Buy HDFC Bank; target of Rs 2300: Motilal Oswal

Motilal Oswal's research report on HDFC Bank

HDFC Bank (HDFCB) reported a 1QFY26 profit of INR181.6b (12% YoY growth, 4% beat), aided by tax reversals (tax rate of 15%). NII grew 5% YoY to INR314.4b (3% miss). Margin on total assets contracted 11bp QoQ to 3.35% from 3.46% (adjusted for interest income on IT refund). Other income was INR217.3b, boosted by gains from the stake sale in HDB Financial amounting to INR91.3b. Opex rose 5% YoY to INR174.3 (in line). Provisions spiked to INR144b as the bank made floating provisions of INR90b and contingency provisions of INR17b, prudently utilizing the stake sale gains in its subsidiary HDB Financial and other treasury gains. Fresh slippages stood at INR90b (INR68b ex-agri). The GNPA/NNPA ratios rose 7bp/4bp QoQ to 1.4%/0.5%. PCR stood broadly stable at 66.9%.

Outlook

We tweak our earnings estimates and project HDFCB to deliver an FY27E RoA/RoE of 1.9%/14.9%. Reiterate BUY with a TP of INR2,300 (premised on 2.6x FY27E ABV + INR284 for subsidiaries).

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