Two leading private lenders- HDFC Bank and Kotak Mahindra Bank- reported their results for the September 2024 quarter on Saturday and both the stocks were in the spotlight during the trading session on Monday. HDFC Bank Ltd was leading the gainers, while Kotak Mahindra Bank Ltd was the top laggard on the BSE Sensex pack.
This mercurial performance has put investors in a dilemma whether to buy HDFC Bank, whose stocks surged nearly 4 per cent on Monday, while to have a look at Kotak Mahindra Bank stock, which crumbled more than 7 per cent for the day, attracting investors as a bargain bet.
HDFC Bank 5.3 per cent YoY rise in its standalone profit after tax to Rs 16,821 crore for the quarter ended September 2024 India's largest private sector lender's net interest income (NII) rose 10 per cent YoY to Rs 30,113 crore. The core net interest margin (NIM) was at 3.46 per cent for the reported quarter.
The lender's total deposits grew 15.1 per cent YoY in the September quarter to Rs 25,00,100 crore while gross advances recorded a growth of 7 per cent YoY to Rs 25,19,000 crore. HDFC Bank's gross NPA rose to 1.36 per cent, while net non-performing assets were at 0.41 per cent of net advances at the end of Q2.
"We are positive on HDFC Bank for the long term due to its best-in-class asset quality, growth potential because of a good capital position and merger synergies in the long term. In addition, a non-specific provision buffer at 1.5 per cent of loan book provides comfort," said Nirmal Bang Institutional Equities with a 'buy' and a target price of Rs 2,026.
Motilal Oswal estimates HDFC Bank to report gradual recovery in loan growth over FY25-27E with earnings growth accelerating faster. "We thus estimate HDFC Bank to deliver FY26E RoA and RoE of 1.8 per cent and 14.6 per cent. We reiterate our 'buy' rating with a target price of Rs 2,050," it said.
HDFC Bank reported 5 per cent YoY earnings growth led by 9 per cent YoY operating profit growth. NIM was stable QoQ at 4.3 per cent, said Kotak Institutional Equities. "We are building NIM expansion and slower loan growth to reflect the situation on the ground but the improvement is likely to take time," it added with a 'buy' and a revised fair value of Rs 1,900 on the stock.
HDFC Bank posted in-line Q2FY25 earnings with a small miss on NII offset by higher fees, lower opex and a write-back of AIF provisions. Its strong risk assessment once again comes to the rescue with the bank The bank shall achieve the pre-merger LDR of 86 per cent in three years versus four earlier, said Nuvama Institutional Equities with a 'buy' rating and Rs 1,950 as target price.
Shares of HDFC Bank jumped nearly 3.98 per cent to Rs 1748.20 on Monday, with a total valuation near Rs 13.50 lakh crore. However, shares of Kotak Mahindra Bank tumbled 7.20 per cent to Rs 1,735 during the session, with its total market capitalization slipping below Rs 3.50 lakh crore mark.
On the other hand Kotak Mahindra Bank reported a 4.8 per cent YoY increase in net profit at Rs 3,343.7 crore for the second quarter of FY 24-25. Private lender 's net interest income (NII) rose up 11 per cent to Rs 7,020 crore. The net interest margin (NIM) stood at 4.91 per cent for the quarter.
The operating profit for Q2FY25 reached Rs 5,099 crore, up 11 per cent YoY. The gross NPAs rose to 1.49 per cent, while the net NPAs came in increasing at 0.43 per cent for the September 2024 quarter. The ROA for Q2FY25 was 2.53 per cent, while ROE stood at 13.88 per cent.
Kotak's earnings were below estimates, largely due to higher-than-expected credit costs and lower other income. The management remains upbeat on the corrective measures taken post the regulatory embargo, with key investments across tech functions, and expects the overall impact in line with the initial assessment, said HDFC Securities with a target price of Rs 2,030 and a 'buy' call.
"We will closely monitor the pace of deposit accretion for the bank and the impact on margins over the coming quarters. it is navigating well through the limitations that regulator has imposed on the bank and potential lifting of the ban will further aid operating performance," said Motilal Oswal, reiterating its 'neutral' rating on the stock with a target price of Rs 1,950.
In our view, the KMB stock is likely to see an overhang in the near to medium term due to RBI’s embargo on customer on-boarding through digital/mobile banking and its impact being a monitorable and signs of stress building up in unsecured loan segments and its impact on growth and profitability, said Nirmal Bang with a 'hold' rating on the stock with a target price of Rs 2,045.
Kotak posted mixed Q2 earnings with strong 18 per cent growth in customer assets, lower opex, but NIM fell and asset quality deteriorated sharply. Credit card and MFI slippage shall likely turn around earliest in three quarters. Management guides to stable credit cost in H2FY25, but we see upside risks, said Nuvama with a 'reduce' rating and a target price of Rs 1,615.