Target: ₹870
CMP: ₹754.90
HDB Financial’s Q3-FY26 PAT of ₹640 crore (+36.3 per cent y-y, + 10.7 per cent q-q) was 8.5 per cent higher than BBG consensus and 3 per cent below our estimates. The annualised credit cost (calculated) fell to 252 bps (from 271 bps in Q2-FY26) and flat y-o-y. The company maintained its long-term credit cost guidance of 2.2 per cent while noting that its new product mix renders historical comparisons moot.
Q3-FY26 AUM grew 12.2 per cent y-o-y, 2.8 per cent q-o-q owing to healthy growth of consumer finance (18 per cent y-o-y, 4.6 per cent q-o-q). Expectedly, the cost of borrowings (7.43 per cent for Q3-FY26) eased 2 bps q-o-q. Management believes the debt repricing is almost done. Yields improved 2 bps sequentially to 14.1 per cent for Q3-FY26 owing to the shift in loan mix.
Consequently, NIM (on average AUM) improved 15 bps q-o-q to 8.1 per cent. Despite cost-to-income ratio inching up 72 bps q-o-q to 47 per cent, HDB delivered PPOP growth of 23 per cent y-o-y and 3 per cent q-o-q.
As highlighted in our recent initiation, with a mild margin tailwind and some normalisation of credit costs starting from H2-FY26, we expect RoE to cross the 16 per cent threshold in FY27/FY28. Our TP of ₹870 (2.7x Q3-FY28E BVPS) implies 13 per cent upside potential, which places it in the middle of our NBFC coverage, resulting in our Neutral rating. Asset quality outcomes remain the key monitorable,