In this article, we can see HDFC Bank Ltd as a Potential Multibagger Stock as on March 2024.
HDFC Bank Ltd
HDFC Bank is a publicly held banking company, It is engaged in providing a range of banking and financial services including retail banking, wholesale banking, and treasury operations. Mr. Atanu Chakraborty is the current Chairman. Mr. Keki M. Mistry is the current non-executive director.
Website
Location
The Bank has offices and branches in Bahrain, Hong Kong, UAE, and Kenya where they offer NRI clients Offshore Deposits, Bonds, Equity, Mutual Funds, Treasury, and Structured products offered by third parties from the Bahrain Branch. bank headquartered in Mumbai.
Products & Services of HDFC
- Retail banking,
- Wholesale banking
- Treasury operations.
POSITIVES OF HDFC to become a multibagger
- The Bank’s network includes 21,683 Banking outlets comprising Branches 6342 and Business Correspondents 15,431, ATMs/ Cash Deposits, and Withdrawal Machines 18,130 spread across India as of FY22.
- Through various initiatives and partnerships, the Bank extends services to remote areas and economically disadvantaged communities. By providing access to banking facilities, loans, and financial literacy programs.
- Embracing digital innovation, the Bank offers a smart banking comprehensive suite of online and mobile banking services, which make banking convenient, secure, and accessible anytime, anywhere. From mobile payments to seamless funds transfer facilities.
- Bank deposits have grown faster than the system and what is noteworthy is that, with a market share of five per cent of branches in the banking system, Bank have a market share of 11 per cent of banking deposits.The Bank garnered an incremental deposit market share of approximately 14.6 per cent in the last financial year.
- With a ‘service first culture’, the bank leverages robust analytics and AI to suggest personalized recommendations based on customer transactions and digital behavior for services and products.
- Over the year including differentiated and priority servicing for senior citizens & HNW customers, real-time deliverable tracking, and regular customer alerts on processing milestones.
- Became only private sector bank to have a branch in Lakshadweep, Inaugurated its first branch in Singapore, Became first domestic bank to execute a gold forward deal from GIFT City
Value Investing
- Profit After Tax grew by 10.7 per cent to H67,347.4 crore in the last financial year and Net Interest Margin stood at 3.48 per cent, reflecting resilience in core income. Gross NonPerforming Assets stood at just 1.33 percent, reflecting the Bank’s unwavering focus on maintaining its asset quality.
- Book Value Ratio is less than 3X which is moderate within the banking industry valuations.
- ROE > 17% shows the capacity of bank profitability and efficiency to generate profits.
- Capacity Expansions displays 30% progress in current financial year.
- Cash Flow is positive for Hdfc bank for the past 5 years displays credibility on liquidity
- Steady 20% increase in reserves displayed in balance sheet.
- In the rural segment, the Bank is planning to expand its services to 2.5 Lakh villages in the next two years. It funds not only traditional agriculture but also allied activities.
- HDFC Bank ranked no.1 for two consecutive years on relationship NPS.
- The second largest disbursing bank for the Public Financial Management System (PFMS) processing more than I75,000 Crore under various schemes.
- Under agriculture finance, the Bank currently has a presence in 1.65 Lakh villages
- The bank grew its reach and is serving 1.41 Lakh customers across 923 locations with an active AUM exceeding H4,30,000 Crore including MF AUM of H73,000 Crore.
- Launched a revamped PayZapp 2.0 payments app that provides customers with a seamless, intuitive user experience with enhanced security features.
- HDFC Bank and HDFC Limited merged with effect from July 1, 2023, creating one of the world’s most valued Banks. This transforms HDFC Bank into a financial services conglomerate and completes the product suite through the addition of home loans.
- The intrinsic value discount of HDFC Bank is 50 % coupled with the recent corrections in prices. This is the best time to accumulate such a blue-chip well-managed company stock.
PROFIT & LOSS
Negatives
- Debt-equity ratio is high as the company is in the banking business. The higher interest coverage ratio should accommodate the risk raised from default by borrowers.
- A tighter monetary policy would impact the speed and scale of growth for the bank.
- De-dollarization would create rate fluctuations & significant impact on the exchange rate & bottom line.
- Cyber Data Risk imposed by cyber attacks on bank systems, and phishing causes disruption in services.
- Transition risk can impact the Bank’s credit portfolio resulting from changes in the climate policy, technology, consumer, and market sentiment during the transition to a low-carbon economy. This is particularly relevant for policy changes that can result in loan defaults from certain sectors like coal, thermal, and infrastructure.
- Acute physical hazards can have a negative influence on a credit portfolio by causing bad debts due to damage to property, infrastructure, and land. This is also relevant for climate disasters destroying assets.
Warren Buffett Checklist
| Factor | Value |
| Economic Moat | Good |
| Growth | Good |
| Valuation | Good |
| Debt | Bad |
| Integrity | Good |
Summary
Based on above evaluation the company have low multibagger properties.
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Multibagger with Expansion Plans | Low PE Ratio | Low Book Value Ratio | Intrinsic Value Discount 70 % | PLUS Free Value Investing Education