HDFC Bank Q1 Results Review - Steady; Lower Provision Drives Earnings Beat: Motilal Oswal

Motilal Oswal Report

HDFC Bank Ltd. reported a steady quarter with healthy growth in net interest income and profit after tax, driven by lower provisions, even as margins remained stable.

Loan growth was driven by sustained momentum in commercial and rural banking and a pick-up in the retail segment. HDFC Bank's asset quality ratios remained stable, while the restructured book moderated to 27 basis points of loans.

Healthy provision coverage ratio and a contingent provisioning buffer should support asset quality.

We introduce forecasts for the merged entity and estimate net earnings of Rs 654 billion/798 billion/957 billion over FY24-26, translating into an return on asset of 1.9-2.1%.

We thus estimate return on equity for the merged entity to revert to pre-merger levels of 17% plus by FY26.

We reiterate our 'Buy' rating with a target price of Rs 2,070 (premised on 2.8 times FY25E adjusted book value plus Rs 211 for subs).

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