Mumbai, India – India's largest private sector lender, HDFC Bank, recently announced its financial results for the March quarter (Q4 FY26), prompting leading brokerage firms to reiterate their 'Buy' ratings on the bank's shares, albeit with some adjustments to target prices. Despite a reported miss on net interest income (NII) and pre-provision operating profit (PPoP) due to lower interest income, the bank's performance was bolstered by a beat on operating expenses and provisions, leading to higher overall profit.
Key Highlights from HDFC Bank's Q4 Performance
HDFC Bank's Q4 FY26 results showcased a mixed bag of financial metrics. While NII and PPoP fell short of expectations, analysts pointed to several strong indicators of the bank's health:
- Improved Loan-to-Deposit Ratio: The bank saw its loan-to-deposit ratio improve significantly to 94.6 percent in Q4 FY26 from 98.7 percent in the previous quarter, signaling robust deposit accumulation outpacing loan growth.
- Net Interest Margin (NIM) Expansion: NIM improved by 3 basis points sequentially, reaching 3.38 percent for the quarter, reflecting better profitability from its core lending activities.
- Best-in-Class Asset Quality: HDFC Bank continued to demonstrate strong asset quality, with the gross non-performing asset (NPA) ratio improving by 9 basis points quarter-on-quarter.
- Deposit Growth: Deposit growth was particularly stellar, registering a 14.4 percent year-on-year increase. This strong performance is expected to further reduce the credit-deposit (CD) ratio towards 92 percent by FY28.
However, the bank's treasury income was subdued, attributed by Nuvama to the Reserve Bank of India’s (RBI) mandate to unwind dollar positions.
Brokerage Outlook and Target Prices
Several prominent brokerage houses weighed in on HDFC Bank's prospects following the Q4 results:
Nuvama Institutional Equities
Nuvama reiterated its 'BUY' rating on HDFC Bank shares, acknowledging that "the chairman’s exit is largely behind us, but sentiment remains cautious." The firm, however, adjusted its FY27E EPS by 3 percent and reduced its target price to Rs 1,050 (from Rs 1,170), citing the recent sharp fall in stock price and limited near-term rerating visibility.
MOFSL (Motilal Oswal Financial Services)
MOFSL characterized HDFC Bank's quarter as "in-line," highlighting healthy business growth, NIM expansion, and robust asset quality. The brokerage noted strong loan growth driven by corporate and SME segments, with retail loan growth remaining modest. MOFSL maintained a 'BUY' rating with a target price of Rs 1,100, expecting NIMs to gradually improve and support return ratios in the coming years.
Systematix and Nirmal Bang
Systematix also maintained a 'Buy' rating for HDFC Bank, keeping its target price unchanged at Rs 960. The firm values the standalone bank at 1.9 times its estimated FY28 adjusted book value per share. Nirmal Bang Institutional Equities expressed a long-term positive view on HDFC Bank, citing its superior asset quality, strong capital position for growth, potential for margin improvement, and long-term merger synergies. They assigned a target price of Rs 1,069 for the stock.
Future Outlook
Analysts generally anticipate a gradual improvement in HDFC Bank's Net Interest Margins, driven by the retirement of high-cost borrowings and enhanced operating leverage. These factors are expected to bolster the bank's return ratios in the years ahead, reinforcing its position as a strong long-term investment.