HDFC Bank continues fall post Q3, ADR plunges 9%

Shares of HDFC Bank Ltd continued their slide for the second straight day on both Dalal Street and Wall Street after the India's biggest private lender reported lower-than-expected results for the October-December 2023-24 period.

The HDFC Bank shares recorded their biggest single-day drop in three years at 8% on Wednesday, making it the top loser on the benchmark Nifty 50 index. It aslo registered sharp fall in ADR (American Depositary Receipts), which tumbled 6.7% after the result were announcement on Tuesday night.

Extending its losing streak, HDFC Bank's ADR fell 9.14% overnight (January 17) to $55.59, registering its biggest fall in 19 months. With this, the lender's ADR has fallen 15% over the past two trading sessions.

On Wednesday, the stock opened a gap down and fell to an intra-day low of 3.6% compared to the previous session close. At the current share price of ₹1,506.15, down 1.98%, the m-cap of HDFC Bank stands reduced at ₹11.4 lakh crore. The share currently trades 14.2% down against the one-year high touched on July 3, 2023, and just 2.9% up from the one-year low of ₹1,460.55 touched on October 10, 2023.

The lender's "core operating performance" in Q3 FY24 remained “below expectations” as net interest margins (NIM) were stable at 3.6% on a QoQ basis against the expectations of “improvement”.

Analysts say the private bank will have to establish drivers for growth uptick to improve its NIM.

Many of them, however, remain constructive on the bank, saying the bank's NIM progression would be the key focus area in the near to medium term. "We believe the bank would have to slow down loan growth in the near term to navigate the liability-side transition. However, we remain constructive on the bank with mid to long-term perspective," says a research note by BNP Paribas-led brokerage Sharekhan.

It has maintained a "BUY" rating on the stock, with an unchanged target price of ₹1,900. "The stock trades at 2.2x/1.9x its FY2025E/FY2026E core BV estimates."

BP Wealth's Stoxbox, in its analysis, says though the bank took a hit in its capital due to higher risk weights on unsecured loans, the growth in unsecured loans has been modest. "We remain optimistic about building momentum on deposit growth in the long run...outlook remains positive in the medium to long term, with the effect of synergies of the merger a key monitorable in the forthcoming quarters."

The bank's "margins" are expected to recover gradually and improve to 3.7-3.8% over the medium term, says Axis Securities, adding the NIM improvement over the medium term will be led by substituting high-cost debt with deposits, focusing on improving the CASA ratio and improving the mix of retail loans in the portfolio. The brokerage has maintained a "BUY" rating on the stock, with a revised target price of ₹1,975 apiece from ₹1,800 apiece earlier.

Notably, HDFC Bank’s net interest income stood at ₹28,471 crore in Q3 FY24, up 4% QoQ, and up 23.9% YoY. The bank’s quarterly net profit stood at ₹16,373 crores. But, NIM remained stable sequentially at 3.6% and there was compression on a YoY basis.

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