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HDB Financial Services, a key subsidiary of HDFC Bank Ltd., is facing investor scrutiny following its third-quarter financial results for FY26. The company posted a mixed performance, prompting analyst downgrades and a reduction in price targets, casting a shadow over its future trajectory.
Mixed Financial Performance
HDB Financial reported a robust 36% year-on-year surge in net profit, reaching ₹644 crore for the quarter ending December 31, up from ₹472 crore a year prior. This growth was partly attributed to softer credit costs, which improved sequentially to 2.5%. Net interest margins also saw an expansion of 14 basis points quarter-on-quarter, reaching 15 basis points overall. Assets under management grew a respectable 12% on-year, with net interest income climbing 22.1% to ₹2,285 crore as funding cost pressures eased.
Loan Growth Concerns Emerge
Despite the profit jump, deeper analysis reveals underlying weaknesses. Loan growth for the quarter stood at 12.2%, a slight deceleration from the 13% recorded in the previous quarter. More concerning is the disbursement growth of just 10% year-on-year, significantly lagging the management's stated aspiration of achieving an 18-20% compound annual growth rate over the next three to five years. Analysts point to subdued traction in asset finance and enterprise lending segments, alongside elevated repayments, as key drags on overall loan book expansion.
Analyst Reactions and Outlook
The mixed results and growth concerns have drawn sharp reactions from brokerages. Emkay Global downgraded HDB Financial Services to 'Reduce' from 'Buy', slashing its price target by 12% to ₹750 from ₹850. The firm trimmed its FY26-28 estimated AUM growth by 2-4% and marginally raised credit cost assumptions, leading to a 5-6% cut in EPS estimates. Emkay cited near-term downside risks from persistent stress in the vehicle finance and unsecured segments and sees limited scope for a re-rating as growth and profitability are not improving in tandem.
Motilal Oswal, meanwhile, reiterated its 'Neutral' rating with a price target of ₹815. The brokerage indicated that current valuations already price in medium-term growth potential. Motilal Oswal is looking for clearer evidence of stronger loan growth execution, better navigation of industry cycles, and structural improvements in return ratios before reconsidering its stance. Gross Stage 3 loans remained stable at 2.81%, but credit costs persist above the company's normalized range of approximately 2%. Shares of HDB Financial Services closed 0.37% lower on Wednesday at ₹764.75.