At 10:26 AM, HDFC Bank was trading at Rs 1,578.90, down Rs 100 or 5.96% on the Bombay Stock Exchange.
According to an ET report, leading brokerages such as CLSA and Morgan Stanley expressed concerns about loan growth and a lower liquidity coverage ratio (LCR). However, they maintained their buy and overweight ratings, respectively. Kotak Equities, on the other hand, lowered its earnings estimates while still recommending a buy. Nuvama downgraded the stock to hold.
For the December quarter, HDFC Bank reported a net profit of Rs 16,372.54 crore, representing a YoY increase of nearly 34%. This surpassed the ETNow poll estimate of Rs 15,846 crore.
Net interest income (NII), the difference between interest earned and interest expended, rose by 24% YoY to Rs 28,471.34 crore. However, this figure fell short of the estimated Rs 29,067 crore.
HDFC Bank: What brokerages recommend
CLSA maintained its buy view on HDFC Bank and raised the price target to Rs 2,025 from the previous target of Rs 1,900. The lower loan growth estimate of 15% was attributed to a challenge in low deposits.
Morgan Stanley remains overweight on the stock with a price target of Rs 2,110. HDFC Bank’s net profit exceeded Morgan Stanley’s estimates by 4% due to a lower tax rate. The credit cost was in line with expectations. The brokerage notes that the net interest income (NII) growth was also in line with projections. However, the lower liquidity coverage ratio (LCR) compared to the previous quarter may delay growth and margin improvement. Morgan Stanley has reduced its EPS estimates by 3% for FY25 and FY26.
Kotak Equities maintained a buy rating on HDFC Bank shares with a fair value of Rs 1,860, valuing the bank at 2.5X book for RoEs at 16-17% levels. The bank’s reported earnings were slightly weak, and Kotak highlighted the higher provisions. Although the net interest margin (NIM) appears to have bottomed at 3.4%, the drivers for NIM expansion seem slower than expected, noted Kotak.
Nuvama downgraded the stock to hold from a previous buy rating and reduced the target price to Rs 1,730 from Rs 1,770. HDFC Bank beat expectations in terms of net interest income, but there was a miss on fees and credit costs. The sharp decline in the liquidity coverage ratio (LCR) was another concern. Nuvama has reduced earnings by 5-6% for FY 2025/26, with a higher core earnings cut of 8% due to a 4% reduction in loan growth.
Although HDFC Bank remains a strong banking franchise in India, the earnings narrative will dominate in the short to medium term, according to the brokerage note.
