HDB Financial Services closed FY26 on a strong note, reporting a 41% year-on-year jump in Q4 net profit to Rs 751 crore, aided by healthy income growth and improving asset quality. Net interest income rose 22% YoY to Rs 2,399 crore, while margins expanded sequentially, with net interest margin (NIM) coming in at 8.23% versus 8.09% in the previous quarter. The lender also announced a final dividend of Rs 2 per share.
Brokerage firm Jefferies highlighted that while AUM growth moderated to 11%, disbursement growth picked up meaningfully, signalling improving credit demand. Margin performance stood out, with NIMs surprising positively on the back of lower cost of funds. Asset quality trends also improved across segments. Gross NPAs came in at 2.44%, while net NPAs stood at 1.09%, reflecting easing stress. Lower credit costs and better recoveries further supported earnings.
Growth Recovery Key
Jefferies maintained a ‘Buy' rating on the stock, though it trimmed its target price to Rs 845 from Rs 900. The brokerage expects a pickup in AUM growth ahead, along with lower credit costs and stable margins to drive earnings.
It projects a 22% EPS CAGR over FY26–28, with return on equity expected to expand to over 15%. Management commentary also remained constructive, flagging no material impact from the ongoing West Asia conflict on growth or collections so far.
ALSO READ: HDB Financial Q4 Results: Profit Surges Over 40%; Dividend Declared
Risks Linger
Morgan Stanley struck a more cautious note, maintaining an ‘Equal-weight' rating with a target price of Rs 720. The brokerage acknowledged consecutive earnings beats and pointed to sharply lower bad loan formation in Q4, calling it a continuation of improving trends seen since Q2.
It noted that the company may be entering a “virtuous cycle” of better asset quality and earnings momentum. However, it remains wary of external risks, including geopolitical tensions in the Middle East, potential El Niño-related disruptions, and upside risks to inflation and interest rates.
While improving asset quality, strong margins, and earnings momentum provide comfort, the Street remains divided on the sustainability of growth. A recovery in AUM growth and stability in the macro environment will be key triggers for further re-rating, even as near-term risks keep valuations in check.
ALSO READ: Jefferies Maintains 'Buy' On HDB Financial Services But Cuts Target Price — Here's Why
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