HDFC Bank- we understand your world

homemaker · March 25, 2020, 1:12pm

I am no expert - so kindly do your due diligence.

Situation will not clear so easily. Also economy will slowdown for sure. Portfolio will see drawdown of 30-50% or more. But close your eyes and think, 5 years hence. Will these companies HDFC bank, Colgate,Asian paints, Bajaj finance,Britannia, pidilite,Nestle vanish or remain or will be bigger & stronger.

If you think they will be fine and do well, then continue to buy on dips in staggered manner.

I do while slope is downwards, but have seen seniors suggest same can be done post bottom is formed and do staggered buying in the slope upwards.

The challenge I find in the seniors advice is recoveries are often very sharp, quick & concentrated…may be because of algo/machine trading or whatever.

Abhay1 · March 25, 2020, 1:59pm

100% merit in your logic. End of the day it is not about large/mid/Small it is about companies that will survive. Any company that will survive will garner market shares and will keep becoming stronger and bigger.

deevee · March 28, 2020, 2:16am

Hi All

I was looking at some historical rather since inception all holdings in HDFC Bank by Sanford C Bernstein Mutual Funds. This is the same Bernsetin which came out with the recent report.

They have 3 funds which hold HDFC Bank as per the data analysis I have done. They show 3 months holdings (Jan, Dec, Nov) on their website. But one can run a short python script and fetch data tweaking their URL to get data going back to 2010 and even beyond. They seem to have not taken their data tables offline. I did that to see how their holdings in HDFC Bank has evolved with respect to their ratings, target prices and stock price.

Before sharing that let me also call out that I might be biased as my family has held HDFC Bank since a decade before Bernstein initiated coverage. Also last time I tweeted on biases and factual inaccuracies I have been getting odd comments. Wont dig deep into those as I have sort of narrowed down on a few of these fake accounts myself which were created only for one purpose. A waste of time IMHO.

Bernstein (BRNSTN) today has 3 MFs which hold HDFC Bank -

Emerging Market (EM F)
Tax International Managed Fund (T F)
International Funds (I F)
Emerging Fund was the first to add HDFC Bank in Aug 2010. The other two only added in May 2017.

These 3 funds have very poor performances. IMHO they are worse than term deposits and in some case savings account returns too. Here is a snapshot of their returns. These returns are as on 29 Feb 2020

Nov 16: Initiated coverage at 755 when stock was at 615. By end of Feb 17 they cut their position by more than half in Emerging Market Fund. Target was achieved only in end of April.

Tax Fund & International Fund added HDFC Bank in May 17. Both had more shares of HDFC Bank than Emerging Market Fund. In Aug 17 TP increased to 1215 when Price was 881. Before that for 3 months position was increased across all funds.

Then from Aug 17 again started dropping position till the next report in Aug 18. Target was 38% above market price & TP was never achieved.

In Aug 18 TP lowered to 1170 but above market price of 1048. Drops another 25% of position in this period.

In Apr 19 TP increased to 1300, market price at 1122. Drops a little more position till release of next report. TP not achieved in this period too.

In Sep 19 TP slashed to 1035 when market price is 1122. And they increase their position in a month’s time. TP not achieved too.

In Oct 19 TP increased to 1190 & position increased by a mere 0.4%. TP is achieved in this period.

Next month Nov 19 TP further increased & position also increased by 15% by year end. TP not achieved in this period. 3 reports in successive months pushing TP up & buying in that period.

Mar 20 TP slashed by almost 45% from 1400 to 750. Position not disclosed beyond end of January 2020. Lets see when the data comes how this looks.

There is a Chinese wall between the sides I believe in every such organisation.

My personal learning over the years is try to read between the lines, understand biases which people underestimate greatly, also understand the bias I personally have.

Rgds
Deepak

Note: I didnt even know such an organisation existed so I dont know anything about them other than that and some numbers. Dont want to waste anymore time on it.

hnk_so · March 28, 2020, 8:28am

@deevee Thanks for your research. Did you get time do such research on Bajaj Finance on Bernstein view as they degraded Bajaj Finance also.

ramraopatil · March 30, 2020, 11:40am

deevee · April 4, 2020, 1:49am

Hi

HDFC Bank posted an unaudited intimation to the exchanges

The Bank’s advances aggregated to approximately ₹ 9,930 billion as of March 31, 2020, a growth of around 21% as compared to ₹ 8,194 billion as of March 31, 2019 (₹9,360 billion as of December 31, 2019).
The Bank’s deposits aggregated to approximately ₹ 11,465 billion as of March 31, 2020, a growth of around 24% as compared to ₹ 9,231 billion as of March 31, 2019 (₹ 10,674 billion as of December 31, 2019).
The Bank’s CASA ratio stood at around 42% as of March 31, 2020, as compared to 42.4% as of March 31, 2019 and 39.5 % as of December 31, 2019.

I think the impact of COVID-19 will happen only in the Q1 FY21 results if it were to happen. I am taking a punt that the terminal value infact even valuation 24 months down the line will not be corrected downwards.

Financials are the ones taking the bearish brunt at the moment. But when clarity emerges they are usually the ones to recover fastest. Also we need to understand what kind of long lasting impact does the virus create. We have a few good threads already on the same.

This is my personal opinion.

