HDFC Bank earns record profit with falling bad loans, yet trades at 13.7 times past profit after a 37% fall. I see 24% upside as floating loans reprice and margins recover.
Key points
- $1.68 of FY26 profit per ADS (US shares that each hold three Indian shares) leaves the stock at 13.7 times past profit.
- Rs207 billion of September quarter profit, up 4.7% came with gross bad loans down to 1.11% and fees up 10%.
- 3.16% margin on total assets held steady as 70% of loans are floating and can reprice after the October rate rise.
The call
The price expects the funding squeeze to last. At $23.08 the ADS values next year profit at only 13.3 times, a discount for a bank this clean. That math implies margins never recover and the CEO handover brings mistakes.
HDB fell 37 percent in twelve months to $23.08Monthly closes via Rallies prices, Oct 2025 to Oct 2026.
Profit points the other way. Quarterly profit hit Rs207 billion with loans up 16.3%. Bad loans fell to 1.11% while 70% of loans can reprice higher after the October rate rise.
Quarterly profit keeps climbing despite margin noiseConsolidated Indian GAAP profit; forecasts are mine; source company releases.
Valuation
| Measure | Value |
|---|
| FY27 profit | Rs837 billion |
| FY28 profit | Rs946 billion |
| FY28 profit per ADS | $1.91 |
| Multiple | 15 times |
| Target | $28.68 |
Indian leaders often trade above 18 times profit. I use 15 times to allow for new CEO and funding risk. That still leaves 24% upside plus a 1.8% yield, so I rate it buy.
Risks
- Funding stays costly if savers keep shifting to time deposits. Watch low cost deposit share stuck near 31.6% and funding cost above 4.4%.
- New CEO resets growth or credit appetite after October 27. Watch strategy updates and any delay past January.
- Farm and small business stress lifts bad loans. Watch gross bad loans rising above 1.3% or credit costs above 0.6%.
What would change my mind
A flat margin through March with low cost deposits still falling would show the funding squeeze is structural, not temporary.