HDFC Bank Q1 Review: Analysts Hike Target Price Following Upbeat Performance
In a major surprise, HDFC Bank Ltd. has reported better-than-expected performance for the first quarter, prompting analysts to hike their target price for the private lender.
According to a report by Jefferies, HDFC Bank’s key positives for the quarter included improved growth in loans and deposits, a lower reduction in net interest margin, and stable asset quality.
The private lender reported a 7% growth in loans during the quarter, driven by business, banking, and automobile segments. Deposits grew 16% on the year, Jefferies noted.
HDFC Bank’s net interest income stood at Rs 31,438 crore, marking a 5% increase year-on-year (YoY) and a 2% decline quarter-on-quarter (QoQ). Other income (excluding one-offs) was Rs 12,601 crore, up 18% YoY and 5% QoQ.
The lender’s operating expenses (Opex) were Rs 17,434 crore, up 5% YoY and down 1% QoQ. Operating profit came in at Rs 35,734 crore, surging 50% YoY and 35% QoQ.
Provisions stood at Rs 14,442 crore, increasing 352% QoQ compared to Rs 3,192 crore. HDFC Bank made a floating provision of Rs 9,000 crore in Q1FY26.
The private lender’s profit after tax (PAT) was Rs 18,155 crore, up 12% YoY and 3% QoQ. The gross non-performing asset (NPA) ratio was 1.4%, an increase of 7 basis points (bps) QoQ from 1.33%. The net NPA ratio was 0.47%, an increase of 4 bps QoQ from 0.43%.
CLSA expects HDFC Bank to deliver 11% loan growth in financial year 2026 and 15-16% growth thereafter. For the current financial year, CLSA is looking at 10-bps NIM moderation.
HDFC Bank gained Rs 9,100 crore from the initial public offer of its subsidiary HDB Financial in the first quarter. The private lender used most of the IPO proceeds for a buffer, CLSA said.
Motilal Oswal Financial Services expects HDFC Bank to deliver a 1.9% return on assets and a 14.9% return on equity for the financial year 2027. A gradual reduction in high-cost borrowings, along with an improvement in operating leverage and provision buffer, will likely support HDFC Bank’s return ratios over the coming years, the brokerage said.
In conclusion, HDFC Bank’s Q1 results have been a major positive surprise, prompting analysts to hike their target price for the private lender. The lender’s strong performance is driven by its business, banking, and automobile segments, as well as its efforts to improve asset quality and reduce high-cost borrowings.
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