HDFC Bank Q3 Review: Profit Meets Estimates But Slow Margin Growth Worries Analysts
Here’s what analysts have to say about HDFC Bank’s Q3 FY22 results:
While HDFC Bank Ltd.'s third-quarter net profit met estimates, its flat margin disappointed analysts.
India's largest private lender saw its earnings rise 18% year-on-year in the three months ended December. Its net interest margin remained flat sequentially but contracted 10 basis points over the year ago. That, analysts said, was largely because of slower retail loan growth, constituting a significant chunk of the bank’s overall loan book.
HDFC Bank’s total advances rose 16.5% year-on-year to Rs 12.6 lakh crore.
Retail loans rose 13% year-on-year, commercial and rural banking loans grew 29.4%.
Corporate loan book rose 7.5% year-on-year.
The bank’s growth dynamics have led to a change in the portfolio mix, with retail now contributing only 47% of the total loans, down from 54% earlier.
Asset quality metrics have held strong, analysts said. The management expects that out of 1.4% of its restructured loan book, only 10-20 basis points should slip into the non-performing category. With strong provision buffers, the analysts expect HDFC Bank to take on any asset quality stress emanating from future Covid waves.
Shares of HDFC Bank Ltd. fell nearly a percent after the markets opened on Monday. Of the 50 analysts tracking the lender, 45 maintain a ‘buy’, four suggest a ‘hold’ and one recommend a ‘sell’, according to Bloomberg data. The 12-month consensus price target implies an upside of 26.7%.
Here’s what analysts have to say about HDFC Bank’s Q3 FY22 results:
Jefferies
Tad disappointed by weak growth in fees, but positively surprised by asset quality.
Omicron could impact business growth, but expect normalisation by first quarter of 2022-23.
Subsidiary profits improved as HDB Financial Services returned to profitability after reporting a loss last year owing to lower provisions.
Credit costs should stabilise around 1-2% of total loans as fresh retail and small and medium enterprise lending play into better asset quality metrics.
Maintains ‘buy’ with a target price of Rs 2,160 apiece.
CLSA
Sector read is that asset quality issues have clearly passed.
Growth in retail and commercial banking loans should reverse muted net interest income and pre-provisioning operating profit trends in the next few quarters.
Expects core pre-provisioning operating profit to improve from 12% in FY22 to 17% over the next two years.
Factors in 100-basis-points credit costs this year. Current credit costs are at 60-70 basis points, coupled with large provisioning buffer should provide significant comfort to profit and loss account.
Maintains ‘buy’ with a target price of Rs 2,025 apiece.
Bernstein Research
Despite good momentum, overall loan growth was lower than the industry for Q3.
Retail, commercial banking, and rural portfolio disbursement momentum was strong.
Consumer durables, credit cards, personal loans and loans against property loan books rose sequentially, but two-wheeler financing portfolio contracted 4% quarter-on-quarter.
Repayments in the corporate portfolio also tempered Q3 loan growth.
Rates HDFC Bank as ‘outperform’ with a target price of Rs 1,890 apiece.
Motilal Oswal
Profitability stood stronger, despite Rs 900 crore worth additional provisions during the quarter.
Restructured loans stood at 1.4% of total loans compared with 1.5% as on Sept. 30, 2021.
Core NIM stood flat quarter-on-quarter at 4.1%; expects trends to improve in coming quarters.
Other income rose 10% year-on-year due to robust growth in forex income and healthy treasury gains during the quarter. Fee income remained muted at 2% year-on-year on lower credit utilisation and lower revolve rate in card business.
Maintains ‘buy’ with a target price of Rs 2,000 apiece.
Emkay Global
Retail credit growth remains sub-optimal, with its share at 47%, down from 53-54% two years ago, weighing partly on margins.
Within retail, vehicle finance continued to drag, partly due to slow car sales, hurt by the chip shortage; and partly due to the bank’s risk averseness in the high-margin commercial vehicle segment.
Card and personal loan growth has improved and should see further acceleration, unless impacted by a fresh Covid wave.
With growth trends improving and asset quality well under control with strong buffers in place, HDFC Bank is expected to report healthy return ratios.
Delay in growth or asset quality normalisation in case of an extended Covid wave and prolonged embargo on digital initiatives hampering business or fee growth are key risks.
Retains ‘buy’ with a target price of Rs 2,050 apiece.