HDFC Bank stages a mixed Q2 performance; what's in it for investors?

HDFC Bank shares took centre stage on Dalal Street on Tuesday, a day after the banking behemoth reported a mixed performance for the second quarter of the financial year 2023-24.

Most analysts retained their positive views on HDFC Bank after the country's largest private sector lender reported a 51% year-on-year jump in consolidated PAT for Q2. | Image: Reuters

HDFC Bank shares took centre stage on Dalal Street after the country's largest private sector lender staged a mixed performance for the quarter ended September 30, 2023. The HDFC Bank stock gained by as much as Rs 28.5, or 1.9 per cent, to Rs 1,558 apiece during the session on BSE.

The scrip finished the day with a gain of 0.6 per cent at Rs 1,539.1 apiece.

The lender registered strong growth in net interest income (NII) as it posted a 51 per cent year-on-year jump in consolidated net profit, driven by other income and a decline in provisions, but took a hit in terms of asset quality as its non-performing assets (NPAs) increased sequentially.

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HDFC Bank Q2 results: A summary

After market hours on Tuesday, HDFC Bank reported a consolidated net profit of Rs 16,811.4 crore for the quarter ended September 30 as its NII, or the difference between interest earned and interest expended, grew 49.4 per cent on a year-on-year basis to Rs 33,789.2 crore. Revenue from retail banking — including digital banking — spiked 73.3 per cent to Rs 60,859 crore while that from wholesale banking more than doubled to Rs 47,298.6 crore from Rs 21,669.5 crore a year ago, according to a regulatory filing.

The lender's non-performing assets (NPAs) as a percentage of total loans stood at 1.34 per cent for the September quarter as against 1.17 per cent for the previous three months, while net bad loans increased to 0.35 per cent from 0.3 per cent.

The bank's net interest margin (NIM)—a key measure of profitability—shrank to 3.4 per cent on all assets and 3.6 per cent on interest-earning assets for the July-September period, from 4.1 per cent three months ago. Read more on HDFC Bank Q2 results

HDFC Bank reported provisions of Rs 3,312 crore for the quarter under review, down 12 per cent on year.

The mega HDFC Bank-HDFC merger, to create one of the world's largest financial institutions, came into force on July 1, 2023.

EDITOR'S TAKE | HDFC Bank Q2 results a mixed bag

Zee Business Managing Editor Anil Singhvi highlighted that while the lender's quarterly net profit was better than estimates, its adjusted net interest margin (NIM) and asset quality were not up to the mark.

He sees support for HDFC Bank futures coming in at Rs 1,480-1,510 and a higher level at Rs 1,550-1,565. The market wizard suggests selling HDFC Bank futures at the higher range and buying at lower levels.

Here's how some of the top brokerages rate HDFC Bank after the lender's earnings announcement:

Brokerage	Rating	Price target	Upside vs Monday's closing price (%)
UBS	Buy	Rs 1,900	24.2
Morgan Stanley	Overweight	Rs 2,110	38
JPMorgan	Overweight	Rs 1,900	24.2
Jefferies	Buy	Rs 2,030	32.7
Citi	Buy	Rs 2,110	38
Macquarie	Outperform	Rs 2,110	38
HSBC	Buy	Reduced to Rs 1,850 from Rs 1,930	21

UBS, which maintained a 'buy' rating on HDFC Bank with a target of Rs 1,900 after the earnings announcement, said the lender's post-merger quarterly numbers, though supported by lower tax rates, were weaker than expected, with the margin missing its estimates.

The brokerage, however, pointed out that HDFC Bank's growth in loans and deposits was at healthy levels.

UBS reduced its margin estimates for HDFC Bank by 14 and 13 bps for the financial year 2023-24 and 2024-25, respectively.

According to Morgan Stanley, which retained its 'overweight' rating with a target of Rs 2,110, the lender's Q2 profit was 12 per cent above its estimates, aided by benign credit costs, treasury gains and lower taxes.

The brokerage expects HDFC Bank's NII growth to re-accelerate from the current level.

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