HDFC Bank Plunges 7% After Q3 Results, Records Biggest Fall Since December; Should You Buy?

HDFC Bank witnessed a sharp decline in its shares on January 17, marking the lowest level since December 1. Analysts provide a mixed bag of perspectives following the release of the bank's third-quarter results.

Shares of HDFC Bank took a hit, falling more than 7% in trade on the Bombay Stock Exchange (BSE), opening at Rs 1,583.85 per share, down from its previous close of Rs 1,678.95 per share. The stock dipped to Rs 1,570 per share during the session, reflecting a decline attributed to the release of the third-quarter results.

HDFC Bank reported a net profit of Rs 16,372 crore, signifying a sequential increase of 2.5% and a notable yearly rise of 33.5%. An essential factor to consider is the merger with Housing Development Finance Corp (HDFC) in June 2023.

Brokerage firms present varied perspectives on HDFC Bank's performance, offering investors a diverse range of outlooks.

Bernstein, maintaining an 'Outperform' recommendation, set a target of Rs 2,200 per share. However, it acknowledged the bank's weak set of numbers, noting the first year-on-year earnings per share (EPS) decline in a decade. The firm highlighted flat Net Interest Margins (NIMs) quarter-on-quarter (QoQ) and a 2% year-on-year decline in EPS. It also pointed out the use of lower tax expenses to maintain a 2% Return on Assets (RoA).

Morgan Stanley (MS), with an 'Overweight' recommendation and a target of Rs 2,110 per share, took a more optimistic stance. MS positively noted a 2% QoQ growth in Profit After Tax (PAT), surpassing estimates by approximately 4%. The brokerage described the Net Interest Income (NII) as in line with estimates and stable margins QoQ. It observed a stable core Pre-Provision Operating Profit (PPoP) and higher credit costs due to one-time contingency provisions.

Jefferies recommended a 'Buy', setting a target of Rs 2,000 per share. The brokerage commended the bank's core Profit Before Tax (PBT) growth and net profit exceeding estimates with a lower tax rate. Jefferies emphasized the importance of an uptick in retail deposit mobilization and lending to lift Net Interest Margins (NIMs). It also acknowledged stable asset quality and the significance of retail growth.

The impact of HDFC Bank's Q3 results is not limited to domestic markets. The US-listed shares of HDFC Bank fell 6.7% overnight, marking the biggest single-day drop since April 2022 when they had declined 7.5%. It's noteworthy that HDFC Bank commands over 14% weightage on the Nifty 50 index, the highest among the constituents.

As investors digest the divergent views presented by various brokerage firms and market experts, the next moves in HDFC Bank's stock remain uncertain. The Q3 results, coupled with the merger intricacies, create a complex picture that will require careful consideration from investors.