HDFC Bank to report first quarterly result after merger; what to expect?

HDFC Bank Q2 results: Q2-FY24 will be the first quarter post the merger and, thus, there is likely to be a fair degree of volatility over estimates, analysts said

HDFC Bank Q2FY24 results preview: India’s biggest private lender, HDFC Bank, will announce the quarterly financial result of the merged entity for the first time for Q2-FY24.

Led by loan book gains from erstwhile HDFC Ltd, analysts expect the lender to clock up to 44 per cent year-on-year (YoY) growth in net profit. Net interest income (NII), meanwhile, may increase in the range of 33 per cent to 40 per cent YoY, they project.

"Q2-FY24 will be the first quarter post the merger and, thus, there is likely to be a fair degree of volatility over estimates. Key variables to watch would be opening cost of funds, yield on loans, and impact of incremental cash reserve ratio (ICRR) to understand the net interest margin (NIM) profile of the merged entity," said analysts at Kotak Institutional Equities.

On October 4, HDFC Bank informed the exchanges that its gross advances grew 57.7 per cent YoY to Rs 23.54 trillion at the end of the September quarter, rising from Rs 14.93 trillion last year.

Its deposits, meanwhile, aggregated to Rs 21.73 trillion at the end of Q2-FY24, clocking a growth of around 30 per cent over Rs 16.73 trillion as of Q2-FY23.

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The bank’s retail loan book surged 85 per cent over the previous quarter and 111.5 per cent over the same period year ago.

Against this backdrop, here’s what key brokerages expect:

Motilal Oswal Financial Services

The brokerage pencils NII growth of 34 per cent YoY to Rs 28,090 crore as against Q2-FY23’s NII of Rs 21,020 crore.

Moreover, while operating profit is pegged at Rs 22,790 crore, net profit is seen at Rs 14,780 crore.

“While loan growth is expected to be in check, margins will likely moderate sequentially. Asset quality for the merged entity, too, is expected to increase. Thus, the management’s business growth and earnings outlook remain key monitorables,” said the brokerage.

It anticipates gross non-performing asset (GNPA) ratio to worsen to 1.4 per cent vs 1.2 per cent QoQ. NNPA ratio is also seen increasing to 0.4 per cent from 0.3 per cent sequentially.

ICICI Securities

This brokerage pegs net profit at Rs 15,292.2 crore, up 44 per cent YoY/28 per cent QoQ. Moreover, it sees NII at Rs 29,097.6 crore (up 38.4 per cent YoY) and pre-provision profit (PPoP) at Rs 23,544.2 crore (up 35.4 per cent).

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The brokerage expects NIM to contract significantly in Q2-FY24 due to liquidity drag percolating down to calculated return on asset (RoA; estimated at 1.85 per cent).

Kotak Institutional Equities

It expects gross NPL ratio to be marginally higher with near-term focus on the progress of NIM and the impact of priority sector lending (PSL).

Besides, it forecasts a rise of around 2 per cent YoY/15.4 per cent QoQ in provisions to Rs 3,299.5 crore. Coupled with a decline in treasury income (up to 55 per cent QoQ), it expects PAT to rise 28 per cent QoQ to Rs 15,326.9 crore as against Rs 11,951.8 crore in Q1-FY24.

On a yearly basis, PAT is seen rising 44.5 per cent from Rs 10,605.8 crore. PPoP, too, is seen growing 26 per cent QoQ/36 per cent YoY to Rs 23,621.9 crore from Rs 18,772 crore (Q1-FY24) and Rs 17,392.2 crore (Q2-FY24).

Emkay Global

Higher deposit growth coupled with merger/regulatory drag should weigh on margins and, thus, profitability, the brokerage said in its result preview report. The bank is also expected to report higher NPAs on a merged basis.

It sees a 16-basis point hit on NIM on YoY basis, while 24 bps contraction on QoQ basis to 3.8 per cent.

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“That said, Q2 could be a bottoming out quarter for HDFC Bank, and it should be a key beneficiary of margin recovery from Q3. This, coupled with reasonable valuations among peers, should drive up the stock,” the brokerage noted.

At the bourses, the stock of HDFC Bank has gained 9.8 per cent over the past one year on the BSE as against a 16-per cent rally in the benchmark S&P BSE Sensex, and 13 per cent increase in the BSE Bankex index.