festive demand, and overall macro improvement. It expects to deliver a steady growth of ~18-2% over the next 3-5 years with credit cost being contained at ~2.2%; it also indicated that the growth will be across products, with consumer finance growing at a faster pace.

Factoring in the Q2FY26 update, we maintain BUY while reducing TP to Rs850

Factoring in the Q2FY26 developments and management commentary, we marginally adjust FY26-28E EPS downward by 6-8% which results in a ~15-20bps cut in RoA. We reiterate BUY on the stock with a revised down Sep-26E TP by 5.6% to Rs850, implying FY27E P/B of 2.8x.

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354