HDFC Bank Ltd.'s performance will be below its private peers given the current valuations, brokerages said after the lender reported a "slightly disappointing" business update for the first quarter of fiscal 2025.
The private lender's loan and deposit growth are below Nomura Research's estimates. HDFC Bank's balance sheet course correction is underway, but this process will be gradual, the brokerage said in a July 4 note. "At current valuations, we do not see a case for significant outperformance versus other private banks."
HDFC Bank's gross advances declined 0.8% quarter-on-quarter to Rs 24.87 lakh crore in the April–June quarter. Further, the lender's deposit growth remained flat at Rs 2.37 lakh crore on a quarterly basis during the reporting quarter.
Year-on-year numbers are not comparable as the bank concluded its mega-merger with Housing Development Finance Corp. on July 1, 2023.
The lender's deposits were flat QoQ and below the Rs 29,700 crore mobilised in the first quarter of fiscal 2024, which was slightly disappointing, Jefferies said in a note on July 4. "We await trends in retail and wholesale deposits, which were provided up to 4Q."
Trends in retail deposit, net interest margin, and operational expenditure will be key monitorables in the results due on July 20, Jefferies said.
The bank faced yet another weak first quarter for deposits and a sharp decline in corporate/wholesale loans, Bernstein said in a note.
Lower current account savings account might offset gains from a better loan mix, it said. "Slower loan growth was in line with expectations and would have helped the margins if only the deposit growth was higher."
The bank is expected to report a net profit of Rs 15,595.34 crore during the June quarter, according to Bloomberg. This compares with Rs 16,512 crore in the previous quarter.
Shares of HDFC Bank fell as much as 3.56% in early trade before paring some loss to trading 3.1% lower at Rs 1,673.6 apiece, compared to a 0.4% decline in the benchmark Nifty 50 as of 9:19 a.m.
The stock has risen 0.02% in the last 12 months and declined 2.2% year-to-date. The relative strength index was at 55.
Of the 50 analysts tracking the lender, 45 maintain a 'buy' and five recommend 'hold', according to Bloomberg data. The average of 12-month analysts' price targets implies a return potential of 8.2%.