HDFC Bank Ltd Quarterly Results Q3 FY 25 stock analysis

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Sector Outlook: Positive

Net profit beats market estimates

Net Interest Income (NII) for Q3FY25 was ₹30,653 crores, growing by 1.8% quarter-on-quarter (QoQ) and 7.7% year-on-year (YoY). The Pre-Provision Operating Profit (PPOP) reached ₹25,000 crores, showing a 1.2% QoQ and 5.7% YoY growth. Provisions were ₹3,153 crores, rising by 16.7% QoQ but falling 25.2% YoY.

Net profit for the quarter was ₹16,735 crores, slightly down by 0.5% QoQ but up 2.2% YoY. The Net Interest Margin (NIM) stood at 3.43%, decreasing by 3 basis points (bps) QoQ but up 3 bps YoY.

The bank’s Gross Non-Performing Assets (GNPA) ratio was 1.42%, up by 6 bps QoQ and 16 bps YoY, while the Net NPA ratio was 0.46%, up by 5 bps QoQ and 15 bps YoY. The CASA Ratio (Current and Savings Account) fell to 34% compared to 35% in Q2FY25 and 38% in Q3FY24.

Gross Advances were ₹25,18,248 crores, growing by 0.9% QoQ and 3.0% YoY. Deposits stood at ₹25,63,795 crores, increasing by 2.5% QoQ and 16.0% YoY. The Capital Adequacy Ratio (CAR) improved to 19.97%, compared to 19.77% in Q2FY25 and 18.39% in Q3FY24.

As of December 31, 2024, the bank operated 9,143 branches and 21,049 ATMs across 4,101 cities and towns, up from 8,091 branches and 20,688 ATMs across 3,872 locations a year ago.

Subsidiaries’ performance

HDB Financial Services Ltd.: Reported revenue of ₹2,500 crores, with PAT at ₹470 crores, a 36.2% YoY decline.

HDFC Ergo General Insurance Company Ltd.: PAT stood at ₹100 crores, down from ₹130 crores YoY.

HDFC Life Insurance Company Ltd.: PAT was ₹410 crores, showing a 13.7% YoY increase.

Key Concall Highlights

In Q3FY25, the bank’s deposits grew by 16%, outpacing loan growth, reflecting strong performance in a challenging environment.
Provision Coverage Ratio (PCR) is at 68%, and excluding agricultural slippages, it improves to 71%.
Net Interest Margins (NIMs) have been stable over the past few quarters, with lower borrowings balancing a decline in CASA.
CASA ratio has decreased due to high-interest rates but is expected to improve as the economy recovers over the next few years.
The bank offers competitive deposit products and anticipates a medium-to-long-term shift in the CASA cycle, which could boost NIMs.
The Credit-Deposit (CD) ratio has been lowered as part of the bank’s strategy. Average AUM growth in FY25 was 7%, in line with expectations.
Excess liquidity on the balance sheet amounts to ₹500 billion, invested in the treasury with earnings of 6.5-7%.
The emerging corporate loan book has remained stable, with earlier price tightening easing and the segment now showing steadiness.
Cost-to-income (C/I) ratio remains stable, with cost growth at 7%. Investments in technology have risen to over 10%.
The bank increased its workforce by 3-4k in Q3FY25, focusing on productivity and planning additional hiring as needed.
HDB Financial Services reported higher Stage 3 levels this quarter due to management overlays that increased provisions. Stage 2 loans showed improvement.
The bank continues to drive productivity while controlling costs, with investments in people and technology aligned to boost efficiency.
Contingent provisions were released this quarter following a reversal of corporate account provisions, depending on discretionary events.
Loan book quality remains stable across segments, supported by an analytical model to ensure consistency.
The bank is focused on building liability relationships, growing deposits, and expanding its branch network to enhance its customer base.
Around 1,000 branches were added in the past year, with operational efficiency helping to control opex growth.

Valuation and Outlook

HDFC Bank Ltd., India’s largest private sector lender, delivered steady Q3FY25 results, with net profit meeting market expectations. The bank’s strategy to lower its credit-deposit ratio (CDR) to pre-merger levels resulted in slower credit growth but a stronger focus on deposit growth, aligning with its long-term goals. While credit growth was muted, steady deposit growth and disciplined lending have helped maintain strong asset quality, despite a slight dip this quarter. Net Interest Margins (NIMs) faced some pressure due to challenges in growing low-cost CASA deposits, but reductions in high-cost borrowings and improved efficiency are expected to boost returns in the future. Going forward, the bank plans to focus on asset quality, credit growth, and addressing regulatory guidelines on lending overlaps among group entities, showcasing a balanced performance amidst changing economic conditions.