Jefferies Reaffirms Buy On HDB Financial After Q3 Profit Beat - Details Inside

Global brokerage Jefferies has reiterated its Buy rating on HDB Financial Services, with a price target of Rs 920, after the NBFC delivered a stronger-than-expected performance in the December quarter, even as asset under management (AUM) growth remained subdued.

HDB Financial reported a profit after tax of Rs 640 crore for the quarter, up 36% year-on-year and around 4% ahead of Jefferies' estimates. The beat was driven by lower provisions and higher fee income, with one-off provisioning linked to the new labour code also supporting earnings.

AUM Growth Slows, But Disbursements Improve

Jefferies noted that AUM growth moderated to 12% year-on-year to Rs 1.15 lakh crore, reflecting a mixed lending environment. While enterprise lending remained steady at 9% growth and consumer finance expanded 16%, asset finance growth slowed to 13%, weighed down by auto price deflation and tighter underwriting filters.

Disbursements, however, showed signs of improvement, rising 10% quarter-on-quarter. Consumer finance disbursements grew 14%, aided by festive demand and post-GST cut momentum, while enterprise lending rose 12%. Asset finance lagged with a 4% increase, but new commercial vehicle loans grew 4% sequentially, with used CV loans up a sharper 3%.

Margins Surprise on the Upside

Net interest margins (NIMs) came in slightly better than expected, rising 14 basis points quarter-on-quarter to 8.1%, compared with Jefferies' estimate of 8%. The improvement was driven by a lower leverage ratio and a modest uptick in average yields, despite a higher share of secured loans.

Jefferies expects further cost-of-funds benefits in the June quarter as deposit repricing kicks in, with around 40% of liabilities slated for reset. Stronger growth in unsecured loans could also provide incremental support to margins in FY27.

Asset Quality Trends Strengthen

A key positive highlighted by Jefferies was the improvement in asset quality. Gross NPAs remained stable at 2.8%, while net slippages declined sharply to 100 basis points quarter-on-quarter. Credit costs fell 19 basis points sequentially to 2.5%, beating estimates.

Collections improved across most buckets, with stress largely concentrated in commercial vehicle loans. Management indicated that stress in other segments has stabilised and that forward flows and slippages should moderate.

Estimates Raised, Buy Maintained

Jefferies raised its FY26–FY27 earnings estimates by 3%, factoring in better margins, higher fee income and stabilising asset quality. The brokerage now expects earnings to grow at a 29% CAGR over FY26–FY28, with return on equity expanding to around 16% by FY28.

Despite the stock being down about 9% over the past six months, Jefferies believes valuations remain reasonable and maintained its Buy rating with a price target of Rs 920, citing improving fundamentals and a clearer earnings trajectory.

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