Rgds

ramraopatil · April 6, 2020, 3:57am

Add on to above post

It purchased ₹5,479 crore of loans from parent mortgage lender HDFC during the quarter, the bank said in an intimation to stock exchanges late on Friday.

sumi00 · April 8, 2020, 5:52pm

Social media reports suggest RBI has put appointment of two directors on hold. Hope nothing comes out of these events. It will be truly Lehman moment for whole private banking system in case there is even slight hint of hanky panky anywhere. Every big or small bank is measured with yardstick set by HDFC bank.

jamit05 · April 8, 2020, 7:22pm

RBI asks HDFC Bank to submit proposal on two appts after new CEO takes over - The Economic Times https://m.economictimes.com/industry/banking/finance/banking/rbi-asks-hdfc-bank-to-submit-proposal-on-two-appts-after-new-ceo-takes-over/articleshow/75054768.cms

Seems fair.

Surender · April 18, 2020, 4:09pm

In my opinion, paying ‘X’ times of book value should make sense with basic Mathematics. As a thought experiment, let’s ASSUME that:

1- BV of ‘THE BANK’ is Rs. 100 at Year Zero.

2- It has a SURE chance of growing at 20% for the next 5 years.

3- It has a framework to manage Credit Risk, Market Risk, and Interest Rate risk. It’s an investment with Debt characteristics such as FD.

As per basic Mathematics, the BV will grow to Rs. 249 by the end of 5 years as shown below.

How much an investor should be willing to pay if the aim is to earn at least 15%?

As evident from the above table, the investor would ‘Most likely’ succeed if the position is initiated at 1X of BV but would have only a 25% chance to meet the investment objective if the position is initiated at 4X of BV. Due to the size of the bank and too many variables-economy, Macros, Micros, Political Enviorment- it’s highly likely that Mr. Mkt would not offer more than 4X by the end of 5 years.

I am open to hearing from people who are long on HDFC Bank for a long time. What’s the loophole in my reasoning?

nav_1996 · April 18, 2020, 4:13pm

Please note that HDFC has huge amount of profits from fees including largest card business which are not book dependent. They need to be valued at earning multiples. You need to run two valuation sensitivity analysis - one for lending and other for fees based business for analysis.

harsh.beria93 · April 18, 2020, 4:23pm

Instead of probability guesses, lets look at what HDFC bank has traded for relative to its book value (link to presentation from Jigar Shah).

It looks like every year since 2010, HDFC bank has traded for ~4 P/B at some point of time (except 2016). The lower end of P/B is close to ~3 times, with the lowest value of ~2 in FY10.

As I don’t have book value data for HDFC bank before 2008, I cannot comment on P/B before 2008. Marcellus recently shared long term P/E statistics of HDFC bank. During the lows of March 2009, they were trading at ~18 P/E.

aerofire · April 18, 2020, 4:41pm

HDFC Bank on Saturday reported 17.7% rise in standalone net profit in the quarter ending 31 March, 2020. The net profit for the fourth quarter was ₹6,928 crore as against ₹5,885 crore in the year-ago period
The lender’s provisions rose to ₹3,784.5 crore as against ₹3,043.6 crore in the previous quarter and ₹1,889 crore in the year-ago period.

HDFC Bank reported 15.4% rise in Q4 consolidated net profit at ₹7,280.22 cr, up from ₹6,300.81 crore a year ago.

Consolidated total income in Q4FY20 rose to ₹38,287 crore, from ₹33,260.48 crore a year ago.

hnk_so · April 18, 2020, 6:05pm

HDFC Bank earning call -
Less number of times ‘growth’ word used and maximum time ‘risk’ word used compared to earlier earning call !!
If leader is worried about the risk, what will happen to small and broken guys in financial sector in coming qtrs?

Investor_No_1 · April 18, 2020, 7:14pm

Can you please elaborate how you are relating the director on hold event to a banking collapse?

deevee · April 18, 2020, 11:31pm

Hi

I do track long term data for a few banks including HDFC Bank. I have got all data manually from annual reports going far back to 1996. Here is one chart which captures the PBV discussion accurately from the data in the ARs.

Current PBV is ~3.1. It is the lowest it has been in last 10 years.

EPS change YoY has surely fallen as the bank has moved from a growth spurt to a perhaps a stable state.

On the issue of Mr Jagdishan & Mr Zaveri let us wait till the names of the 3 CEO candidates are announced (in preference order is what I believe) and one of them assumes charge. Also this is what was mentioned in the notification

stating that since these are important positions in the Bank, the Bank is advised to examine and submit the proposal after a new MD and CEO assumes charge later this year.

Aside in my opinion the results were good. The next few quarters might be the truer picture we might see.

Rgds

Disc: I hold positions and have added in last 30 days.

harsh.beria93 · April 19, 2020, 12:08am

Thanks for sharing this, if you don’t mind can you share the book value data? I would like to compute the yearly lows/highs of P/B.

Surender · April 19, 2020, 1:51am

@nav_1996: Would you be kind enough to share your reasoning with data. I had a look at recent AR and share of credit card profits are not listed separately?

In my opinion, Non-Interest Income impact is reflected in ROE.

@deevee: What’s your rationale over the next 5 years in terms of IRR and probable P/B multiple?

Surender · April 19, 2020, 2:57am

Here you go:
hdfc.xlsx (10.5 KB)

Snowball · April 19, 2020, 12:12pm

View by S&P on HDFC Bank rating