96% analysts tracking HDFC Bank say 'buy' on improving margins, asset quality

Shares of HDFC Bank Ltd. will be in focus on Monday, January 19, after the lender reported its December quarter earnings over the weekend.

For the quarter, easing pressure from interest expenses led to a 6% year-on-year growth in net interest income, in-line with expectations. Pre-provision operating profit (PPOP) rose 8% from a year ago, also meeting estimates.

The bank reported incremental employee expenses of about ₹800 crore due to the implementation of the new labour code, while trading and mark-to-market gains of around ₹930 crore lifted other income.

Provisions were lower than expected, aided by the release of ₹1,040 crore of contingent provisions after a large borrower group met certain conditions. This helped profit after tax grow 11% on-year, beating expectations.

What's positive?

The lender's net interest margins came in at 3.51%, compared with 3.4% in the September quarter, an expansion of 11 basis points, higher than the expected 6 basis point improvement.

Calculated credit costs eased to around 41 bps from 51 bps QoQ due to the contingent provision release, although on an adjusted basis, credit costs were broadly in-line with expectations of about 55 bps.

Management reiterated confidence in achieving a loan-to-deposit ratio of around 95% by end-FY26, with a moderation to the low 90s by end-FY27.

What's negative ?

Executive Director Bhavesh Zaveri requested that his re-appointment not be considered.

The bank also reported around ₹500 crore of additional provisions following a regulatory inspection, though it clarified that these were fully subsumed and no further one-off provisions would be required.

During the earnings call, management projected system credit growth of 12-13% in FY27 and said it aims to outperform the system by 1-2%.

It also said there is clear visibility on margin improvement over the next two to three years. Asset quality remained pristine, with no specific portfolio or segment showing early signs of stress.

Brokerages largely remain constructive on stock

CLSA maintained an 'Outperform' rating with a target price of ₹1,200, saying that Q3 profit was 5% above estimates, driven by in-line operating profit and lower credit costs.

Adjusting for non-core items such as the labour code impact and treasury gains, CLSA said core operating profit was 2% above estimates, led by better margins and strong cost control.

While margins expanded 8 bps sequentially on lower deposit costs and some CRR cut benefit, gross advances growth of 2.7% QoQ was slightly below its estimate. Deposit growth moderated to 12% YoY as the bank curtailed wholesale deposits, though average CASA growth improved.

Bernstein retained its 'Outperform' rating with a target price of ₹1,200, saying the bank continues to rebuild its reputation for delivering steady and consistent earnings growth.

It said that Q3 marked another solid quarter, with EPS growth improving to 11% YoY from 10% in the previous quarter, driven by steady NII growth, a marginal increase in LDR, timely release of contingent provisions to offset one-off operating expenses, tight cost control and healthy non-interest income growth.

Jefferies reiterated its 'Buy' rating with a target price of ₹1,240.

The brokerage flagged deposit growth of 12% as a concern, though management clarified that it consciously let go of higher-cost deposits to improve margins and expects growth to pick up, which would help lower the LDR. Stable asset quality was another positive, it said.

Kotak Institutional Equities maintained an 'Add' rating with a target price of ₹1,050.

According to Kotak, management's guidance for above-industry growth in FY27 underscores the need for stronger deposit mobilisation, even as the macro environment remains only marginally supportive of deposit flows.

48 analysts have coverage on HDFC Bank, where 46 have a 'Buy' rating and the other two have a 'Hold' recommendation.

Shares of HDFC Bank closed 0.55% higher on Friday at ₹930.55, ahead of the earnings announcement.