HDB FInancial shares fall below IPO price after Q2 results; Check analyst targets

Shares of HDB Financial Services Ltd., the non-bank lending arm of India's largest private lender HDFC Bank Ltd., opened lower on Thursday, October 16, slipping below their IPO price after the NBFC reported a mixed performance in its second-quarter earnings.

Morgan Stanley has an 'Equalweight' rating on HDB Financial Services, with a price target of ₹805. PAT beat Morgan Stanley's estimate on a 6% operating profit beat, driven by higher NII and lower operating costs.

Credit costs, bad loan formation, and write-offs were elevated, but Stage 2 loans remained stable QoQ. Morgan Stanley has raised FY26 EPS by 4% on higher NIM, while trimming FY27/FY28 EPS by 0.4%/3%.

Jefferies has a 'Buy' rating on HDB Financial Services, with a price target of ₹900 per share. Q2 profit came in at ₹580 crore (-2% YoY), missing their estimate by 2%. The miss in lending PAT (5%) due to higher provisions was offset by higher PPOP.

AUM growth moderated to 13% YoY, but NIM surprised positively, up 20 bps QoQ. Asset quality slipped QoQ, mainly from stress in the commercial vehicle portfolio.

Management said that initial trends in consumer and auto segments in October have been positive. Growth and asset quality are expected to improve in H2 FY26, aided by the GST cut and normalisation in activity levels.

Net interest income (NII) rose 20% year-on-year to ₹2,192 crore, led by an improvement in margins, which increased by 20 basis points to 7.9%, largely in line with expectations.

HDB	2QFY25	2QFY26	YoY
NII	1,833	2,192	19.6%

The company's pre-provision operating profit (PPOP) surged 24% YoY to ₹1,530 crore.

	1QFY26	2QFY26	QoQ bp
NIMs	7.70%	7.9%	20
Credit cost	2.50%	2.7%	20

However, rising credit costs weighed on the bottom line. Provisions increased 12% quarter-on-quarter, pushing the credit cost up 20 basis points to 2.7%, the highest level since the Covid period. As a result, PAT declined 1.7% YoY.

HDB	2QFY25	2QFY26	YoY
PAT	591	581	-1.7%

On the earnings call, management mentioned continued stress in the commercial vehicle segment, largely due to vehicle idling caused by seasonal rainfall. They expect credit costs to moderate to around 2.2% over the medium term.

	2QFY25	2QFY26	YoY
Loan Book	98,624	1,11,409	13.0%
Disbursements	15,685	15,599	-0.5%

The loan book showed little momentum, with disbursements remaining flat YoY, but the management remains optimistic about the future, targeting an 18-20% loan growth CAGR over the next 3-5 years.