DevenChoksey Research maintains a bullish stance on HDFC Bank, reiterating an "ACCUMULATE" recommendation with a 12-month target price of Rs2,274, indicating a potential upside from the current price of Rs2,014. The research underscores HDFC Bank’s robust Q1FY26 performance, driven by efficient liability management, a one-off gain from a strategic stake sale, and a disciplined approach to balance sheet resilience. However, the report also draws attention to margin pressures from a shifting interest rate landscape and a moderation in loan growth, spotlighting both opportunity and risk in India’s premier private-sector lender.

DevenChoksey Research Reiterates "Accumulate" on HDFC Bank

DevenChoksey Research issues an "ACCUMULATE" rating, assigning a target of Rs2,274 per share, suggesting further upside potential for investors who take a medium-term view on HDFC Bank.
The recommendation is supported by the bank’s solid operational execution, a demonstrated ability to reinforce its capital base, and a clear trajectory for growth amid a dynamically evolving macro environment. This confidence is grounded in sequential improvements in core profitability as well as pivotal balance sheet metrics.

Q1FY26 Performance: A Tapestry of Prudent Management and Growth

Net interest income (NII) surged 5.4% year-on-year to Rs314.4 billion, outpacing internal estimates and reflecting agile cost-of-funds management.
Liability-side reforms translated into lower interest expenses, while the Pre-Provision Operating Profit (PPoP) spiked an extraordinary 49.6% year-on-year to Rs357.3 billion, boosted by a Rs100 billion windfall from the sale of a stake in HDF Financial Services. Stripping out this one-time gain, PPoP still beat forecasts by a respectable margin.

Net profits grew 12.2% year-on-year to Rs181.6 billion, powered by operational leverage and one-off gains, but tempered by accelerated provisioning.
Provisions expanded nearly 4.5x quarter-on-quarter, a move interpreted as preemptively bolstering risk buffers in the face of macro uncertainty.

Balance Sheet Review: Deposit Mobilization Outpaces Loan Growth

Deposits grew a robust 16.2% year-on-year, sharply outstripping the 6.7% growth in advances, a deliberate strategy aimed at rebalancing the loan-to-deposit (C/D) ratio and bolstering liquidity.
Term deposits were the star performer, registering a 20.6% jump, while CASA (current and savings account) deposits rose a modest 4%. The CASA ratio, however, slipped to 33.9% from 36.3% a year earlier as the deposit mix evolved following recent repo rate cuts.

Advances rose 6.7% year-on-year, lagging system-wide credit growth, as the bank pursued a calibrated approach to lending in light of the macroeconomic environment.
AUM (assets under management) improved by 8% during the quarter, with management expressing confidence of outpacing the industry trajectory in FY27.

Key Capital and Asset Quality Metrics Signal Resilience

HDFC Bank’s capital adequacy ratio stood at a hefty 19.9%, with Tier 1 capital adequacy at 17.8%, underscoring exceptional balance sheet strength.
Gross NPA (non-performing asset) and net NPA ratios inched up to 1.40% and 0.47%, respectively, reflecting a marginal increase in slippage but no significant deterioration in asset quality.

Provision coverage ratio (PCR) dipped marginally to 66.9%, after substantial proactive provisioning.
Management clarified that contingent provisions of Rs17 billion were strategic and not linked to any specific book stress, embodying a conservative credit stance.

Subsidiaries: A Mixed Bag of Performances

HDB Financial Services saw its loan book expand by 14.3% year-on-year, maintaining robust NIMs at 7.7% and posting a quarterly net profit of Rs5.7 billion.

HDFC Life Insurance delivered 16% annualized premium growth and a 14% rise in profit, while HDFC ERGO General Insurance faced a subdued premium environment but improved net profits to Rs2.1 billion.
HDFC Securities, however, reported lower revenues and profits amid weaker trading activity.

Dividend and Bonus: Rewarding Shareholders

The board approved a special interim dividend of Rs5 per share and a 1:1 bonus issue, signaling management’s commitment to shareholder value amid robust capital levels.

Valuation Rationale: SOTP Perspective and Peer Comparison

DevenChoksey values HDFC Bank’s standalone business at Rs2,005/share and subsidiary interests at Rs269/share, yielding a sum-of-the-parts target of Rs2,274.
At the target price, the implied valuations are competitive relative to peers:

Strategic Outlook: Staying Ahead Amid Margin Compression

Management remains focused on reviving CASA growth, bolstering customer engagement, and leveraging digital initiatives, while bracing for short-term net interest margin headwinds as floating-rate loans reprice more quickly than funding costs.
Loan growth, strategic investments in distribution, and prudent risk management form the crux of HDFC Bank’s forward journey.

Investor Takeaways: Levels to Watch and Guidance

Key levels: Buy-on-dips advocated around Rs2,000; short-term upside capped near the target of Rs2,274. Maintain a trailing stop considerably below 1,900 if market volatility intensifies.
For long-term investors, the outlook remains constructive, with strong financial muscle, an expanding franchise, and a sustainable dividend policy anchoring the investment thesis.

Bottom Line: HDFC Bank, with its legacy of operational rigor and strategic foresight, continues to offer investors a compelling blend of stability, growth, and reward, even as macro headwinds demand vigilance and adaptability