HDFC Bank Q1 Results Review: Deposit Growth, Balancing Advances Key, Say Analysts
The bank has been growing unsecured book at a slower pace and so, credit costs would remain in check, says Jefferies.
HDFC Bank Ltd.'s first-quarter earnings were broadly in line with estimates. However, incremental deposit mobilisation stays key amid rising competition, according to analysts.
"While the bank has not given any specific guidance on the credit-to-deposit ratio, management has indicated that it will actively focus on bringing the ratio down at an accelerated pace," Motilal Oswal said in a note.
"The deposit growth, while lower than full-year expectations, appears to be a result of a system-wide slowdown in deposit growth rather than a sharp drop in market share," Bernstein Research said.
HDFC Bank's standalone net profit dropped 2% quarter-on-quarter to Rs 16,174.8 crore due to lower core-income growth and higher tax expenses.
The bank's net interest income, or core income, rose 2% sequentially to Rs 29,837 crore.
The bank's asset quality deteriorated, with the gross non-performing asset ratio widening 9 basis points quarter-on-quarter to 1.33% in the June quarter. The net NPA ratio, too, widened six basis points sequentially to 0.39%.
Here's What Brokerages Say
Bernstein
Incrementally positive on the bank’s normalisation trajectory.
Flat deposit growth was due to a large outflow on the current account during Q1 and Rs 16,000 crore running down on e-HDFCL deposits.
Return-on-assets stood at 1.9% as net-interest-margin improved by 3 basis points, aided by a sequential decline in borrowings and corporate loans.
Management's focus is to normalise loan-to-deposit ratio by gaining 50–60 bps of market share every year and maintaining a profitable growth trajectory.
The decline in borrowings by 10% quarter-on-quarter helped provide support for the sequential rise in net-interest-margin.
Maintain 'outperform' with a target price of Rs 2,100, implying a potential upside of 31%.
Jefferies
Deposits and loan growth were flat QoQ, which is tad disappointing.
NIM expansion in Q1 reflects repayment of higher cost of liabilities of HDFC Ltd. and fall in share of low-yielding corporate loans.
Expects modest loan growth over the next three–four years as the bank tries to lower loan-to-deposit ratio to pre-merger levels of 85-90%.
Slippages were higher at 1.3% of loans and this reflected in agri-segment, which is a seasonal aspect.
Bank has been growing unsecured book at a slower pace and so, credit costs would remain in check.
Expects bank to deliver EPS of Rs 93 in FY25 and Rs 106 in FY26.
Estimates RoA to normalise towards 1.8% and RoE of 15% in FY26.
Maintains 'buy' rating with a price target of Rs 1,890 apiece.
Nomura
Efforts to bring down loan-to-deposit ratio would keep medium-term loan growth muted
Estimates compound annual growth rate of 12% and 17% for loan and deposit, respectively, over fiscal 2024-2027, which would lower loan-to-deposit ratio to 92% in fiscal 2027.
Impact on bank's return on assets from increased priority sector lending requirements from Q2FY25 remain key things to watch out for
Estimate net-interest-margins of 3.55–3.6% over FY25-26, building in some pickup from this shift in the funding mix
Muted loan growth was across segments with about 5% QoQ decline seen in corporate and agri loan segments
Priority-sector lending requirement, based on one-third of HDFC Ltd.'s loans will kick in from September and could weigh on the NIM.
Maintains 'neutral' with a revised target price of Rs 1,720, implying a potential upside of 3.6%
Motilal Oswal
Provisions were 10% lower than the target as the bank utilised Rs 400 crore of contingent provisions pursuant to repayment of underlying loans.
Other income declined 1.5% quarter-on-quarter amid lower treasury income.
Gradual retirement of high-cost borrowings along with improvement in operating leverage to provide some support to return ratios over the coming years.
Estimates bank to deliver a 16% CAGR in deposits and 10.1% CAGR in loans over FY24–26.
Estimates loan growth at 9% for FY25 and 11% for FY26 as bank increases focus on restoring LDR to normalised levels.
Estimates LDR to improve to 98.5% over FY25 and 93.5% over FY26.
Expects bank to deliver RoA of 1.9% and RoE of 15% in FY26.
Maintains 'buy' rating with a target price of Rs 1,850, implying a potential upside of 15%.
Nirmal Bang
Bank had transient inflows in current account deposits during Q4. Of this, there was an outflow in Q1 that led to a sequential decline in CASA ratio.
Estimates loan CAGR of 12% and earnings CAGR of 16.9% over FY24–26.
Estimates RoA of 2% and RoE of 15.8% in FY26.
Positive on the bank for long-term due to its double-digit growth potential aided by good capital position, merger synergies and asset quality.
Management remains confident of bringing down the cost-to-income ratio to approximately 30% over the medium to long term.
Maintains 'buy' with a revised target price of Rs 2,095, implying a potential upside of 30%.
