April 22, 2025
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Research Report on HDFC Bank by Motilal Oswal Securities
Analysis dated April 2025
Sector: Pvt Sector Bank
Price on Analysis date: Rs. 1907
Target Rs. 2200
(15% Upside potential)
Target Period: 3 Months
HDFC BANK: Steady quarter; growth trajectory set to accelerate
Core NIM improves 3bp QoQ to 3.46%
- HDFC Bank (HDFCB) reported a 4QFY25 net profit of INR176.2b (7% YoY growth; in line).
- The bank’s NII grew 10.3% YoY to INR320.6b (5% beat), boosted by strong loan growth and INR7b of interest on IT refunds. Core NIM expanded 3bp QoQ to 3.46% in 4Q from 3.43% in 3QFY25.
- Other income stood at INR120.3b (inline). Opex declined 2% YoY to INR175.6 (inline). The C/I ratio improved to 39.8% (40.6% in 3QFY25).
- Provisions declined 76% YoY to INR31.9b (in line). PPoP stood at INR265.4b (4% beat) during the quarter.
- The GNPA/NNPA ratio improved 9bp/3bp QoQ to 1.33%/0.43%. PCR stood broadly stable at 67.9%. Fresh slippages were INR75b vs. INR88b in 3QFY25.
- Advances book rose 5.4% YoY/4% QoQ to INR26.2t. Deposits grew 14% YoY/ 6% QoQ to INR27.1t. The C/D ratio eased 173bp QoQ to 96.5%. HDFCB’s CASA ratio stood at 35% for the quarter.
- We raise our earnings estimates by 3%/5% for FY26/27 and estimate HDFCB to deliver an FY27E RoA/RoE of 1.9%/14.6%. We reiterate our BUY rating with a TP of INR2,200 (based on 2.4x FY27E ABV + INR307 for subs).
Credit growth robust; the C/D ratio declines to 96.5%
- HDFCB reported a 4QFY25 net profit of INR176.2b (7% YoY growth, in line). In FY25, earnings grew 10.7% YoY to INR673.5b, and we estimate FY26 earnings to grow 9% YoY to INR735b.
- NII grew 10.3% YoY to INR320.6b (5% beat). NIM (excluding interest on IT refund) expanded 3bp QoQ to 3.46%. Other income declined 34% YoY/rose 5% QoQ. Treasury gains increased to INR4.0b from INR0.7b in 3QFY25.
- Opex declined 2% YoY to INR175.6 (in line). The C/I ratio improved to 39.8% (40.6% in 3QFY25). PPoP stood at INR265.4b (4% beat).
- Loan growth was healthy at 5.4% YoY (4% QoQ), led by CRB and Agri books. Deposits grew 14% YoY/6% QoQ, with the CASA ratio improving 100bp QoQ to 35%. The C/D ratio declined 173bp QoQ to 96.5%. The bank will continue to reduce the C/D ratio in a calibrated manner as it aims to deliver improved loan growth over FY25-27.
- The GNPA/NNPA ratio improved 9bp/3bp QoQ to 1.33%/0.43%. PCR was broadly stable at 67.9%. Fresh slippages stood at INR75b vs. INR88b in 3QFY25. CAR stood at 19.6%, with Tier 1 at 17.7% (CET1 at 17.2%).
- Subsidiary performance: HDB Financial reported a loan growth of 18.5% YoY/ 4.7% QoQ to INR1,069b, while its PAT stood at INR5.3b. GS3 assets stood at 2.26%, while CAR was 19.2%. HDFC Securities: Revenue grew 14% YoY to INR7.4b, while PAT declined 21% YoY to INR2.5b.
Highlights from the management commentary
- The bank’s C/D ratio is expected to be below 90% by FY27. Adjustment in the C/D ratio will not be very steep, which would support loan growth, but the C/D ratio will continue to show a downward trend.
- In terms of branches, the bank is doing 2x what it was doing five years ago. HDFCB increased its headcount by ~4k in 4Q, ramping up investments in personnel while focusing on a productivity-driven model.
- Time deposits’ market share stood at 11.5%, while the CASA market share is 10.5% at present. Penetration of time deposits in the customer base is low, and HDFCB aims to grow customer relationships in this area as well. The goal is to have the wallet share of the customer in whatever form it comes.
Valuation and view: Reiterate BUY with a TP of INR 2,200
HDFCB posted a steady quarter with in-line earnings and a beat in NII, while the core margin improved 3bp QoQ. Further, NIM (including IT refunds) rose 11bp QoQ to 3.54% in 4QFY25. Business growth was healthy while aligning with the bank’s strategy to reduce the C/D ratio consistently. Asset quality improved, with slippages remaining at a controlled level, while PCR stood stable at ~67.9%. Further, HDFCB continues to hold healthy provisions (floating + contingent) of INR259b, or 1.0% of loans. We factor in loan growth of 10%/13% for FY26/FY27. The gradual retirement of high-cost borrowings, along with an improvement in operating leverage, will support return ratios over the coming years. We raise our earnings by 3%/5% for FY26E/27E and estimate HDFCB to deliver an FY27E RoA/RoE of 1.9%/14.6%. Reiterate BUY with a TP of INR2,200 (based on 2.4x FY27E ABV + INR307 for subs).
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