HDFC Bank jumps 4%, emerges top Nifty gainer as Street rejoices Q2 results, fall in CD ratio

So far this year, shares of HDFC Bank have dropped over a percent

Shares of HDFC Bank surged 4 percent to Rs 1,748 apiece on October 21 after Street gave thumbs up to its September quarter performance. Strong metrics was observed on all counts, with slight deterioation seen in asset quality picture. Brokerages maintained their positive outlook on the stock, with price targets suggesting potential upside of up to 28 percent from current levels. The consensus view is that the bank is on a stable path to address post-merger challenges as NII, profit metrics grow and credit to deposit ratio drops.

Bernstein reaffirmed its 'outperform' rating, setting a target price of Rs 2,100 per share. The firm noted that HDFC Bank appeared resilient compared to its peers, which have struggled with shrinking margins and rising credit costs. According to Bernstein, HDFC Bank's robust fundamentals, particularly in a challenging environment, differentiate it from the rest of the sector.

Goldman Sachs echoed this bullish sentiment, reiterating its 'buy' rating and offering the highest target price among brokerages at Rs 2,156 per share. Analysts said that HDFC Bank's core operating profits were in line with expectations, but it saw an improved outlook for future earnings.

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"The core PPoP RoA of 2.7 percent marked a second consecutive quarter with improvement. While provisions were 10 percent lower than estimates, PAT beat Street estimates by 10 percent," they added.

HDFC Bank's key financial metrics showed solid growth, with 6 percent year-on-year rise in September quarter net profit, while net interest income grew by 10 percent YoY. Its NIMs also stood at 3.46 percent in Q2FY25, in-line with Street estimates.

The bank’s asset quality deteriorated, with gross non-performing assets (NPAs) at 1.36 percent in Q2FY25, compared to 1.33 per cent in Q1FY25, and 1.34 percent in Q2FY24. Net NPAs of the bank stood at 0.41 percent compared to 0.39 percent in Q1FY25.

A notable highlight from the quarter was a sharp drop in the bank's credit-to-deposit (CD) ratio, which fell to 99.8 percent. This marked the first time the ratio has dropped below 100 percent since the merger with mortgage giant HDFC in July 2023. Without giving a timeline or a desired level, the management said it would like to bring down the level further.

"It will take another 2-3 years to get the CD ratio back to the pre-merger levels of 86-87 percent," said S Vaidyanathan, Chief Financial Officer of HDFC Bank on a concall post Q2 results release.

In response to the latest results, Investec raised its target price for HDFC Bank to Rs 1,625 per share from Rs 1,650 per share. However, the firm maintained a 'neutral' rating, pointing out that the bank's slower credit growth could limit further reductions in the CD ratio. They also highlighted that CASA (current account savings account) growth remains a critical factor in driving profitability.

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