HDBFS

Q2 FY26 Summary & Outlook

🔹 Quarterly Performance Highlights - Net profit declined 2% YoY in Q2 FY26, reflecting a subdued quarter. - Loan growth slowed to 13% YoY, reaching ₹1.11 lakh crore. - Asset quality weakened; gross NPAs rose to 2.81% from 2.56% in Q1. - Provisioning surged 74% YoY due to higher credit costs. 🔹 Loan Book Composition & Trends - Historical loan CAGR of 20.3% (FY22–FY25); recent slowdown noted. - 73% of loans are secured, with CV and CE financing dominating AUM. - Consumer finance disbursements impacted by GST rate cuts and weak CV demand due to floods. 🔹 Outlook for Demand Revival - GST rate reduction expected to stimulate consumer purchases. - Recent interest rate cuts likely to boost private consumption. 🔹 Margins & Profitability - Net interest margin (NIM) improved to 7.9%, up 40 bps YoY. - Management guides for stable margins in the 7.9–8% range. 🔹 Credit Costs & Asset Quality - Credit cost rose to 2.7% vs. 1.8% YoY, driven by CV/CE slippages. - Management anticipates normalization to ~2.2% in steady-state conditions. 🔹 Valuation & Return Metrics - RoA declined to 1.9% (adjusted 2%) from 2.4% YoY due to provisioning. - Current valuation at ₹743/share implies 2.6x FY27 estimated book. - RoE remains healthy at 13–15%, supporting re-rating potential. 🔹 Regulatory Clarity & Market Position - RBI’s final circular excludes earlier stake-reduction proposal for HDFC Bank. - Regulatory relief removes a key overhang, enhancing investor confidence. 🔹 Relative Valuation - Trades at a discount to Bajaj Finance and Cholamandalam. - Scope for narrowing valuation gap with Chola (trading at 3.8x FY27 book). - Multiple catalysts for upside: margin stability, credit cost moderation, regulatory clarity.