HDFC Bank Shares Flash Green As Analysts Cheer Better-Than-Expected Q1 Numbers

Shares of HDFC Bank were up on Monday as the bank reported strong Q1 results over the weekend, leading to bullish calls from most brokerages. 

What Happened: HDFC Bank reported its June quarter results on Saturday. India's largest bank saw its net profit grow 35.3% year on year to ₹16,174.75 crore. The private lender's net interest income rose 26.4% from the previous year to ₹29,837 crore. On a sequential basis, the profit fell 2%, while net interest income gained by 2.6%. 

The bank's net interest margin (NIM) fell to 3.47% from 4.1% in the previous year due to higher funding costs. On a sequential basis, it expanded 3 basis points. Its gross non-performing assets rose to 1.33% from 1.17% in the previous year and net non-performing assets (NNPA) also rose slightly to 0.39% from 0.30% in the previous year. 

Brokerage Views: Goldman Sachs maintained a "buy" call on the stock and hiked the target price to ₹1,961. The brokerage said Q1 operational metrics beat the expectations and earnings visibility is improving.

The lender's asset quality remained solid with GNPA and slippage ratio being better than estimates, the brokerage said. The research firm expects the bank's return on asset of pre-provision operating profit (PPOP) to rebound from 2.6% in FY24 to 2.9% in FY26. PPOP is the the income before the bank subtracts the funds set aside for bad debts.

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Jefferies also reiterated the "buy" call and increased the target price to ₹1,890. The margin expansion is positive and compensates for softer balance sheet growth. The slippages rose due to seasonal non-performing loans. 

Nuvama Institutional Equities also kept a "buy" call and raised the target price to ₹1,850. The brokerage said the NIM expanded due to an increased share of retail loans and a higher liquidity coverage ratio, while the bank's asset quality remained strong. The research firm noted the CEO’s comments that the bank will lower the loan deposit ratio soon.

Contra Views: JP Morgan downgraded HDFC Bank to "neutral" and slashed the target price to ₹1,700. The downgrade was on expectations of weak loan growth.

The bank is slowing down its balance sheet much faster than anticipated, the research firm said. It said the bank's growth may be slower than its peers over the next two years due to its focus on improving current and saving account and loan mix. 

Price Action: Shares of HDFC Bank were up 0.77% to ₹1,619.75 on Monday morning. 

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