What does one buy HDFC Bank for?
- Predictability of delivering results YoY
- Market leading franchise that has weathered a crisis or two
- Stable and reliable management team
- Corporate Governance
In a business like banking (and maybe IT too), point (1) is usually contingent on point (3). When (3) changes, it has the potential to impact on the other aspects that are taken for granted as well.
All these days when AP was in charge and his core team was stable, the bank was running like a well oiled engine where the core team has a good understanding of each other. Whenever a problem in a particular domain come up, it is very clear to everyone who is going to deal with that and how he will do it. This sort of teamwork is something one evolves into after working together for some time, a set of highly capable people who haven’t spent time working together cannot easily replicate this.
AP moving on and some of the core team members moving out can potentially bring in some flux to what has been a well oiled engine so far. The new person taking charge has to first choose his core team, then spend some time in communicating what the new way of working/template is going to be.
The durability and longevity of the franchise is not under question but the predictability of results that was taken for granted all these years will need to be evaluated for continuity. If this aspect takes a hit with all other things remaining constant, will the premium valuation that the stock commanded all these years continue?
In businesses like banking and IT this factor becomes very important, I would not say the same thing about a manufacturing company. This is easily the biggest transition that HDFC Bank has seen in a long, long time and we need to treat this event with the respect it deserves. For a while think of a scenario where your immediate manager changes and a new person comes in - won’t that be a significant change for you and the rest of the team members even if all other factors remain the same?
Disclosure: No investments, keenly watching how this pans out