IGI Logo

HDFC Bank reported a 3% PAT beat at Rs168bn/1.9% RoA, primarily due to stable margins, contained opex, and provisions (due to reversal of Rs6.8bn AIF provisions). After an upset in 1Q, deposit growth returned – up 15% YoY/5% QoQ (Rs1.2trn), but credit growth fell to a low of 7% YoY as the bank focused on LDR management (down by 375bps QoQ to 100%) to allay regulatory concerns. However, the bank managed to maintain NIMs at 3.65% owing to better portfolio mix, defying the industry trend. Asset quality also held up well with GNPA ratio largely flat at 1.36% vs far more deterioration for peers, as the bank consciously contained growth in unsecured loans for the past few years. We retain BUY with TP of Rs2,000 based on 2.4x Sep-26E Standalone Bank ABV and subs valuations (Rs300/sh). Bank has received board approval to launch an IPO of its NBFC subsidiary – HDB Financial Services amounting to Rs125bn (incl OFS of Rs100bn) – to meet the regulatory guidelines and also unlock value.

Bank to calibrate credit growth to ease LDR and PSL pressure

HDFCB reported sub-system credit growth at ~7% YoY/1% QoQ as the bank continued shedding of eHDFCL’s low yielding corporate book (down 3% QoQ) and also selling off the retail portfolio. However, the bank continues to grow its CRB book (32% of overall advances) at a faster pace to drive up yields and also help build organic PSL to meet the regulatory guidelines. Deposits grew at a strong pace of ~15% YoY/5% QoQ, allowing the LDR to further cool down by 375bps to ~100%; the bank plans to gradually move toward pre-merger LDR. The bank has guided that its credit growth for full year FY25 shall be lower than the system growth in order to reduce its higher LDR to pre-merger levels; for FY26, the bank’s credit growth will be cloning the system growth, while the same shall outpace the system growth in FY27. It shall still manage margins at current levels, aided by improving portfolio mix and funding cost, by gradually retiring eHDFCL’s high-cost debt. Separately, the LCR is currently higher at 128% due to one-off timing differences arising on account of raising granular, retail-driven deposits, but it is expected to remain range bound at 110-120%.

Asset quality remains largely stable vs higher deterioration for peers

Bank reported slippages of Rs78bn/1.3% of loans, leading to slight increase in the GNPA/ NNPA ratio by 3bps/2bps QoQ to 1.4%/0.4%. Management indicates that its unsecured loan portfolio is exhibiting resilient outcomes as it did not grow over the past few years, but they remain watchful. The bank’s specific PCR has fallen to 70%, whereas it has partly consumed contingent provision buffer (now stands at 1.1% of loans; Rs34/sh). We believe that HDFC Bank will shore up specific PCR or build contingent provision buffer as it realizes one-off gains from stake sale in HDB Financial Services.

Retain BUY with a TP of Rs2,000

We retain BUY with a TP of Rs2,000 based on 2.4x Sep-26E Standalone Bank ABV and subs valuations (Rs300/sh). Bank has taken board approval to launch IPO of its NBFC subsidiary – HDB Financial Services to the tune of Rs125bn (including OFS of Rs100bn) to meet the regulatory guidelines and also unlock value.

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