HDFC Bank Q1 Results: Should you buy, sell, or hold? Here's what brokerages say

With the exception of a slight sequential miss on asset quality front, HDFC Bank released a positive scorecard for the April-June quarter of the current fiscal year (Q1FY24) on Monday. The results exceeded street's expectations.

Analysts anticipated that HDFC Bank would record a standalone net profit of ₹11,580 crore for the months of April through June, representing a rise of 25.9% from the same time previous year. The bank's actual profits exceeded the estimate.

For the quarter that ended in June 2023, HDFC Bank reported a standalone net profit of ₹11,951.7 crore, an increase of 30% from ₹9,196 crore in the corresponding quarter the previous year.

Net interest income (NII) for the bank increased by 21.1% in the first quarter of FY24, from ₹19,481.4 crore to ₹23,599.1 crore.

The asset quality of HDFC Bank decreased sequentially in Q4FY24. Quarter over quarter, the bank's net non-performing assets (NPA) climbed by 9.4% to ₹4,776.9 crore from ₹4.368.4 crore, while its gross non-performing assets (NPA) increased by 5.7% to ₹19,045.1 crore from ₹18,019 crore.

On Tuesday's trading session, HDFC Bank shares were trading near its 52-week high level, and the stock opened at ₹1,695 apiece on BSE. 

HDFC Bank Q1 Results: HDFC Bank Q1 net profit rises 30% YoY to ₹11,952 crore; NII jumps 21%

What do brokerages say? 

Motilal Oswal Financial Services

According to the brokerage, HDFC Bank reported a consistent quarter with healthy growth in NII and PAT, driven by decreased provisions, even as margins remained stable. Loan growth was fueled by ongoing momentum in commercial and rural banking as well as an uptick in the retail sector. The restructured book's loan volume moderated to 27 basis points, while asset quality ratios remained constant. Asset quality ought to be supported by a strong contingent provisioning buffer and PCR.

"We introduce forecasts for the merged entity and estimate net earnings of ₹654b/798b/957b over FY24-26, translating into an RoA of 1.9-2.1%. We thus estimate RoE for the merged entity to revert to pre-merger levels of 17%+ by FY26. We reiterate our 'buy' rating with a target price of ₹2,070," said the brokerage in its report.

Nuvama Institutional Equities

The brokerage firm claims that HDFC Bank reported a soft quarter, although expectations had already changed as a result of a subpar update. Core Pre-Provision Operating Profit (PPOP) experienced the worst YoY growth over the past five quarters, increasing 10% YoY and declining 5% QoQ. Due to seasonally high agri slippage, GNPLs increased 6% QoQ.

On the merged earnings, nothing is known, said the brokerage. Deposit growth was 16% YoY, and merged loan growth was 13% YoY. Given HDFC Bank's solid liabilities and brand franchise, the brokerage has reiterated a 'buy' rating. Given the disappointment in Q1FY24 growth, quarterly profits are now a crucial factor to watch.

“We are tweaking earnings, but shall come up with accurate merged estimates after the disclosure of merged numbers. Our target price is unchanged at ₹1,960,” said the brokerage.

The brokerage also stated that there are several questions for which there are currently no immediate answers. The brokerage made the following observations, such as if the FY24 loan growth guidance of 18% is equivalent to the unadjusted growth of 13% in Q1 or the adjusted growth of 16%. In H2FY23, standalone opex ran at a high rate. Will it keep on that pace in H2FY24? The management stated that because the company is utilising low financing costs, opex will continue to be high. RoA as reported by the bank exceeds calculated averages. Is the RoA recommendation based on the same computation that was published?

“We expect downside risk to our and consensus forecasts, but shall wait for merged entity’s details, which will likely be disclosed before Q2FY24E,” added the brokerage. 

LKP Securities

The brokerage stated in its analysis that HDFC Bank's operating performance in the first quarter of FY24 was mixed. Slippages grew sequentially by 18%, and the GNPA, at 1.17%, is below the historical average of 1.4%. Provisioning costs were ₹28.6 billion in 1QFY24 compared to ₹26.8 billion in 4QFY23, an increase sequentially. In contrast to the loan growth (15.8% YoY, 0.9% QoQ), NII growth was sluggish sequentially (21.1% YoY, 1.1% QoQ).

“We believe, superior underwriting practices, higher liquidity, adequate coverage and strong capital position makes HDFC Bank well placed and thus, we re-iterate ‘buy’ with price target of ₹2,074,” said the brokerage.

HDFC Bank Q1 results key highlights: Asset quality declines marginally, but overall a healthy show; six things to know