HDFC Bank Shares Fundamental Analysis and Future Outlook
HDFC Bank is India’s largest private sector lender in terms of assets. The company has been the fastest-growing bank in India since the last decade. It is also the largest bank in India by market capitalisation as of March 2020 and operates across 3 verticals namely Retail Banking, Wholesale Banking and Treasury Services.
- The company has 3 major revenue sources which include retail and wholesale banking, Investment banking and Treasury and Cards business.
- The retail banking includes loan products, deposits and services like Insurance, Mutual funds and Brokerage. The wholesale business includes commercial banking and transnational banking which mostly involves wholesale loans, deposits and Tax collections for large companies.
- The Investment banking business involves project finance, equity markets, M&A and advisory.
- Treasury services form a small part but provide niche and profitable services like derivatives, foreign exchange and debt securities. HDFC’s Cards business is also one of the largest in India with 13.9 million credit cards and 5+ lakh POS terminals.
- The only concern for the bank now is finding a replacement for Mr Aditya Puri after his retirement. You can read more about it here: The Future of HDFC bank after Aditya Puri.
I have evaluated the company on 10 fundamental categories and each has been given a rating out of 5 stars. From this, I have arrived at a combined stock rating for the company.
This is the summary of the analysis. You can read the detailed analysis with the excel models on my blog (Check the source link)
Source: HDFC Bank Shares Fundamental Analysis and Future Outlook
Some insights for the coming years from the analysis, management discussions and con calls are as follows.
- The COVID-19 outbreak and the subsequent lockdown in the country will have a negative impact on the loan book of the company. Both the retail and wholesale loans can witness a double-digit increase in NPAs. The deposits will also reduce along with interbank funds which will impact the liquidity of the overall Indian banking system.
- The big decision still remains about the replacement of Mr Aditya Puri. The bank has shortlisted candidates (global as well as internal) and the right candidate is expected to be finalized by July 2020.
- HDFC bank has made additional provisions of INR 7 billion, largely towards certain corporate accounts which have a high probability of default. Most retail products are showing an improving trend; however, there are high concerns in the Commercial Vehicle and Construction Equipment (CE) portfolio. This is because of the halt in construction sites and transport business due to the lockdown in the country.
- The unsecured business segment is showing improved growth. This includes personal loans given pre-dominantly to salaried customers. Credit cards business is also witnessing an improving trend due to corporate tie-ups.
The Indian banking sector as a whole will face increased loan defaults and liquidity crunch due to the COVID-19 crises in the country. The recovery majorly depends on government stimulus and liquidity infusion by RBI in the economy. HDFC bank, however, has solid fundamentals along with sufficient provisioning to withstand the temporary setbacks. The only concern remains is the management change during uncertain times.
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