Buy HDB Financial Services; target of Rs 850: Emkay Global Financial

buy

Emkay Global Financial' research report on HDB Financial Services

HDBFS posted an overall weak Q2FY26, with AUM growth (13% YoY), asset quality (GS3 +25bps QoQ to 2.81%), and credit cost (2.7%) coming in worse than consensus’ and our estimates. The management pinned the reason of the poor show in Q2 to the CV/CE segments that saw increased stress due to heavy monsoon-led excessive idle time of vehicles (35% vs 20%). MSME The overall segment saw stabilization. Per the management’s assessment, growth and asset quality bottomed out in Q2; H2 should see (already started) an improvement, supported by good monsoons and festive-season demand, and credit costs should normalize downward. Margins in the quarter improved by ~20bps QoQ mainly on account of CoF moderation. Beyond the H2 recovery, the mgmt remains confident of its ability to deliver steady growth (~18-20% CAGR over 3-5 years) with contained credit costs (~2.2%) ahead. Factoring in the Q2FY26 developments and management commentary, we marginally trim FY26E/28E AUM growth by ~1%/2.5%, and slightly increase our credit cost estimate by ~20bps which results in an EPS cut of 6-8% over FY26-28E.

Outlook

We maintain BUY on the stock while revising down Sep-26E target price by ~6% to Rs850 (Rs900 earlier), implying FY27E P/B of 2.8x.

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HDB Financial Services - 16102025 - emkay