HDB Financial Services shares focus as PAT sees 2% year-on-year growth in Q2

Shares of HDB Financial Services are expected to be in the spotlight on Thursday, October 16, after the company reported a 2% year-on-year (year-on-year) increase in net profit for the July-September quarter. The company posted a profit after tax (PAT) of Rs 581 crore in Q2FY26, compared to Rs 571 crore in the corresponding period of the previous year.

HDB Financial also reported a 13% year-on-year increase in revenue from operations, which rose to Rs 4,545 crore for the quarter. Net interest income (NII) showed a robust growth of 20% year-on-year and stood at Rs 2,192 crore, compared to Rs 1,833 crore in the same quarter last year. The rise in NII was supported by higher returns and efficient financing strategies. Furthermore, the company’s net interest margin (NIM) improved to 7.9% during the quarter, compared to 7.5% in the same period a year ago.

However, asset quality showed a slight deterioration. The gross non-performing asset (NPA) ratio rose to 2.81% from 2.56% in the previous quarter, while net NPA stood at 1.27%. Provision coverage on assets in phase 3 remained strong at 54.7%. Credit costs rose significantly to Rs 748 crore from Rs 431 crore a year earlier.

The increase in provisions led to a 3.3% year-on-year decline in pre-tax profit from the lending business, which fell to Rs 753 crore. For the first half of FY26, HDB Financial reported a profit of Rs 1,149 crore, compared to Rs 1,173 crore in the same period last year.

Following the company’s second quarter results, global brokerage firm Morgan Stanley has maintained HDB Financials’ rating at ‘Equalweight’, with the target price revised to Rs 805 from Rs 830.

The company’s profit after tax (PAT) in fiscal 2026 fell 2% year-on-year (year-on-year), but still exceeded both Morgan Stanley’s own estimate of a 13% decline and the consensus estimate of a 1.5% increase. This performance was driven by stronger net interest income (NII), which rose 20%, and operating profit before provisions (PPOP), which rose 24%. Net interest margin (NIM) came in at 7.92%, slightly above Morgan Stanley’s estimate of 7.76%, supported by a 25 basis point quarterly improvement in credit spreads. Credit costs remained high, but phase 3 coverage remained stable at 117%. Concerns over asset quality persist, especially in the commercial vehicle segment, which was hit by flooding and a prolonged monsoon season. However, trends in Phase 2 assets are starting to show signs of stabilization.

Management expects credit costs to decline from the third quarter of FY26, with a medium-term target of around 2.2%. The company has raised its FY26 earnings per share (EPS) estimate by 4%, although FY27-28 forecasts are slightly lower. NIM is expected to average around 7.95%, and the company’s compound annual growth rate (CAGR) of assets under management (AUM) has been reduced from 18.6% to 16.4%.

On the valuation front, Morgan Stanley notes that HDB Financials currently trades at a price-to-book ratio of 2.6 times FY27E price-to-book value and a price-to-earnings multiple of 18 times, offering only modest upside potential.

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