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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