In the early hours of Wednesday, HDFC Bank witnessed a significant drop of nearly 7 percent in its shares, resulting in a loss of over Rs 76,000 crore in market capitalisation. However, despite this setback, the bank managed to report better-than-expected Q3 profit growth. By 10:23 am, the shares of the largest bank in the country showed a slight recovery, trading at a 5.84 percent lower value of Rs 1,581.10. It is worth mentioning that the bank performed well in terms of net interest income (NII) and trading gains, but fell short in fees and credit cost. The results were impacted by a substantial contingency provision of Rs 1,200 crore towards an Alternate Investment Fund (AIF), even though its value was 5 percent higher than the carrying value.
Analysts express concerns despite robust Q3 earnings:
Various brokerages have provided their insights on the performance and future prospects of HDFC Bank. Nuvama Institutional Equities downgraded the stock due to concerns over LCR, deposit growth, and loan growth. They noted a 5-6 per cent cut in earnings for FY25E-FY26E and downgraded the stock to ‘HOLD’.
On the other hand, Phillip Capital highlighted liquidity challenges affecting deposit mobilisation. They mentioned that the ask rate for deposit outstrips the current run rate, which may lead to a moderation in credit growth. They have suggested a target price of Rs 1,920 for the stock.
Meanwhile, Motilal Oswal stated that HDFC Bank’s margin remained largely flat and slightly below their expectations. However, they mentioned that loan growth was healthy, driven by growth in retail and continued traction in Commercial and Rural banking. They also highlighted improvements in asset quality ratios and PCR. Motilal Oswal added that the bank has maintained a 0.6 per cent buffer of floating + contingent provisions, which provides additional comfort. They have set a target price of Rs 1,950 for the stock.
Nirmal Bang Institutional Equities remained positive on HDFC Bank in the long term, emphasizing its growth potential. They valued HDFC Bank at 2.7 times December 2025E ABV and maintained their target price at Rs 1,994 with a buy rating.
Lastly, Kotak Institutional Equities maintained a ‘buy’ rating with a target price of Rs 1,860. However, they raised concerns about the sustainability of HDFC Bank’s operating profit growth drivers.
The earnings report of HDFC Bank was slightly disappointing due to the uncertainty surrounding the sustainability of the growth drivers for operating profit and the higher provisions reported by the bank. Although the net interest margin (NIM) seems to have stabilized at 3.4 percent, the factors contributing to its expansion are not progressing as anticipated, leading to revisions in our earnings projections, according to the brokerage.
The brokerage further stated that they are not inclined to base their investment thesis solely on relative operating profit growth, as the valuation differential does not support this argument. Instead, they view HDFC Bank as a bank that is likely to deliver consistent earnings growth, and the current valuations are appealing.
