What are analysts saying about HDFC Bank after Q1 profit beats estimate?

HDFC Bank, the country’s most valued lender, came out with numbers that easily beat the street expectations for the first quarter of the current year.

Net profit at Rs 9,196 crore was up 19% over the three months ended June 30, 2021 on strong growth in net interest income and lower provisioning for bad loans.

Net interest income grew 14.5% to Rs 19481.4 crore compared to Rs 17009 crore in the year-ago period.

The bank, which has been struggling to break out on the charts after it announced a merger with its parent HDFC, declared its numbers during the weekend. On Monday, the stock ended the trading session with a loss of 1.19%.

So how are analysts looking at the stock after the results?

Most analysts have a target price in the Rs 1,800-2,000 range for the stock, with an upside of 30-45%. While a few did revise their price targets marginally, they retained a buy on the stock.

HDFC Bank reported robust credit growth of 22%, driven by strong growth in the retail book while corporate loan growth was relatively lower at 20%, pushing up share of retail to 46%. This is line with what the management has said will cross 50% mark over time.

The asset quality showed improvement with gross non-performing assets (NPA) shrinking to 1.28% from 1.47% as on June 30, 2021.

The flip side

There were grey shades in the numbers for brokerage houses. These covered aspects like sequential deterioration of asset quality, increased operational expenditures and treasury loss dragging down non-interest income.

Treasury: Non-interest income was up just 1.6% year on year and was actually down 16.4% over Q4 FY22. This was largely attributed to a treasury loss of Rs1310 crore due to the adverse impact of rising bond yields. The treasury loss in the previous quarter was marginal and the bank actually booked treasury gain in Q1 FY22.

Opex: Operating cost has risen 3.4% QoQ and 28.7% over the year-ago period. This was led by investments going into hiring people and adding to the branch network. Overall cost/income ratio has shot up to 40.6% compared to 35% in Q1 FY221, a level that is the standard guidance of the bank for the medium term.

Asset quality: Overall GNPA ratio improved over the previous year but it has seen some slippage from 1.17% in Q4 FY22. While the bank has attributed it to mainly the seasonal impact of agri-related slippages, analysts see an uptick across segments. For instance, retail GNPA ratio was up 1 bp at 1.18%, commercial and rural banking (excluding agri) GNPA ratio was up 3 bps at 1.23% while corporate GNPA ratio was up 11bps at 0.64%.