HDFC Bank Q1 Results Review - Higher Opex To Offset Healthy Asset Quality: Prabhudas Lilladher

Prabhudas Lilladher Report

HDFC Bank Ltd. saw a mixed quarter. While core profit after tax at Rs 115.4 billion was 3.7% short of our estimate due to higher opex, asset quality surprised positively with lower gross non-performing asset led by lesser slippages, despite Q1 being usually weak.

Loan growth was softer at 0.5% QoQ driven by inter-bank participation certificate sell-down since bank would like to manage its priority sectors lending requirement in a calibrated manner.

Quality of growth was superior as credit offtake QoQ was led by retail and corporate banking.

HDFC Bank sounded confident of achieving a 18% YoY loan growth (merged) over medium term though we are factoring 16% due to likely deposit need.

Benign asset quality environment may keep opex elevated in near term and for FY24/25E we raise opex by 5% but reduce provisions by 15/9 basis points, which will not change profit after tax materially.

Net interest income and core pre-provision operating profit trend compared to peers would be keenly watched.

We maintain multiple at 3.0 times on FY25E core adjusted book value and target price at Rs 2,025. Retain ‘Buy’.

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