HDB Financial Q1 profit up 25%, brokerages split on value
HDB Financial Services reported a 25% jump in pre-provisioning profit and improving asset quality for the June quarter, but mixed analyst ratings underscore a market divide over its premium valuation.
HDB Financial Services shares swung wildly on July 16 after the lender posted its June quarter earnings. The stock initially surged 4.6% to an intraday high of ₹786.20 before paring those gains to drop 0.50% to ₹747.40.
The underlying results pointed to a strengthening core business despite sector-level headwinds like elevated interest rates. Net interest income climbed nearly 20% year-on-year to ₹2,509 crore, driven by a notable net interest margin expansion to 8.4% from 7.7%. Net total income reached ₹3,185 crore.
Credit metrics improved alongside profitability. Gross Stage 3 loans fell to 2.34% from 2.56% a year earlier, though provision coverage on these assets dipped slightly to 55.73%. Provisions rose 4.1% to ₹697 crore, while the loan book grew 11.4% to ₹1,21,846 crore.
The market's muted reaction to the solid numbers reflects a deep split among analysts regarding valuation. ICICI Securities maintained a buy rating with a target price of ₹900. The firm argued the lender's return on equity expanded to nearly 15% from 13.2%, supported by a 250-basis-point drop in the cost-to-income ratio and stable credit costs of 2.4%. "Leveraging its HDFC Bank parentage and deep-seated competitive moat, HDB Financial Services is likely to sustain 15%+ RoE and improve credit growth to 17–18% CAGR over FY26–28E. We maintain a buy and our target price of ₹900, valuing the stock at 3 times September 2027E BVPS," ICICI Securities said.
JM Financial upgraded its target to ₹820 from ₹710 while keeping an add rating, noting that higher operating expenses were offset by lower-than-expected provisions. "HDB is in the midst of a cyclical recovery supported by improving asset quality across most segments and stronger disbursement momentum. However, recovery in asset finance and enterprise lending disbursements is a key aspect to monitor," JM Financial said.
Emkay Global retained its reduce stance, raising its target to ₹725 from ₹675. The firm pointed to soft AUM growth despite management plans to invest in artificial intelligence and digital assets to drive operating efficiency. "To reflect the Q1 developments and management commentary, we tweak our FY27-29 estimates, leading to a nearly 3-7% increase in earnings," Emkay said.
