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Motilal Oswal Report
HDFC Bank Ltd. reported a mixed quarter with in-line pre-provision operating profit and profit after tax, while deposit growth was modest at ~1.9% QoQ.
Margin remained flat at 3.4% despite a rise in the credit-deposit ratio and deployment of excess liquidity on the balance sheet as liquidity coverage ratio declined sharply to 110%.
Net interest income thus came in slightly lower than our estimate, but healthy other income (boosted by the treasury gains) led to in-line profitability.
Gross non-performing asset ratio improved 8 basis points QoQ to 1.3%, while provision coverage ratio improved to 75%. Fresh slippages moderated to Rs 70 billion/1.2% of loans.
We estimate HDFC Bank to deliver 17%/19% compound annual growth rate in loan/deposit over FY24- 26, while earnings compound at 20% CAGR, translating into an return on asset/return on equity of 1.9%/16.7% by FY26.
We reiterate our 'Buy' rating with a target price of Rs 1,950 (premised on 2.5 times Sep-25E adjusted book value plus Rs 223 for subs).
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