HDFC Bank’s stock movement eyed after management rejig, price down over 9% in three weeks

HDFC Bank’s stock movement eyed after management rejig, price down over 9% in three weeks

HDFC Bank has attracted significant attention as it embarks on a management restructuring journey following its merger with HDFC Ltd in July. This move comes as the second major reorganization since Sashidhar Jagdishan assumed the role of Managing Director and Chief Executive Officer in October 2020, succeeding the renowned Aditya Puri.

The bank’s decision to communicate these changes to its employees through a memo on October 1 has sparked interest among investors and industry observers alike. Notably, the bank’s focus on technology and digital services is evident, with information technology and digital functions now reporting directly to CEO Sashidhar Jagdishan. This strategic emphasis underscores HDFC Bank’s commitment to leveraging technology to enhance and expand its services in an increasingly digital banking landscape.

Additionally, the appointment of Ashish Parthasarthy, a seasoned veteran within the bank, to oversee the vital retail branch business, including deposits and product distribution, highlights the bank’s dedication to optimizing its retail operations. As HDFC Bank navigates this phase of transformation, market participants will closely monitor how these changes shape its competitive position, customer experience, and overall growth trajectory.

The decision by Ashish Parthasarthy to restructure the retail branch business geographically represents a strategic move aimed at improving expansion efforts and product management within HDFC Bank. In this endeavor, Smita Bhagat and Sampath Kumar will co-lead the initiative. Bhagat, a senior leader with the bank, brings a wealth of experience in handling various segments, including government, institutional, ecosystem, inclusive banking, and start-ups. Meanwhile, Kumar has expertise in managing liability products, third-party products, and non-resident business, as reported by CNBCTV18.

The restructuring appears to have several objectives, with a primary focus on enhancing execution. First, it aims to drive growth in mortgages, with Mr. Arvind Kapil assuming exclusive charge of this segment. Second, the restructuring seeks to optimize branch ramp-up activities by splitting responsibilities geographically. This approach is expected to improve the bank’s overall operational efficiency and effectiveness in serving customers across different regions.

Jefferies India, in its latest note, highlighted the strategic importance of this move, emphasizing that the ramp-up of deposits and the housing book will be crucial drivers of growth and investor confidence for HDFC Bank. The brokerage firm expressed confidence in the bank’s prospects, maintaining a buy rating on its stock and increasing the target price to Rs 2030 per share, representing a 33 percent increase from the current market price. This suggests that investors and analysts are optimistic about the bank’s future performance and the positive impact of these strategic changes.

The recent decline of over 9 percent in HDFC Bank’s stock price in the past three weeks following the merger with HDFC Ltd has garnered attention from market analysts. Despite this short-term setback, analysts view the current valuation of the stock as attractive, with a price-to-earnings (P/E) ratio of approximately 13x and a price-to-book (P/B) ratio of 2.1x based on March 2025 earnings and asset values (ABV). These valuations are considered favorable for long-term investors, as they suggest the stock may be undervalued.

Analysts are optimistic about the bank’s prospects, anticipating a gradual recovery in growth and earnings, which is expected to bolster the stock’s performance. This positive outlook is rooted in the belief that the merger will ultimately yield benefits for HDFC Bank and its shareholders in the long run.

However, it’s worth noting that there are short-term challenges associated with the merger. Analysts foresee a temporary decline in net interest margin (NIM), net worth, and asset quality following the merger with HDFC. HDFC Bank’s Chief Financial Officer, Srinivasan Vaidyanathan, has indicated a potential 25 basis point NIM contraction due to increased Cash Reserve Ratio (CRR) requirements and excess liquidity post-merger. This adjustment could lead to lower earnings for the bank in the second quarter.

Furthermore, the merged entity’s margin is estimated to be in the range of 3.7-3.8 percent in June, down from the bank’s previous standalone margin of 4.1 percent. This is likely to impact the bank’s near-term return on assets (RoA). Analysts, including Macquarie, have highlighted these near-term challenges but still maintain a positive long-term outlook on HDFC Bank’s stock, emphasizing the potential for growth and value creation as the integration progresses and the bank adapts to the new operating environment.

Investors will continue to monitor how HDFC Bank manages these short-term challenges while working towards achieving its long-term strategic objectives.