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Fundamental Analysis of HDFC Bank Ltd.
This article will tell you everything you need to know before investing in HDFCBANK.

hdfc bank

In this article, we will explore HDFC Bank Ltd.. fundamentally, understand its business model and industry, and determine whether it’s a good investment fit for you.

HDFC Bank Ltd.

The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an ‘in principle’ approval from the Reserve Bank of India (RBI) to set up a bank in the private sector.

The bank itself was incorporated in August of 1994 by the name HDFC Bank Ltd. with its registered office situated in Mumbai. Today, the company is engaged in providing a range of banking and financial services including retail banking, wholesale banking and treasury operations.

Currently, it is also the largest private sector bank operating in India.

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Is the banking industry a goldmine investment?

India’s banking sector is on track to become the fifth largest banking system in the world by 2025. Most of the banking sector is fuelled by India’s 600 million strong banking population, their rising disposable incomes, and an asset base of more than $3 trillion.

Here are the key segments of the industry in more detail:

  • Public Sector Banks (PSBs): Accounting for roughly 60% of market share, PSBs retain a strong presence through extensive branch networks and government backing.
  • Private sector banks: Comprising roughly 30% of the market, private banks like HDFC Bank, ICICI Bank, and Axis Bank excel in customer service, digital offerings, and product innovation, capturing significant market share in urban and metro regions.
  • Foreign banks: Global giants like HSBC and Citibank contribute roughly 5% of the market, primarily focusing on corporate banking and high-net-worth individuals.
  • New-age fintech: The rise of disruptive Fintechs like Paytm Payments Bank and Razorpay X is redefining the landscape, particularly in digital payments, consumer finance, and wealth management. These agile players pose a growing threat to traditional banks with their innovative products and user-friendly interface.

Who are HDFCBANK’s competitors in the banking sector?

Here are some of HDFCBANK’s competitors:

History of HDFC Bank Ltd.

Here is a brief summary of the company through the years:

Early growth (1995 – 2008):

  • Founded in 1995, HDFC Bank capitalised on the booming housing market through its flagship housing loans product.
  • Saw aggressive branch expansion across urban and semi-urban centres.
  • The bank’s early focus on technology and digital innovations led to early adoption of online banking and mobile apps.
  • Acquired Centurion Bank in 2008 to strengthen its corporate banking arm.

Consolidation and diversification (2008 – 2023):

  • Although the financial crisis impacted the bank, its strong fundamentals helped it navigate with relative ease.
  • Major focus shifted towards personal loans, auto loans, credit cards, and wealth management.
  • It was during this period that the company merged with its parent company, HDFC, to create a financial services behemoth, offering a wider range of financial products and services.

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Company Profile of HDFCBANK

Pros

  • Company has great fundamentals with steadily increasing net income numbers.
  • It has delivered good profit growth of almost 20% CAGR over the last 5 years.
  • The company has also been maintaining a healthy dividend payout percentage of 19%.

Cons

  • HDFCBANK has been recording low interest coverage ratio because of large amounts of interest payments every quarter.
  • It might also currently be capitalising the interest cost.

The finances

MetricValue
Market cap₹11,22,815 cr
Book value₹519
Dividend Yield1.28%
ROCE6.24%
ROE17.1%
Face value₹1.00

Shareholding pattern of Titan Ltd.

Here’s the shareholding pattern of Titan:

Promoter holding in the company went from 25.52% in June 2023 to 0% today because of the company’s merger with its parent company, HDFC.

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Peer multiple comparison

StockP/E RatioP/B RatioDiv. Yield
HDFC Bank Ltd.24.533.891.28%
ICICI Bank Ltd.20.333.130.81%
Kotak Mahindra Bank Ltd23.703.150.08%
Axis Bank Ltd31.292.600.09%

*As on 22.01.2024

Q3 2023-24 Financial Result Analysis

The private sector lender in its results for Q3FY24 reported a 33% net income growth at ₹16,372 crore, compared to ₹12, 259 crore in the previous year.

However, stock prices fell by 8.5% soon after, causing investors to lose more than ₹1 lakh crore in market cap. This fall, which happened last week on the 16th of January, is said to be the worst recorded daily performance for the scrip in 3 years, last reported during Covid.

While outlooks might look bearish purely on technical analysis, top brokerages around the country have reaffirmed their faith in HDFCBANK in the long-term and plan to hold.

Conclusion

So, that’s a brief overview of everything you need to know about HDFC Bank Ltd.. before investing. This information is by no means, however, exhaustive, and we encourage you to do your own research before investing.

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Devansh Sinhal

I am passionate about stock investing and have a knack for simplifying complex market concepts. Providing readers with valuable insights and empowering them to make informed investment decisions is my jam.

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