If you invest in HDFC Bank because it hasn’t done well, you should do it. When should you get it in 2022?

In March 2020, there were two opposing viewpoints on HDFC Bank, the most significant private sector bank in India. According to Bernstein, the stock should be sold at INR750 with a target price of INR1,480, while according to UBS, the stock should be bought at INR1,480 with a target price of INR750. This was the value of the stock at the time.

Earlier this year, Gautam Chhugani, an analyst at Bernstein, made a straightforward argument. In his analysis, he said that HDFC Bank is the bank with the highest unsecured credit risk for persons who earn less than the median income. Vishal Goyal, the chairman and CEO of UBS, had a different perspective.

According to him, the loans were offered to persons who worked for reputable and well-known companies. According to him, there were never any issues with the loans being repaid on time. He said that repayments for retail and small business loans continued to flow smoothly, which was excellent news for both parties.

Even Chhugani, who had called the new bank’s bluff, acknowledged issues with the new administration. Goyal, who had already filed a formal complaint against the bank, was more confident.

Ambit put HDFC Bank’s “buy” rating on hold in June 2020, citing high attrition and NPAs as reasons. The brokerage rated the shares a month later to “sell.” It said it expected slower long-term growth and lower returns on equity (ROE).

It anticipated that the 25 per cent premium between HDFC Bank and other large banks will be reduced to 250 basis points. Ambit also announced Aditya Puri’s retirement, putting the bank in jeopardy of losing a huge number of key executives at a time when the world is in turmoil.

They used to believe that HDFC Bank was incorrect, but now they think it is correct.

The Nifty 50 index has risen by more than double its previous size in only two years, while HDFC Bank has benefited by 67 per cent in the same period. According to this research, HDFC Bank suffered a large fall in its return on equity and a considerable growth in non-performing assets, resulting in a stock price loss.

In the last six months, the Nifty has declined by 3 per cent, while the stock has plunged by 8 per cent. The market believes that foreign institutional investors (FIIs) are dumping Indian shares as interest rates in the United States grow and the Ukraine-Russia dispute persists.

In December 2021, the shop’s foreign institutional investor (FII) shareholding had reduced to 37.5 per cent, from 38.3 per cent three months earlier. The Nifty 50 is represented by HDFC Bank, which contributes 8.5 per cent of the total.

Brokerages that earlier indicated that the bank was collecting a substantial amount of bad debt on its balance sheet now say that the bank appeared to be in a fantastic position on numerous fronts. In a study issued on January 5, 2022, Jefferies forecasted that HDFC Bank would have a solid year and set a target price of INR2,070 for the stock.

The year 2022 might be a good one for HDFC Bank if it can maintain its development in retail and small firms, which would improve the bank’s bottom line while also strengthening its internal procedures and compliance with regulatory standards. Due to increased retail and commercial/SME loans, HDFC Bank’s loan growth climbed by 5 per cent quarter-on-quarter and 16 per cent year-on-year during the third quarter of FY22.

Jefferies assigned the bank a poor rating for the year 2020.

However, despite maintaining a significant portion of the market in deposits and payments, the bank has seen its return on equity (ROE) decline over the last two years. Issues relating to technology are being addressed and remedied as well.

Price-to-book value (P/BV) of HDFC Bank is presently 3.30 and the return on equity (ROE) is 16.9 percent, making it a good buy at this point. On the basis of a price-to-book ratio of 2.69, the Bank Nifty generates a return on equity of 13 percentage points.

Value fund managers anticipate that SBI Mutual Fund will continue to perform well in the future, while other investors have lately purchased shares of the bank’s common stock.

After speaking with investment managers, ET Prime learned that the most important factor is that the bank is now readily available at a competitive price at a time when credit demand is on the rise. Among other things, inflation is on the rise right now. This is their point of view on the matter.

It’s been a while since HDFC Bank’s stock prices have decreased, but the company currently seems to be a fantastic value. Ravi Dharamshi, the chief investment officer of ValueQuest Investment Advisors, a firm that makes investments in small enterprises, believes that new-age businesses are putting pressure on banks’ profit pools.

Despite this, the bank is losing market share in personal and auto loans, and its position in credit cards is only safe until the end of 2021. Consequently, some of these concerns have been voiced by analysts since the beginning of the fiscal year 2019.

The effect of a change of guard on the individuals that reside in the neighbourhood
Puri will retire as CEO and managing director in October 2020, following 26 years in the post.

Under his leadership, the bank had expanded and generated significant profits for its shareholders. Because of the trust placed in Puri’s bank, the stock did not move immediately when he departed. Because the bank has struggled to make a profit two years after it was first established,

Analysts and the media believed that Paresh Sukthankar would take over for Puri since he was a good match for their storey. Between 2015 and 2019, Puri and Sashidhar Jagdishan, the then CFO, began working on projects together. Sukthankar left his post in 2018.

