HDFC Bank Q4 Results Review - Deposit Growth Becomes Priority, Credit Growth To Follow: Axis Securities

Axis Securities Report

HDFC Bank Ltd.’s advances grew by 55/2% YoY/QoQ. Deposits growth improved to 26/7% YoY/QoQ, with healthy growth in both current account and savings account and TDs.

Net interest income grew by 25/2% YoY/QoQ. Core net interest margins (reported) improved marginally by 4 bps QoQ and stood at 3.44% versus 3.4% in Q3 FY24.

Non-interest income grew by 108/63% YoY/QoQ, aided by stake sale in Credila (gain of Rs 73.4 billion). Fee income (1.3% of loans) growth was healthy at 21/15% YoY/QoQ. Treasury gain was ~Rs 2.5 billion. Opex was higher at 33/13% YoY/QoQ, driven by higher employee expenses (owing to one-time ex-gratia provision).

The cost-income ratio stood at 38% vs. 42/40.3% YoY/QoQ. Pre-provision operating profit grew by 57/24% YoY/QoQ. The bank reported higher-than-expected provisions as it decided to build its floating provisions.

This provision of Rs 109 billion is not towards any specific portfolio, but as a countercyclical buffer to make the balance sheet resilient. Profit after tax grew by 37/1% YoY/QoQ.

Asset quality continued to remain stable with gross non-performing asset/net non-performing asset at 1.24/0.33% versus 1.26/0.31% QoQ.

Outlook

HDFC Bank remains focused on protecting margins and improving profitability rather than pursuing growth. We trim our NII/earnings estimates by 3-4%/4-5% respectively to factor in lower credit growth and a slower-than-expected margin recovery.

Valuation and recommendation

We the core book at 2.5 times September-25E adjusted book versus its current valuation of 2.3 times Sep’25E ABV and assign a of Rs 199/share to subsidiaries of the merged entity, thereby arriving at a target price of Rs 1,885/share.

The target price implies an upside of 23% from the current market price.

Key risks to our estimates and target price

1. The key risk to our estimates remains a slowdown in overall credit momentum owing to the bank’s inability to ensure deposit mobilisation which could potentially derail earnings momentum for the bank.

2. Slower substitution of higher-cost debt with lower cost deposits could continue to hurt margins

Click on the attachment to read the full report:

DISCLAIMER

This report is authored by an external party. NDTV Profit does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of NDTV Profit.

Users have no license to copy, modify, or distribute the content without permission of the Original Owner.