Shares of HDB Financial Services Ltd experienced a significant downturn on Thursday, falling 8.04 percent to hit a record low of Rs 536.65 in late trading. This sharp decline was triggered by the company's release of a weak performance report for the second quarter of the fiscal year 2027 (Q2 FY27), prompting several leading brokerages to revise their price targets downwards.
Weak Q2 Results and Asset Quality Concerns
HDB Financial Services reported a challenging quarter, with its asset quality deteriorating despite an improvement in disbursement momentum. While Profit After Tax (PAT) grew 34 percent year-on-year, it saw a 1 percent decline quarter-on-quarter. Return on Assets (RoA) and Return on Equity (RoE) also moderated to 2.4 percent and 14.3 percent, respectively, from 2.5 percent and 14.9 percent in Q1 FY27.
Net Interest Income (NII) increased by 16 percent year-on-year and 1 percent quarter-on-quarter, aligning with analyst estimates. However, the calculated Net Interest Margin (NIM) contracted by 12 basis points sequentially. Disbursement growth showed improvement, rising to 19 percent year-on-year, primarily boosted by a sharp increase in enterprise lending, though Asset Under Management (AUM) growth remained subdued at 12 percent year-on-year.
A key concern highlighted by analysts was the deterioration of asset quality, with net slippages (annualized) increasing to 2.4 percent in Q2 FY27, up from 1.8 percent in the previous quarter.
Brokerages Cut Targets Amid Profitability Pressures
Following the weak results, brokerages swiftly moved to adjust their outlooks for HDB Financial Services.
JM Financial noted that PAT was 2 percent below their estimates, as lower operating expenses could not offset weaker non-interest income. The brokerage also flagged potential profitability pressures stemming from the lender's substantial fixed-rate book, which constitutes approximately 76 percent of its portfolio, especially in a rising interest rate environment. Furthermore, the potential implementation of the IRDAI consultation paper could impact profitability, given that insurance commissions accounted for around 39 basis points of average assets in FY26.
Consequently, JM Financial cut its FY27–28E EPS by 3–8 percent and revised its valuation to 2x FY28E BVPS (from an earlier 2.5x), maintaining an 'ADD' rating but lowering the target price to Rs 650 from Rs 820.
Nuvama Institutional Equities also reduced its target price, citing the softer Q2 FY27 performance and anticipated near-term margin and asset quality pressures. Nuvama lowered its target price to Rs 675 from Rs 700, valuing the stock at 1.8x September 2028E Book Value (BV), and maintained a 'HOLD' rating.