Shares of HDFC Bank were flying on Monday as the bank’s performance in the September quarter was met with upbeat commentary from analysts, with strong results across key metrics, although there was a slight decline in asset quality.

What Happened: HDFC Bank clocked a 6% year-on-year increase in net profit for the September quarter and a 10% rise in net interest income.

The country’s top private lender said its net interest margin (NIM) stood at 3.46% during the quarter, in line with market estimates.

However, the bank’s asset quality declined slightly, as gross non-performing assets (NPAs) rose to 1.36%, up from 1.33% in the preceding quarter and 1.34% a year ago. Net NPAs also edged higher to 0.41%, compared with 0.39% in the previous quarter.

One notable development during the quarter was a significant drop in the cash-to-deposit ratio, which fell to 99.8%, marking the first time it dropped below 100% since the merger with HDFC in July 2023. HDFC Bank CFO S Vaidyanathan said that the bank aims to reduce this ratio further but anticipates it will take two to three years to return to pre-merger levels of 86-87%.

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Brokerages Upbeat: Most brokerages maintained their optimistic outlook on the stock, with target prices indicating a potential upside of up to 28%. The consensus suggests that the bank is on a stable trajectory in addressing post-merger challenges, supported by growth in net interest income (NII) and profit metrics as well as a decrease in the credit-to-deposit (CD) ratio.

Bernstein reaffirmed its “outperform” rating and set a target price of ₹2,100 per share. The brokerage underscored that HDFC Bank showed resilience compared to peers facing tighter margins and rising credit costs. Bernstein highlighted the bank’s strong fundamentals, which set it apart from others in the sector during challenging times.

Goldman Sachs also maintained a bullish stance, reiterating its “buy” rating with the highest target price of ₹2,156 per share among brokerages. It noted that while the bank’s core operating profit was in line with expectations, the outlook for future earnings was favourable.

The research firm noted that the core pre-provision operating profit (PPoP) return on assets (RoA) was 2.7%, marking the second consecutive quarter of improvement. Additionally, provisions were 10% lower than anticipated and profit after tax exceeded street expectations by the same margin, it added.

In light of the latest results, Investec raised its target price for HDFC Bank to ₹1,625 per share, up from ₹1,650 apiece, but retained a “neutral” rating. The firm noted that slower credit growth could limit further reductions in the cash-to-deposit ratio. The research firm also emphasised that growth in the current account savings account (CASA) deposits remains crucial for driving profitability.

Price Action: HDFC Bank’s share price was up 2.71% at ₹1,727.50 in early trade on Monday. The stock has risen 1.73% so far this year.

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