Silver jubilee years ought to bring a feel of satisfaction or even 1 / 4-life disaster.
For HDFC Bank traders, it brings both.
The non-public lender stated stellar profitability metrics yet again and determined to distribute an intervening time dividend to mark its twenty-fifth yr of operations. Net profit grew 21%, and poisonous tiers for the mortgage book remained the lowest within the enterprise.
HDFC Bank’s mystery sauce for its pristine balance sheet isn’t any secret at all. The bank has been a retail lender for lengthy, with company loans accounting for less than half of its portfolio, not like its friends wherein these loans dominate.
That and the reality that mortgage growth has been over 20% always have helped maintain horrific loan ratios at low degrees.
But there may be greater to it than meets the eye.
As the chart above shows, HDFC Bank’s bad mortgage stockpile has been volatile, and so have been its provisions in the latest years.
This indicates that even the strongest player isn’t always resistant to the headwinds of a slowing economy and overleveraged industry.
The June area needed to increase provisions by using 60% as pressure from agriculture loans rose as additional stress emerged on its publicity to non-bank lenders. Given the consumption slowdown, HDFC Bank doesn’t want to risk its unsecured loans either. In a convention call with analysts, the management stated that it is careful approximately lending to non-banks and has ramped up provisioning for unsecured loans.
Moreover, its loan growth has decelerated sharply to 17.1%, led via a slowdown in automobile loans. This changed into predicted as Indians haven’t been buying cars and bikes at a fee their makers desired in the final years as a minimum. “HDFC Bank is maximum dominant in -wheeler financing inside the non-public banks, -wheeler ebook constituting eight% of its car finance book,” analysts at brokerage company Jefferies had mentioned in April.
For the June sector, vehicle loans grew simply eight% compared with 12% within the preceding sector.
Analysts trust that, too, mortgage increase may be mild compared with the financial institution’s ancient overall performance within the following couple of quarters. That said, analysts are hopeful the bank will preserve historically developing its core income. “We count on the enterprise to grow its NII (net hobby earnings) at a CAGR of 20% over the subsequent financial years. Healthy advances boom and pass sell opportunities within the current excessive exceptional deposit franchise will assist in delivering sturdy NII going ahead,” brokerage firm Anand Rathi Share and Stock Brokers Ltd stated in a note.
Even so, the slowdown in the loan boom comes when the bank is staring at a pinnacle control alternate. This is a key overhang for the stock.
Managing director Aditya Puri will exit midway through FY21, given that provider age for bank executives is capped at 70 years. Puri’s shoes are too massive to fill, considering he instructed the financial institution considering that the start. It is searching for a successor, which was given more difficulty after deputy Paresh Sukthankar left the final 12 months.
HDFC Bank’s 25 years had been marked with a balance sheet built out via warding off loans to infrastructure and different dodgy debtors. Investors have a yr and a 1/2 to discover whether the successor will take decisions similar to Puri’s.
Meanwhile, the stock trades at a multiple of three. Three instances its estimated e-book price for FY21, inexpensive than that of Kotak Mahindra Bank, any other lender with enviable asset quality.