When the time came for a new leader to take over, industry insiders said it was difficult to find someone to step in. Sukthankar was adamant about not returning, and Jagdish was the only one who could have taken his place.

There were two things that Jagdishan needed to take care of before assuming command. The RBI had previously brought them to the public’s attention, and both have now been resolved. He is likewise attempting to get to the position of leader.

He is a long-time employee at the bank, and he is well-known for his humility and politeness. Earlier this year, he expressed regret for his difficulties with the computer system. He went on to express his regret for what had happened to them.

They believe that Jagdishan will constantly be compared to Puri and that it would be a long time before he can demonstrate that he is superior to Puri. Another unique aspect of Puri’s work was the way he approached it.

“It takes time to go from being a CFO to become a leader. First and foremost, two RBI issues have been resolved, and the second group of subjects is still being addressed. Second, individuals must be willing to follow to succeed. According to an industry expert who begged not to be identified, there is no resistance, but he does not have the same political influence as Puri had.

It was said about Aditya Puri, “He possessed a personality that was larger than life.” It’s also a fantastic opportunity to demonstrate his ability to make things function without constantly needing his assistance. So far, Dharamshi admits, “I haven’t made up my mind on anything.” It was always difficult for the incoming manager to step into Mr Puri’s shoes.

There are two issues to contend with: an increase in non-performing assets (NPAs) and an increase in RBI rap.

Even though some important and not-so-important people have left the bank, the real problem is how the business runs. In March 2020, there will be new NPAs. In December 2020, 0.09 per cent of the bank’s assets were not returned. In December 2021, 0.37 per cent, or 28 per cent, of the bank’s assets were not given back.

There were also 29 basis points and 22 basis points from Kotak Bank and ICICI Bank, which were both in line with their benchmarks, as well. Banks aren’t always the best at managing assets, but they’re still thought to be one of the best.

As a result, the Reserve Bank of India (RBI) told HDFC Bank to stop launching new digital business operations and instead look for new credit card customers in December 2020. HDFC Bank’s data centre had been offline for a long time.

The Reserve Bank of India (RBI) says that HDFC Bank can’t make new credit cards until December 2020. This rule was only changed in March 2022. This meant that a lot of money was lost because the sector makes between 14% and 22% a month from EMI payments on credit card bills and penalties for not paying on time.

Before the end of this year, HDFC Bank was the company that gave out the most credit cards, giving out more than one million each year. During those 15 months, HDFC Bank was not allowed to give out credit cards, which could have cost 1.5 million people money.

In the past few years, there has been less turnover at the top, and the RBI has lifted all of its rules on using technology. In the most recent Ambit study, the bank’s value and strong brand have made it “positive,” which also means that it will be the best-performing bank for the next two years.

ICICI Bank (3.15) and Axis Bank (3.96) are both trading at a lower price than they were before, which means there has been a narrowing of the difference between their stock prices. At the start of 2022, Ambit said the stock was a “buy,” and they set a target price of INR1,650 for it to reach by the end of the year.

As a group, the banking industry has a P/E of 20, which isn’t very high compared to HDFC Bank’s P/E of 20.5, which isn’t very high either. Kotak Mahindra Bank owns the stock, and it has a high P/E ratio of 46.7, which means that it costs a lot for each share.

On their website, Kotak Mahindra Bank said that in December 2020, it would cost INR2,000 to open an account. December 2021: They were INR1,890 per kg. Toward the end of February 2022, it hit an all-time high point of INR1,842. After a week of fighting, it was time to help.

Other businesses have been following the trend. But one business has broken away from the pack, with its share price more than tripling in the last year. This is the State Bank of India, which is a business in the United States (SBI). There will be a big difference between the price-to-earnings ratio for a bank in 2022 and the banking sector’s price to earnings ratio, which will be 14.5.

So, most experts think the stock has more room for growth. Looking at HDFC Bank’s one-year future PE of 20.5x, it’s still a lot of money. According to its three-year rolling average PE, it is selling for 17% less than its three-year rolling average P/BV, which means it is a good deal.

Even when HDFC Bank is compared to other large private banks, Ambit says its premium has dropped to 34%, down from 54% over the last five years, which is a big change. However, even though the bank is cheaper, it hasn’t grown as quickly as it did ten years ago.

The prognosis is favourable.
During its move to a different place, the bank will have to deal with new issues and a new manager. Because the future can’t be the same as the past, investment bank HDFC Bank will have to change its expectations. Investors will have to do the same. The bank will do well if analysts at Ambit, Bernstein, and UBS, who have a better idea of the specifics, keep changing their minds.

Will India’s gold standard of banking be able to regain its footing?

In my opinion, there will not be a big drop in the stock price. People will be able to buy at these prices. As an expert, Ambareesh Baliga thinks that it has stayed the same over time and that, on most occasions, “it has surprised us.” It is possible that it won’t grow as quickly as it has. Income might rise 15% to 16% in the next five years.

edited and proofread by nikita sharma