HDFC Bank Shares Plunge 7% After Q3 Results Beat Expectations: Buy?

A day after the company released its results for the December quarter, on Wednesday, January 17, HDFC Bank's share price fell by about 7% in early trading on the NSE. In contrast to its previous finish of Rs 1,679.15, the HDFC Bank share price began at Rs 1,570. It quickly broke 7.08 per cent to reach the day's low level of Rs 1,560 at 09.49 am.

On Tuesday, HDFC Bank said that its net profit for the third quarter of FY24 grew by 33% to Rs 16,372 crore from Rs 12,259 crore in the same quarter of the previous fiscal. The quarter's net interest income (NII) was Rs 28,470 crore, a significant rise of 23.9% over the previous fiscal year's equivalent quarter's Rs 22,990 crore. HDFC Bank has kept its asset quality in good shape. Compared to the prior year, the gross non-performing assets (NPA) grew marginally to 1.26% from 1.23%.

The total deposits of HDFC Bank surged significantly during the October-December FY24 quarter, rising by 27.7% to Rs 28.47 lakh crore from Rs 22.29 lakh crore during the same quarter the previous year. Current account and savings account deposits increased by 9.5% to Rs 5.79 lakh crore, while current account deposits reached Rs 2.58 lakh crore.

HDFC Bank Share Price Target

Sameer Bhise - Executive Director - JM Financial Ltd said, "HDFC Bank's 3QFY24 core-PPOP at INR 222bn (2.4% QoQ), missed our estimates (of Rs233bn) as NIMs (3.4%) remained flat QoQ at the relatively suppressed levels seen in 2QFY24. This, despite a) the impact of ICRR (which was a drag on NIMs in 2Q), excess liquidity build-up due to merger management not being there and b) LCR run down from 121% to 110% during the quarter. We estimate core margins could have declined by >20bps QoQ for HDFC Bank which was a disappointment. PAT stood at INR 164bn (2.5% QoQ, ahead of our estimates of INR 152bn) which was aided lower effective tax rate during the quarter. Management alluded to continued competitive pressures on deposit growth given tight liquidity. Over the medium term, Mgmt. believes greater contribution of retail assets in the overall asset mix should aid margins to normalize to higher levels."

"PPOP at Rs236.7bn (+4% QoQ) was aided by trading gains of Rs14.7bn. Cost-income ratio stood at 40.3% (flattish QoQ) with opex growing by 28% YoY. Core credit costs stood at 50bps and HDFC Bank created contingent provisions of Rs12bn pertaining to investments in AIF (based on RBI's new norms). Asset quality remained largely stable (slippage ratio at 1.4%) during the quarter. Given continued systemic tightness in liquidity and HDFC Bank's high ask rate w.r.t to deposit accretion (LDR>100% and LCR already down to 110%), we believe improvement in HDFC Bank's NIMs will need a fine balancing act and improvement will be only be gradual. While acknowledging the near-term pressures, we believe HDFC Bank remains well-placed to deliver healthy growth with relatively lower risk. We maintain BUY with a target price of INR 2010 valuing core HDFC Bank at 2.4x FY26E P/BV and subsidiaries valued at INR 210," added Sameer Bhise.

Disclaimer

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