HDFC Bank share price falls 3% after Q1 results; should investors buy, sell or hold?

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HDFC Bank’s Q1FY22 results were mixed with a manageable NPA increase but weak NII trends, CLSA said.

HDFC Bank share price falls 3% after Q1 results; should investors buy, sell or hold?
The share price of HDFC Bank fell over three percent in early trade on Monday after the private lender posted a standalone net profit of Rs 7,729.64 crore in Q1FY22, a growth of 16.1 percent from Rs 6,658.62 crore in Q1FY21.
The bank’s net interest income increased 8.6 percent to Rs 17,009 crore from Rs 15,665.42 crore, YoY.
However, the lender’s net interest margin of 4.1 percent during the April-June 2021 period was at an 18-quarter low, while core operating profit was down 2.3 percent, QoQ at Rs 14,536 crore.
Provisions and contingencies for Q1FY22 were at Rs 4,830.8 crore (including contingent provisions of Rs 600 crore), against Rs 3,891.5 crore for the same quarter last year, and Rs 4,693.7 crore in March quarter 2021.
The bank’s asset quality also weakened during the quarter as gross non-performing assets in Q1FY22 were at 1.47 percent of gross advances as against 1.32 percent in Q4FY21, and net non-performing assets were at 0.48 percent against 0.40 percent, QoQ.
Here’s what brokerages have to say on HDFC Bank’s stock and Q1 earnings:
CLSA
HDFC Bank’s 1QFY22 results were mixed with a manageable NPA increase but weak NII trends. At Rs 73 billion, slippage was higher than the 2HFY21 run-rate but needs to be looked at in the context of no moratorium during the second wave and a low base for slippage in FY21.
NII growth of less than 10% YoY was weak and reflects a big loan mix shift to corporate over the past two years and the recent drop in its unsecured credit book, part of which should reverse as retail disbursements pick up. Commentary on retail and SME asset quality was comforting but loan and NII growth trends will be key to watch.
Also, there was no update on the credit card ban which will remain a near-term overhang. We lift our target price from Rs 1,825 to Rs 1,850 and retain our ‘buy’ rating.
Nomura
The business and collection strength seen during 4QFY21 was decimated in 1Q owing to lockdowns and health concerns. As a result, both transaction volumes and collections fared poorly, resulting in lower operating profit growth, higher NPLs, and elevated provisions.
We need to be watchful of the demand trends, which are at risk, in our opinion. For now, we look through the muted quarter, and reiterate our ‘buy’ rating, with an increased TP of Rs 1,750 implying a 3.9x 1QFY23F book (3.8x earlier).
Goldman Sachs
The company reported better-than-expected operating performance with core PPOP five percent ahead. However, higher-than-expected provisions led to profit after tax (PAT) miss.
The brokerage maintained a ‘buy’ call with a target price of Rs 1,803 per share.
Morgan Stanley
NIM missed our estimate but was offset by higher fees. Bad loan formation was elevated given the second Covid wave. Provisions broadly in-line adjusted for contingency provisions, the brokerage said.
It maintained an ‘overweight’ rating with a target of Rs 2,000 and reduced EPS estimates by two percent.
Motilal Oswal
HDFC Bank reported an in-line performance, though margin fell by 10bp QoQ on higher interest reversals, unfavourable asset mix, and lower revolving balances on credit cards. Advances growth stood at 14 percent YoY, led by healthy trends in the commercial and rural banking portfolio, while retail growth was muted due to a sharp decline in the credit cards portfolio, which was affected by RBI’s restriction on sourcing of new credit cards and lower revolving balances.
We broadly maintain our earnings estimates for FY22E/FY23E and maintain our ‘buy’ rating. the brokerage has a target price of Rs 1,800 per share.
Yes Securities
Lack of moratorium and low restructuring participation meant there was no asset quality sanctuary. Within wholesale loans, PSU entities, on which HDFC Bank is focusing, are particularly margin-dilutive. Other factors negatively impacting margin included lower card revolve rates, higher interest reversals, and higher CRR requirement, which, along with loan mix change, dragged YoY NII growth lower.
We maintain an ‘add’ rating on HDFC Bank with a revised price target of Rs 1,643 (Rs 1,657 earlier).
At 10:20 am, the shares of HDFC Bank were trading 2.32 percent lower at Rs 1,486.40 apiece on the BSE.

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