HDFC Bank’s American Depositary Receipts (ADRs) listed on the New York Stock Exchange (NYSE) plunged 9.34% to $23.92, losing $2.46, as investors reacted to the private lender’s weaker-than-expected June-quarter earnings, especially the pressure on net interest margins (NIMs). The ADR, trading as HDB, was last at $23.82, down 9.69%.
On Monday, HDFC Bank shares dropped more than 5% in Indian market. The stock ended 5.12% lower at Rs 777.65 on the BSE after hitting an intraday low of Rs 775, while it settled at Rs 777.60 on the NSE.
Market value takes a hit
The selloff wiped out Rs 64,685.58 crore from HDFC Bank’s market capitalisation, bringing its valuation down to Rs 11.98 lakh crore. Selling pressure was visible across lenders. HDFC Bank had reported its June-quarter earnings over the weekend. The lender posted a 5% year-on-year rise in standalone net profit to Rs 19,060 crore, up from Rs 18,155 crore a year ago. Net interest income (NII) grew 7% year-on-year to Rs 33,530 crore.
However, total income declined to Rs 92,184 crore from Rs 99,200 crore. Operating profit fell sharply to Rs 28,169 crore from Rs 35,734 crore, pointing to pressure on profitability.
The key concern for investors was margins. Net interest margin stood at 3.26% on total assets and 3% on interest-earning assets, falling short of expectations. This miss in NIMs drove the sharp reaction in both ADRs and domestic shares.
Brokerages stay positive on long-term outlook
Regardless of the near-term pressure, brokerages remain constructive. Motilal Oswal has reiterated its ‘Buy’ rating on HDFC Bank with a target price of Rs 1,050, implying an upside potential of around 28%.
Brokerage trimmed its FY27 and FY28 earnings estimates by around 2%, it expects gradual improvement in profitability as funding costs ease over time. It noted that loan growth remains healthy, driven by SME and corporate segments, even as retail growth stays slower.
Motilal Oswal said, “HDFCB Bank reported a largely in-line quarter, supported by healthy business growth and lower provisions, although NIM remained the key miss.”
HDFC Bank’s management also explained that it is focusing towards long-term growth rather than short-term margin expansion. Chief Executive Officer Sashi Jagdishan said the bank is strengthening its franchise and gaining market share.
“The deposit growth continues to be relatively better than the historical Q1 trends. We continue to gain market share both on an incremental basis and on a stock basis as well,” he said.
He added that the bank is preparing to accelerate growth. “Advances, as we had envisioned a while ago, I think we are on the verge of pressing the pedal,” Jagdishan said. He also noted that “there is a very healthy credit demand that we are seeing in the system as we speak.”
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a registered financial advisor in the respective jurisdiction.