HDB Financial Services Ltd reported a healthy March quarter results, with a meaningful pickup in disbursements, even as a couple of brokerages noted that the overall loan growth remained muted due to elevated repayments. Asset quality improved sequentially, leading to a moderation in credit costs. Margins expanded, supported by a decline in cost of funds (CoF), they said while suggesting targets in the range of Rs 710-720 apiece. The HDB Financial stock settled at Rs 644.20 on Wednesday.

JM Financial has revised its FY27-28 EPS estimates upwards by 3 per cent each for HDB Financial Services, following the quarterly results. It values the company at 2.1 times FY28 book value in return for 15 per cent asset under management (AUM) CAGR and 15 per cent return on equity (RoE) over FY26-28E. It maintained 'ADD' rating with a revised target price of Rs 710 on HDB Financial against Rs 650 earlier.

SBI Securities said AUM growth for HDB Financial remained elusive during the quarter, impacted by moderate growth in enterprise lending and asset finance, amid asset quality stress. Margins expansion was led by stable asset yields and decline in cost of borrowing, aided by effective treasury management. 

This brokerage said asset quality has stabilised across segments underpinned by better recovery and decline in forward flows during a seasonally strong quarter. 

"We believe the focus would now shift towards the growth momentum for HDBFS. Supply chain normalisation and swift resolution to the West-Asia conflict would be key monitorable going ahead. At CMP of Rs 644, the stock is trading at a P/B multiple of 2.3 times/2 times for FY27/FY28, respectively, based on Bloomberg consensus estimates. The fair value of the company is estimated to be in the range of Rs 710-720," it said.

MOFSL said HDB Financial Services currently trades at 2.3 times estimated FY27 book value. It estimated a growth of 14 per cent in disbursement, 16 per cent in AUM and 20 per cent in profit after tax (PAT), compounded annually, over FY26-28. The domestic brokerage sees return on asset (RoA) of 2.5 per cent and return on equity (RoE) of 14.3 per cent in FY28E. 

"Reiterate Neutral with a target price of Rs 720, premised on 2.2 times March 2028 BVPS. With valuations largely factoring in medium-term growth potential, we will look for clearer evidence of stronger execution on loan growth, the ability to better navigate industry/product cycles, and structural (not just cyclical) improvement in return ratios," it said.HDB Financial Services said its Q4 profit rose 41 per cent YoY to Rs 751 crore, which was in line with MOFSL estimates. NII grew 22 per cent YoY to Rs 2,399 crore, which also met MOFSL expectations. 

The HDB Financial management indicated that there has been no material impact from geopolitical tensions so far, including within the MSME segment, with performance in March remaining stable. 

"However, the situation remains fluid, and the company will continue to closely monitor any potential second or third order impacts over the coming weeks/months," MOFSL reported it as saying.

MOFSL said HDB Financial is witnessing improvement across key operating metrics, with better asset quality, moderating credit costs, and improving margins. But the overall loan growth remained relatively subdued, impacted by elevated repayments despite healthy disbursements. 

"While the business trajectory is improving, the pace of recovery in loan growth continues to be gradual. We await a clearer and more sustained traction in loan growth before turning constructive on the stock, as a meaningful acceleration in loan growth will remain a key monitorable for a valuation re-rating," it said.

Key risks for the stock includes execution risks in translating scale into sustained profitability, as operating efficiency metrics currently lag peers. Rising competition in semi-urban and rural lending and potential yield compression, and credit costs continuing to remain elevated even in the following years are some other risks flagged by MOFSL. 

Meanwhile, HDB Financial highlighted that risks arising from the West Asia conflict and potential weather-related disruptions remain key monitorables, particularly from the perspective of inflation and overall growth.

Cost of funds (CoF) is being actively managed through a diversified borrowing strategy, with management indicating that CoF is expected to remain broadly stable in 1QFY27.