HDFC Bank's performance in the September quarter exceeded expectations, receiving positive feedback from the Street. The bank showcased strong financial metrics despite a slight decline in asset quality. Several brokerages have maintained their optimistic outlook, predicting an upside of up to 28% in the bank's stock.
This growth is attributed to improvements in net interest income (NII), profit metrics, and a notable reduction in the credit-to-deposit (CD) ratio, positioning HDFC Bank as a solid option for those exploring share market investment.
Brokerages maintain a bullish outlook
Brokerages remain confident in HDFC Bank's future growth. Bernstein reaffirmed its 'outperform' rating with a target price of ₹2,100 per share. The brokerage highlighted that while other banks are grappling with shrinking margins and rising credit costs, HDFC Bank has maintained a robust position in the share market investment landscape.
Its fundamentals have remained strong, which sets it apart from its competitors, particularly in the current challenging environment.
Goldman Sachs also echoed this positive sentiment, reiterating its 'buy' rating and offering the highest target price at ₹2,156 per share. Analysts emphasised that HDFC Bank’s core operating profits were in line with expectations, while future earnings prospects appeared brighter.
Despite a slight dip in provisions, the bank’s profit after tax (PAT) exceeded Street estimates by 10%, reinforcing its appeal to those considering share market investment.
Solid growth in key financial metrics
HDFC Bank's financial performance for the September quarter remained strong. The bank posted a 6% year-on-year (YoY) rise in net profit, while NII saw a 10% YoY increase. Its net interest margins (NIMs) stood at 3.46% in Q2FY25, aligning with market expectations. These figures underscore the bank's resilience and make it an attractive option for individuals and institutions involved in share market investment.
However, the bank's asset quality showed slight deterioration. Gross non-performing assets (NPAs) increased marginally to 1.36% in Q2FY25 from 1.33% in Q1FY25. Net NPAs also rose to 0.41% from 0.39% in the previous quarter. Despite this, the bank’s overall growth trajectory remains intact, supported by its solid financials and focus on long-term stability.
Decline in credit-to-deposit ratio post-merger
A key highlight from HDFC Bank's Q2 performance was the sharp decline in its CD ratio, which fell to 99.8% for the first time since the bank's merger with HDFC in July 2023. This is a significant milestone, as it marks the first time the CD ratio has dropped below 100%.
The bank's management, led by Chief Financial Officer S. Vaidyanathan, stated that they aim to bring the ratio down to pre-merger levels of 86-87% over the next 2-3 years. This reduction in the CD ratio could further enhance the bank's appeal to those engaged in share market investment, as it indicates improved financial health post-merger.
Mixed responses from brokerages
While most brokerages were optimistic, some expressed caution. Investec raised its target price for HDFC Bank to ₹1,625 per share, up from ₹1,650 per share. However, the firm maintained a 'neutral' rating, citing slower credit growth as a limiting factor in further CD ratio reductions. Additionally, Investec emphasised the importance of CASA (current account savings account) growth, noting that it remains crucial for driving profitability.
Despite these concerns, HDFC Bank's overall performance continues to impress, making it a strong candidate for share market investment. With brokerages predicting significant upside potential, the bank is well-positioned to attract both institutional and retail investors looking for solid growth in the banking sector.
A compelling case for share market investment
HDFC Bank’s September quarter results demonstrate resilience in a competitive and challenging environment. While there are minor concerns regarding asset quality and credit growth, the bank's robust fundamentals, steady profit growth, and improving CD ratio make it an appealing choice for those exploring share market investment.
With brokerages forecasting up to a 28% upside, HDFC Bank's stock is one to watch in the coming quarters.
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