HDFC Bank Q1 Review - Business Growth Soft; Restoring Credit/Deposit Ratio Remains A Key Focus: Motilal Oswal

Motilal Oswal Report

HDFC Bank Ltd. delivered broadly in-line performance, with net interest margins improving 3 basis points QoQ, and the credit/deposit ratio declining 87 bp QoQ to 103.5%. Profit after tax increased 2.3% QoQ (5% beat), aided by lower provisions.

Provisions were 10% lower than our estimate at Rs 26.02 billion, as the bank utilized Rs 4 billion of contingent provisions pursuant to the repayment of underlying loans. HDFC Bank is holding total provisions (floating and contingent) at Rs 269 billion and 1.1% of loans.

Other income declined 1.5% QoQ (adjusted for Q4 one-offs) amid lower treasury income. Opex grew 0.9% QoQ (adjusted for one offs), while C/I rose to 41%.

Gross non-performing asset ratio deteriorated 9 bp QoQ to 1.33%, while provision coverage ratio decreased 283 bp QoQ to 71.2%. Fresh slippages inched up to Rs 79 billion (1.5% of loans).

Amid the increasing focus on restoring LDR to normalised levels, we cut our loan growth estimates to 9%/11% for FY25/FY26. We thus estimate LDR to improve to 98.5%/93.5% over FY25/FY26.

We estimate HDFC Bank to deliver an FY26E RoA/RoE of 1.9%/15% and reiterate our Buy rating on the stock with a target price of Rs 1,850 (premised on 2.3 times FY26E adjusted book value plus Rs 256 for subsidiaries).

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