Home Investment Memo: HDFCBANK

Investment Memo: HDFCBANK

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Our Rating: HOLD

Mehabe score: 5
G Factor: 4
Piotski Score: 5
The stock has a rating HOLD. The mehabe team score is reflective of its fundamental and technical merits. A rating above 8 is considered good buy. The stock has a G-Factor of 4 and Piotski score of 5.

Description

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. HDFC Bank is a publicly held banking company, the bank was incorporated in August 1994 in the name of ‘HDFC Bank Limited’, with its registered office in Mumbai, India. It is engaged in providing a range of banking and financial services including retail banking, wholesale banking and treasury operations. It is promoted by HDFC Ltd. which has 19.32% stake as on September 30, 2020. Currently, HDFC Bank Ltd. (HBL) is the largest private sector bank in India. As on March 31, 2020, the bank’s total balance sheet size stood at Rs. 15,30,511 Cr.

Main Points

Ratios #
Capital Adequacy Ratio – 18.8%
Net Interest Margin – 4.2%
Gross NPA – 1.32%
Net NPA – 0.40%
CASA Ratio – 46.1%Site: HDFCBANKMain Symbol: HDFCBANK

Price Chart

Market Cap: Rs 841,360 cr Price: 1522.0 Trading pe: 26.5x
Book-value: 380/share Div yield: 0.43 % Earning yield: 4.57%
Face-value: 1.00/share 52week high: 1650.00 52week low: 993.00

Technical Analysis

  • Stock trades at 1522.0, above its 50dma 1489.0. It also trades above its 200dma 1408.9. The stock remains bullish on techicals
  • The 52 week high is at 1650.00 and the 52week low is at 993.00

Price Chart

P/E Chart

Sales and Margin

Strengths

– has delivered good profit growth of 19.96% CAGR over last 5 years
-‘s median sales growth is 18.67% of last 10 years

Weakness

– Stock is trading at 4.01 times its book value
– has low interest coverage ratio.
-Contingent liabilities of Rs.1020028.80 Cr.
– might be capitalizing the interest cost
-Earnings include an other income of Rs.27332.88 Cr.

Competition

– The industry trades at a mean P/E of 22.0x. Kotak Mah. Bank trades at the industry’s max P/E of 34.72x. HDFCBANK trades at a P/E of 26.5x
– Industry’s mean G-Factor is 4.0 while the mean Piotski score is 6.0. HDFCBANK has a G-Factor of 4 and Piotski scoreof 5.
– Average 1 month return for industry is 1.9%. The max 1- month return was given by IndusInd Bank: a return of 6.12 %

Quarterly Results

  • Sales for period ended Jun 2021 is Rs 32254.0 cr compared to Rs 32352.0 cr for period ended Jun 2020, a fall of 0.3%
  • Operating Profits reported at Rs 14073.0 cr for period ended Jun 2021 vis-vis 11751.0 for period ended Jun 2020 .
  • Operating Margins expanded 730.9 bps for period ended Jun 2021 vis-vis Jun 2020 .
  • The EPS for Jun 2021 was Rs 14.33 compared to Rs 15.3 for previous quarter ended Mar 2021 and Rs 12.62 for Jun 2020

Profit & Loss Statement

Profit&Loss Comments

  • Company reported sales of Rs 128455.0 cr for period ended TTM vis-vis sales of Rs 128552.0 cr for the period ended Mar 2021, a fall of 0.1%. The 3 year sales cagr stood at 6.9%.
  • Operating margins shrank to 14433.0% for period ended TTM vis-vis 16848.0% for period ended Mar 2021, contraction of 241500.0 bps.
  • Net Profit reported at Rs 32828.0 cr for period ended TTM vis-vis sales of Rs 31833.0 cr for the period ended Mar 2021, rising 3.0%.
  • Company recorded a healthy Net Profit CAGR of 13.7% over the last 3 years

Balance Sheet Statement

Cash Flow Statement

Cash Flow comments

  • CashFlow from operating activities was positive.
  • CashFlow from operating activities: Rs 42476.0 cr for period ended Mar 2021 vis-vis Rs -16869.0 cr for period ended Mar 2020

Sales Growth

Profit Growth Statement

Profit Growth Statement

Stock Price CAGR

Return of Equity

General Comments

– The company has had stable/constant Return on Equity (RoE) metric. The RoE on Last Year basis was 16.0% compared to 17.0% over the last 3 Years.
– The stock has given a return of 39% on a 1 Year basis vis-vis a return of 12% over the last 3 Years.
– The compounded sales growth on a TTM bassis is 5% vis-vis a compounded sales growth of 15% over the last 3 Years.
– The compounded profit growth on a TTM basis is 17% vis-vis a compounded profit growth of 20% over the last 3 Years.

Ratios

Shareholding Pattern

– FII shareholding has remained largely constant. The Jun 2021 fii holding stood at 39.39% vis-vis 39.79% for Mar 2021
– Public shareholding has remained largely constant. The Jun 2021 public holding stood at 13.1% vis-vis 13.01% for Mar 2021

Conclusion

– has delivered good profit growth of 19.96% CAGR over last 5 years
-‘s median sales growth is 18.67% of last 10 years – Stock is trading at 4.01 times its book value
– has low interest coverage ratio.
-Contingent liabilities of Rs.1020028.80 Cr.
– might be capitalizing the interest cost
-Earnings include an other income of Rs.27332.88 Cr.

  • The business fundamentals of the stock remain stable. Stronger near term results will build interest in the stock. We suggest to wait for a upturn in business performance.
  • Technically, the stock remains above its 50 DMA 1489.0 and is trading at 1522.0, thus bullish price action wise.
  • Thus, overall we retain a HOLD on the stock.

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