HDFC Bank Q1 Results Review - Net Interest Margins Improved Albeit At Slow Pace: IDBI Capital

IDBI Capital Report

HDFC Banks Ltd.'s net interest margin improved by 3 basis points QoQ to 3.47% led by increase in investment yields while cost of funds remained flat. Deposits remain flat QoQ (merged basis) supported by retail term deposits while gross advances de-grew by 1% QoQ (merged basis) led by Corporate book.

Management guided for lowering of credit-deposit ratio in subsequent quarters which could have impact on credit growth. Asset quality deteriorated slightly as gross non-performing asset stood at 1.33% versus 1.24% QoQ (merged basis) due to seasonality.

Net interest income grew by 2.6% QoQ while pre-provision operating profit declined by 18% QoQ due to lower other income (one-off last quarter). PAT de-grew by 2% QoQ led by lower provisions.

We largely maintained FY25E/FY26E estimates as margin improvement to be seen. We maintain Buy rating with the target price of Rs 1,872 valuing parent business at Rs 1,687 (2.2 times price/adjusted book value FY26).

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