HDB Financial Services' net interest margin declined during the quarter, largely due to seasonal factors. With bank borrowings accounting for 43% of total borrowings and ~55-60% of these linked to the repo rate, further funding-cost pressure could weigh on margins in the coming quarters. HDB Financial Services currently trades at 1.8 times FY28E price/book-value.
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Motilal Oswal Report
Motilal Oswal has retained its Neutral rating on HDB Financial Services Ltd. with a target price of Rs 655, implying 12% upside from the report's CMP of Rs 584.
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Q2 profit rose 34% YoY, while the brokerage expects business momentum to improve in the second half. However, it flags subdued loan growth, marginal asset-quality deterioration and funding-cost pressure.
View and Valuation
HDB Financial Service reported a weak quarter, with earnings broadly in line with estimates but growth remaining subdued and asset quality showing a marginal deterioration amid minor stress in the asset-finance portfolio.
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NIM declined during the quarter, largely due to seasonal factors. With bank borrowings accounting for 43% of total borrowings and ~55-60% of these linked to the repo rate, further funding-cost pressure could weigh on margins in the coming quarters.
HDB Financial Services currently trades at 1.8 times FY28E price/book-value.
Motilal Oswal estimates a compound annual growth rate of 16%/15%/ 21% in disbursement/AUM/PAT over FY26-28, with RoA/RoE of ~2.5%/14.4% in FY28E.
Hence Motilal Oswal reiterate Neutral. With valuations largely factoring in medium-term growth potential, the brokerage will look for clearer evidence of stronger execution on loan growth, the ability to better navigate industry/product cycles, and structural (not just cyclical) improvement in return ratios.
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