Mar 05 2024, 07:44
HDFC Bank chief Jagdishan is focused on profitable growth. Will investors buy this?
On January 17, shares of HDFC Bank crashed over 8%, on a single day, following its disappointing Q3 earnings. Amid this fall, mutual funds bought the stock. However, analysts feel investors must not go by the past track record and come with a long-term horizon as HDFC Bank pre- and post-merger are two different entities.
On January 17, 2024, the HDFC Bank stock fell 8.4% to close at INR1,537.50. It was the biggest decline since the pandemic-induced market crash in March 2020. A negative sentiment was built in the options market where the 'put-call' ratios started to go up, but some fund managers, who tilted towards the quality factor (higher ROE, high dividend-paying stocks usually having higher valuations), were happy.
"We will stay invested. Perhaps, look to buy a bit more, given that it is trading at 20-year lows on price-to-book," Saurabh Mukherjea, founder, Marcellus Investment Managers, told ET Now on the day the stock fell.
The bank has maintained its growth reputation with the December-quarter net profit growing over 33% YoY at INR16,373 crore, but the net interest margins (NIM) at 3.4% were lower than the 4%-4.4% range it operated before the merger with HDFC. Return on assets (ROA) is under pressure and the credit-deposit ratio rose is at an all-time high.
Compression in NIM is mainly on account of the merger. But clearly, the business has become tough, and the bank will not have it easy going forward, analysts said.
"Our focus is going to be on profitable growth. That is the only metric I am going to be looking at for years to come, especially during this period of transition. We will not disappoint you," said Sashidhar Jagdishan, managing director and CEO, HDFC Bank. He wants investors to be patient as the bank navigates the transition period post the merger (effective July 1). He also wants them to trust the bank's ability to garner deposits without getting into the pricing game of offering higher rates.
Jagdishan said this during a conversation with Rahul Jain, managing director, Global Investment Research at Goldman Sachs (India), at the HDFC Bank Group event hosted by Goldman Sachs on February 19.
Jagdishan's comments first since the bank's stocks went on a downhill run over a month ago its third-quarter earnings - seem to have given some breather. On February 20 (a day after the event), its shares rose the most in a day since early December.
Interestingly, a few days after this interview Goldman Sachs came out with a report on the Indian banking sector where it did not sound optimistic. Some of the industry problems are more pronounced with HDFC Bank.
According to Goldman Sachs, there are multiple headwinds to deposit growth in the banking industry as it loses its attractiveness.
The private sector banks in India had been growing at the cost of public sector peers for the last two decades. But things have changed dramatically in the past three years. PSBs are now fighting back. There has been a huge comeback of SBI and other PSU banks that have seen massive growth in their stock prices. These banks have improved their ROAs and NIMS.
Again, there is a huge competition between private sector banks where ICICI Bank and Axis Bank are now giving a tough time to HDFC Bank. There are new banks like IDFC First Bank and a huge fintech economy that is going to eat into the overall private sector margins, say analysts.
With the recent fall in HDFC Bank share price, analysts and fund managers believe the shares offer an entry point for relatively cheaper valuations. HDFC Bank is currently trading at 2x FY25 book value for a standalone entity. This is at a discount to its 10-year average of 3.3-
source: et
Nov 26 2024, 16:09
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