Shares of HDB Financial Services Ltd. fell nearly 7% on Thursday, October 15, after second quarter earnings missed estimates. The stock hit a new post-listing low as BPO income dragged results. Despite this, Nomura upgraded the stock to buy, noting the company "sustained its healthy disbursal momentum" for long-term growth.
HDB Financial shares fell 5% following Q2 earnings where profit missed estimates slightly and BPO income dragged. However, Nomura upgraded the stock to buy with a target price of ₹790, citing sustained disbursal momentum and strong long-term outlook.
Shares of HDB Financial Services Ltd. declined nearly 7% on Thursday, October 15, in response to their second quarter earnings, even as global investment banking firm Nomura upgraded its recommendation on the HDFC Bank unit.
The stock has now declined in three out of the last four sessions and Thursday's fall marks a new post-listing low for the stock.
Nomura Upgrades HDB Financial
Nomura upgraded the stock to "buy" from "neutral" and has a target price of ₹790 per share. This implies an upside of 35.3% from its previous closing price.
Nomura said the company sustained its healthy disbursal momentum.
HDB FInancial aims to hold net interest margin (NIM) at 8% and return on assets (RoA) at 2.5% despite the rising interest rate environment and potential drought conditions.
The company's second quarter net profit missed Nomura's estimates slightly by 2% and the non-lending (BPO) income was a drag, it said.
Overall, the investment banking firm expects HDB Financial's RoA to be between 2.3% to 2.4% and Return on Equity (RoE) to be between 14.1% to 15.2% over financial year 2027-2029.
How Did HDB Financial Fare In Q2?
HDB Financial's net interest income in the second quarter was at ₹2,543 crore, up 1% from the previous quarter's ₹2,509 crore and up 15.6% from last year's ₹2,192 crore.
Its pre-provision operating profit increased 1.7% sequentially to ₹1,756 crore and was up 16.9% from the previous year's ₹1,502 crore. Its profit after tax (PAT) of ₹780 crore declined 0.6% sequentially but was up 34.2% from last year's ₹581 crore.
The company's gross loan book increased to ₹1.24 lakh crore from ₹1.21 lakh crore last quarter and was up 11% from ₹1.11 lakh crore in the year-ago period.
Asset quality deteriorated on a sequential basis with gross NPA at 2.43% from 2.34% in the June quarter.
Net Interest Margins (NIMs) during the September quarter at 8.23% were 12 basis points lower than the June quarter, but 28 basis points higher than the year-ago period's figure of 7.95%.
The management expects assets under management (AUM) growth to accelerate towards 17%-18% over the next 12 to 18 months. It has targeted 8.2% NIM in the near-term and sees the figure sustain above 8% over the longer term. It has a credit cost guidance of around 2.3%.
HDB Financial Is A Buy Or Sell?
Of the 18 analysts who have coverage on HDB Financial, 10 have a "buy" rating, six have a "hold" rating and two have a "sell" rating.
Shares of HDB Financial Services are extending their losses from its issue price, now down another 6.7% on Thursday to ₹544.8. The stock is now down 26% from its issue price of ₹740. The stock is down 33.5% from its listing price of ₹835 apiece in July last year.