HDFC Bank reported a Q1 FY27 profit of ₹191 billion, missing estimates as net interest margins faced pressure. ICICI Securities maintains a positive view but reduced its target price to ₹1,020. The bank’s performance was impacted by a shift in deposit mix and rising loan slippages, though loan growth remained higher than seasonal trends.
HDFC Bank released its financial results for the first quarter of the 2027 fiscal year, reporting a net profit of ₹191 billion. While this represents a 5% increase compared to the same period last year, the figure fell short of market expectations by approximately 5%. Following the results, ICICI Securities initiated coverage on the stock with a buy rating and set a target price of ₹1,020, down from its previous estimate of ₹1,080.
Impact of Margin Pressure
The bank’s core profitability metrics faced challenges during the quarter. Net interest margins, which reflect the difference between interest earned on loans and interest paid on deposits, remained under pressure. This decline contributed to a subdued growth in net interest income, which rose 7% year-on-year and only 1% compared to the previous quarter. Analysts note that a shift in the bank's deposit and loan mix toward wholesale segments, rather than retail, has contributed to this margin compression. Furthermore, the bank's return on assets—a measure of how efficiently it uses its capital—has dipped to levels not seen in several quarters.
Loan Growth and Asset Quality
Despite the pressure on margins, the bank showed resilience in its business scale. Loan and deposit growth outperformed typical seasonal patterns, with both categories seeing a healthy sequential increase of 3% and 2%, respectively. In response to these trends, ICICI Securities has increased its loan growth forecast for the full fiscal year 2027 to 13%, up from its earlier estimate of 12%. However, asset quality bears watching; excluding agricultural lending, the bank saw a 13% sequential rise in slippages—loans that are failing to perform according to schedule.
Valuation and Future Outlook
The adjustment in the bank’s target price reflects a more cautious approach to future earnings. Due to expectations of flat net interest margins, the brokerage has reduced its earnings per share estimates by approximately 3%. The bank is now valued by the brokerage at roughly 2 times its estimated core adjusted book value for the 2028 fiscal year, compared to an earlier multiple of 2.1 times. Investors will likely monitor the bank’s ability to stabilize its margins and manage rising slippages in the coming quarters. The primary focus for shareholders remains whether the bank can successfully pivot its product mix back toward higher-margin retail segments while maintaining its current pace of loan expansion.