HDFC Bank Q2 Results Review - Steadily Moving Towards Improved Growth, Profitability: Motilal Oswal

Motilal Oswal Report

HDFC Bank Ltd. reported steady performance in Q2 FY25, with net earnings of Rs 168.2 billion (~3% beat).

Net interest margins declined 1 bp QoQ to 3.46%, while the credit/deposit ratio declined sharply by ~4% QoQ to 99.8%.

Provisions were 5% higher than our estimate at Rs 27 billion. The bank utilized Rs 7 billion of contingent provisions pursuant to the reversal of AIF provisions. HDFC Bank is holding total provisions (floating and contingent) of Rs 262 billion.

Gross non-performing asset ratio increased 3 bp QoQ to 1.36%, while provision coverage ratio remained stable at 71.2%. Fresh slippages stood at Rs 78 billion (1.3% of loans).

Given that the bank is focusing on bringing C/D to a normalized level, we trim our loan growth estimates to 7%/10% for FY25/FY26. Thus, we estimate C/D to improve to 97.1%/92.2% in FY25/FY26.

We estimate HDFC Bank to report gradual recovery in loan growth over FY25- 27E with earnings growth accelerating faster. We thus estimate HDFC Bank to deliver FY26E RoA/RoE of 1.8%/14.6%. We reiterate our Buy rating with a target price of Rs 2,050 (2.4 times Sep’26E adjusted book value plus Rs 295 for subs).

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