HDFC Bank shares opened in green on Tuesday’s trading session after reporting strong second quarter results on Monday, beating estimates. The stock opened a tad higher at Rs 1,550 per piece in Tuesday’s session against previous close at Rs 1,529 per share.
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According to media reports, during the September quarter of the present fiscal year, the financial institution fell short of analyst expectations regarding net interest income (NII) and net interest margins (NIM). Nevertheless, its net profit received a positive boost from increased other income and a reduced tax rate.
The bank saw net profit rise to Rs 15,976 crore in the quarter ended 30 September from Rs 10,605 crore in the year-ago period. That exceeded analysts’ estimates of Rs 14,120 crore in a Bloomberg survey.
“We had indicated going into the merger, there was a build of liquidity to tide over the merger management, and 25-30 bps impact on margin is coming from there," said Srinivasan Vaidyanathan, chief financial officer of HDFC Bank.
“Our margin has been 4%. Now, when you have a debt-funded balance sheet with a mix of funding, the cost of borrowing is higher than the cost of deposit. Over a period of time, deposits will replace borrowing. Then margin will start to improve," he further added.
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Analysts are also positive for the lending firm retaining ‘Buy’ tag post strong quarter results.
“HDFCB saw good quarter; NIM was 4bps higher to PLe at 3.66% and core PPoP was a 2.9% beat owing to better fees. Loan growth at 5.0% QoQ was broad based led by CRB/agri/retail/corporate. Asset quality was stable with GNPA at 1.34% (-6bps QoQ) and controlled net slippages. While NIM was affected (-37bps QoQ) by surplus liquidity, we believe margins have bottomed out as excess cash has already been drawn down which should normalize NIM in H2FY24E. Moreover, as high cost liabilities of HDFCL are replaced, NIM should enhance over FY24-26E from 3.57% to 3.72%. Due to higher fees/lower taxes we raise FY24E core PAT by ~3%, although FY25/26E earnings remain unchanged. With core RoA of 1.74% and likely core PAT CAGR of ~19% over FY24-26E, HDFCB remains our preferred pick among large-caps. We maintain multiple at 2.8x on Sep’25E core ABV and TP at Rs2,025. Retain ‘BUY’.” said Gaurav Jani - Research Analyst, Prabhudas Lilladher Pvt Ltd.