HDFC Bank's ADR Drops Most Since April 2022 After Q3, Falls 7%; Why Bears Toppled India's Largest Bank?

India's largest bank and third largest company in terms of market share, HDFC Bank is in a bloodbath on Wednesday's trading session as investors' mood soured over In Following this, HDFC Bank's US-listed shares also took a major hit.

HDFC Bank ADR:

Right after earnings, HDFC Bank's American Depositary Receipts (ADRs) listed on NYSE nosedived by 7% to close at $61.18 on January 16. This is the most single-day drop in HDFC Bank's ADR since April 2022.

In general terms, ADRs allow U.S. investors to invest in non-U.S. companies and give non-U.S. companies easier access to the U.S. capital markets. Many non-U.S. issuers use ADRs as a means of raising capital or establishing a trading presence in the U.S. The non-U.S. company may sometimes be referred to as a "foreign private issuer.", as per SEC's FAQS.

HDFC Bank's ADR were the first to react to the lender's Q3 results. Meanwhile, on Wednesday, the share price listed on BSE and NSE reacted. HDFC Bank shares are top bears on both Indian exchanges.

HDFC Bank Share Price:

Notably, HDFC Bank's weightage in Nifty 50 is the highest among other constituents, at a staggering 13.52% by the end of 2023. Reliance and ICICI Bank follow with weightage of 9.20% and 7.36% respectively.

On NSE, HDFC Bank shares dived by 7.09% to hit an intraday low of Rs 1,560 apiece. The stock is currently trading at Rs 1,577.50 apiece, lower by Rs 101.65 or 6.05%.

Further, HDFC Bank shares were into a frenzied fall, nosediving by at least 6.5% to hit an intraday low of Rs 1,570 apiece on BSE. At the time of writing, HDFC Bank shares traded at Rs 1,580 apiece, down by 5.9% with a market cap of Rs 11,99,119.08
crore.

In Q3FY24, HDFC Bank's net profit came in at Rs 16,372 crore, registering a growth of 33% from Rs 12, 259 crore a year ago same quarter. While its net interest income (NII) saw a growth of 24% YoY to Rs 28,470 crore. While the bank's core net interest margin was at 3.4% on total assets, and 3.6% based on interest-earning assets.

Pre-provision operating profit stood at Rs 2,365 crore, up by 24.3%. In terms of asset quality, gross NPA was at 1.26%, down from 1.34% in Q2FY24. Net NPA came in at 0.31% of net advances by the end of Q3FY24.

What brokerages recommend on HDFC Bank share price?

In its research note, brokerage Motilal Oswal said, "NII came in 2% lower than MOFSLe as reported margins stood flat at 3.4%. 'Other income' stood higher than our estimate at Rs 111b, aided by healthy treasury gains coupled with strong traction in core fees. During 9MFY24, PAT grew 22% YoY to Rs 541b vs. Rs 321b (ex-merger) over 9MFY23."

Further, Motilal said, that in Q3, the margin remained flat at 3.4% despite a rise in the CD ratio and deployment of excess liquidity on the balance sheet as LCR declined sharply to 110%. It further highlighted that the margin is currently at the lower end of the spectrum and should recover to 3.7% in 18-24.

Overall, Motilal Oswal said, "HDFCB reported in-line earnings led by healthy other income and steady loan growth. Margins stood largely flat (slightly below our expectations) even as the bank deployed excess liquidity and significantly drew down the LCR ratio. Loan growth was healthy driven by growth in retail and continued traction in Commercial and Rural banking. Asset quality ratios improved while PCR also inched up to ~75%."

Motilal also said, "The bank has continued to maintain a 0.6% buffer of floating + contingent provisions, which provides additional comfort. Management suggested that NIMs will improve gradually over the coming years, which along with an improvement in operating leverage will enable the bank to deliver healthy return ratios. We estimate HDFCB to deliver faster deposit growth at 19% CAGR while loan growth to sustain at 17% CAGR over FY24-26."

Thus, Motilal estimates HDFCB to deliver an FY26E RoA/RoE of 1.9%/16.7%. It said, "We reiterate our BUY rating with a TP of INR1,950 (premised on 2.5x Sep'25E ABV + INR223 for subs)."

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.