HDFC Bank Q1 Review - Broadly Inline; Non-Specific Provision Buffer At 1.5% Provides Comfort: Nirmal Bang

Nirmal Bang Report

HDFC Bank Ltd.’s Q1 FY25 net interest income/pre-provision operating profit/profit after tax came in at a variation of 0.1%/-4.9%/0.8% versus our estimates. As compared to consensus estimate, PAT was higher by 3.3%. 

Net interest margin improvement by 3 bps QoQ to 3.66% was a positive. On a like-to-like basis (including e-HDFC’s numbers in Q1 FY24), loan book and deposits grew by 10.8% YoY and 15.3% YoY, respectively. The bank had transient inflows in current account deposits during Q4 FY24 to the tune of Rs 540 billion, of which there was an outflow of Rs 430 billion in Q1 FY25, which led to a sequential decline in current account and savings account ratio (down from 38.2% in Q4 FY24 to 36.3% in Q1 FY25). GNPA inched up by 9 bps QoQ due to seasonal trend of agriculture slippages.

We have valued the core business at 2.6x June’26E adjusted book value (versus 2.5 times June’26E ABV earlier). Post adding subsidiary value per share of Rs 206 (considering 15% holding company discount), we have derived our target price of Rs 2,095 (versus Rs 2,037 earlier).

Our target multiple of 2.6 times June’26E ABV is at a 11.7% discount to its past five-year average P/ABV multiple of 2.94x [five-year mean P/ABV (x) - 0.75SD].

We believe this target multiple adequately captures a loan and earnings CAGR of 12% and 16.9%, respectively over FY24-FY26E, which results in RoA / RoE of 2% / 15.8% in FY26E.

We are positive on HDFC Bank for the long term due to its double-digit growth potential because of: a good capital position, merger synergies in the long term and best-in-class asset quality.

In addition, a non-specific provision buffer at 1.5% of loan book provides comfort. Maintain ‘Buy’

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