HDFC Bank Results Divide Analysts: How Good Or Bad Are Q4 Earnings, Really?

HDFC Bank’s posted results on Saturday, churning out robust numbers and stable asset quality. However, the results missed the mark for some investors while instilling belief in others.

What Happened: HDFC Bank reported a standalone net profit of ₹16,511.85 crore for Q4, marking a 37% increase. The standalone net interest income (NII), a key indicator of the bank's core profitability, stood at ₹29,077 crore, growing 24.5% from the previous year.

The results were propped up by the lender’s stake sale in education finance arm HDFC Credila. The bank, however, reported a sequential growth of 0.85% in net profit owing to higher provisions and lower growth in net interest income.

Asset quality remained stable, with gross non-performing assets (NPA) ratio of 1.24% at the end of March, compared with 1.3% in the previous quarter. Net NPA as a percentage of total assets increased marginally to 0.33% from 0.31% in the previous quarter.

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Where The Troubles Are: The main point of debate for many investors were HDFC’s floating provisions of ₹10,090 crore, which raised its total provisions around three times from the previous quarter to ₹13,511.64, and weighed on its bottomline.

Some commentators say these provisions squeezed the bank’s retail and wholesale margins and were unnecessary.

Deepak Shenoy, founder of Capitalmind, said on social media platform X the higher provisions cancelled out any potential boost to profits from provision writebacks and one-time gains to likely boost profits in later quarters.

However, several others said that the provisions signalled a prudent approach to balance sheet management and significant de-risking.

“The bank has considered this as an opportune stage to enhance its floating provisions, which are not specific to any portfolio, but act as a countercyclical buffer for making the balance sheet more resilient, and these also qualify as tier 2 capital within the regulatory limits,” said the bank in its press release.

What Analysts Say: Most brokerages covering the stock say the results were in line and show potential for a rerating.

Jefferies reaffirmed its “buy” rating for HDFC Bank, raising its target price to ₹1,880 per share. The brokerage highlighted a robust 17% deposit growth but said loan growth trailed at 12%, as the bank focused on margin expansion and moderated its loan-to-deposit ratio.

Motilal Oswal also endorsed a “buy” rating for HDFC Bank, setting a target price of ₹1,950 per share, projecting a 13.5%/18% compound annual growth in loans/deposits for FY24-26.

ICICI Securities upgraded HDFC Bank from “add” to “buy”, targeting ₹1,850 per share, expecting the bank to achieve a return on assets of around 1.7% for FY25/26 and a 14-15% return on equity.

The bank’s core net interest margin (NIMs) improved by 4 basis points quarter on quarter to 3.44% in Q4FY24. Nomura analysts anticipate further margin improvement as the bank prioritises profitability.

Kotak Institutional Equities commended HDFC Bank’s strategy of slowing loan growth and focusing on improving NIM. They maintained a “buy” rating with a target price of ₹1,750 per share.

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