The stock recorded its biggest fall in over two years, leaving a dent of Rs 1 lakh crore after the company’s third-quarter results failed to impress investors.
Following the disappointment in December quarter results, a number of brokerages have reduced their target prices. However, it remains a top buy in the long term for many.
“The third quarter performance seems at par. However, the higher corporate debt restructuring (110%) and liquidity coverage ratio (110%) are causes of concerns,” said Ajit Kabi, Research Analyst at LKP Securities.
HDFC Bank beat the profit estimates in the third quarter with 33% year-on-year growth, but that was mainly on the back of one-off tax provision write back of Rs 1,500 crore.
The private sector lender had also reported weak margins for a second consecutive quarter. Its core net interest margin (NIM) on total assets fell to 3.4% from 3.65% in the previous quarter.
Those margins were above 4% for the bank before it merged with parent Housing Development Finance Corp (HDFC) in July last year.Brokerage Jefferies said margins were a “key miss” and that higher retail deposit mobilisation and lending will be key to lifting NIMs.
In the analyst call, the company management alluded to continued competitive pressures on deposit growth given tight liquidity. Over the medium term, it believes greater contribution of retail assets in the overall asset mix should aid margins to normalize to higher levels.
“The lower liquidity coverage ratio and slower deposit growth may limit NIMs expansion going forward. We believe the street is concerned about the above factors. Nevertheless, we may witness recovery in the coming period. We have a 12 month price target of 1700, a 11% upside potential,” said Kabi.
On Wednesday, HDFC Bank shares closed 8.16% lower at Rs 1,542.15 on NSE. In the last one year, the shares delivered negative 5.8% returns.
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