HDFC Bank share price slumps after NPA’s rise in Q1; should you buy or sell shares?

Shares of India’s largest private sector lender HDFC Bank slumped in trade on Monday afternoon, after the firm’s NPA’s rose in the latest quarter. HDFC Bank share price slumped by more than 3.9% to hit the day’s low at Rs 2,281.90. HDFC Bank earned a net profit of Rs 5,568.2 crore, an increase of 21.0% over the quarter ended June 30, 2018. The total  Gross non-performing assets came in at 1.40% of gross advances as on June 30, 2019 (1.17% excluding NPAs in the agricultural segment) as against 1.33% as on June 30, 2018. Given the ongoing slowdown in retail and auto segment, the loan growth moderated to 17% in the period under review.

Taking stock of the reported results, global firm Jefferies noted that that the retail loan growth was slow for the second consecutive quarter. The management has likely taken a counter-cyclical approach to loan growth. The firm’s management has not indicated any red flags, said HDFC Bank. “The tone of management commentary may spook the markets. However, it is still one of the best managed banks out there,” Jefferies said in its report. Jefferies has a buy rating on the shares with a target stock price of Rs 2,755. The bump in provisions have been compensated by a rise in net income, said Jefferies. Provisions and contingencies for the quarter ended June 30, 2019 were Rs 2,613.7 crore as against Rs 1,629.4 crore for the quarter ended June 30, 2018. Other income (non-interest revenue) stood at Rs 4,970.3 crore, registering a growth of 30.2% in the comparable period previous fiscal.

According to Motilal Oswal, HDFC Bank’s operating performance remains strong, although business growth has shown moderation, reflecting weakness in the consumption-linked lending segments and cautious stance on unsecured loans. “We lower our growth estimates marginally – expect the bank to deliver 19%/20% loan book/PAT CAGR over FY19-21, led by stable margins and a continued improvement in operating leverage. Maintain Buy with a target price of INR2,750 (3.8x FY21E ABV for the bank),” said the firm in its report.

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