When it comes to the greatest wealth creation stories in the Indian stock market, the stock of HDFC Bank deserves a special mention. From around Rs.25-30 levels in March 2001, HDFC Bank stock prices have increased almost sixty times, generating handsome returns to investors in two decades. If we take into consideration the numerous dividends and bonuses issued by the company, the level of returns generated by HDFC Bank stock for investors will significantly increase even more.
However, considering the significant run-up in stock price, does it make sense to invest in HDFC Bank stock price even today?
To know the answer to this question, here’s a detailed fundamental analysis of HDFC Bank stock:
HDFC Bank is the largest private sector bank in India and the third-largest company in India by capitalization with a market cap of Rs 9.01 trillion. HDFC Bank went public in 1995 and got listed on the New York Stock Exchange (NYSE) in 2001.
Key strengths and opportunities for HDFC Bank
A huge network of branches and ATMs across the country
HDFC Bank has a pan India presence with maximum branches and ATMs in the private sector.
Unparalleled reach and wide customer base
HDFC Banks’ customer base of 56mn customers has grown by a strong 10%+ CAGR over the last 4 years aided by the wide network (largest among private banks) of 5,416 branches and 14,901 ATMs spread across 2,803 towns cities.
With 52% of its distribution in semi-urban and rural parts of the country, HDFC bank is in a strong position to cater to the increasing demand for financial products and services in these markets. 80% of cross-selling happens with the existing customer base.
Balanced and well-diversified product portfolio
HDFC Bank has a very balanced and diversified product portfolio amongst all the peers with no single product line contributing more than 12% to the book. HDFC Bank caters to three key business banking segments named retail banking, wholesale banking, and treasury.
Products and services offered by HDFC Bank in the retail banking segment includes a savings account, current account, deposits (fixed and recurring, loans (personal, auto, home, agricultural, business, and gold loans), cards (credit and debit), mortgages, commercial vehicles finance, retail business banking, corporate salary accounts, construction equipment finance, distribution of mutual funds, insurance (life, health, and general), and loans against securities.
Strict focus on asset quality control
HDFC Bank has set a high industry benchmark in asset quality and underwriting standards
Strong focus on digitization
HDFC Bank’s strong focus on technology and digitization has helped the bank to improve customer experience and enhance operational efficiencies.
With a view to increase customer engagement, HDFC bank has set up a Virtual Relationship Management (VRM) channel wherein relationship managers engage and service the customers remotely and provide targeted product offerings digitally. HDFC Bank’s team of 3,600 VRMs now service approximately 10% of its customer base, which is expected to grow by 3 times by Mar-23.
Market leader in credit cards segment in the country
HDFC Bank is the market leader in the credit card segment in the country with a 26% market share as of Dec 20 and sells over 2 lakh credit cards every month. With e-commerce tie-ups, a variety of credit card offerings, and aggressive discounts on shopping, credit cards offered by HDFC rank as one of the most preferred choices for consumers.
Huge opportunities for credit growth over the next few years
According to popular estimates, credit growth is expected to double in 6-7 Yrs, creating a 20% growth opportunity for private sector banks in India. Being the largest private bank, HDFC Bank is best placed to capture this incremental growth opportunity in the sector.
|Particulars||FY20||FY26 Est||FY26 Est||CAGR %|
|GDP (USD tn) @ 1 USD = Rs73||2.8||5.0||5.5||10-12%|
|GDP (Rs tn)||203,398||365,000||401,500||10-12%|
|Bank Credit (Rs tn)||104,496||189,800||208,780||10-12%|
|– Pvt bank credit (Rs tn)||36,130||94,900||104,390||17-19%|
|– Pvt bank contribution (%)||35%||50%||50%|
Bottom line: Does it make sense to invest in HDFC Bank stock now?
HDFC Bank ranks as one of the top players in the banking segment in India. Due to its strict focus on asset quality control, it has managed to keep its NPAs among the lowest in the industry. This has resulted in huge growth for the company’s top-line while maintaining a healthy bottom-line in a highly competitive and regulated industry.
When you look at all the factors mentioned above, the stock of HDFC Bank looks like a winner. However, there are some threats also like intense competition from other banks both from the private and public sector, growing NPA in the latest results, and less penetration in rural areas.
No matter how good a stock is, the best way for wealth creation is to invest in a well-diversified portfolio of 20-25 stocks after detailed research.