Mr. Gaurav Jani - Research Analyst at Prabhudas Lilladher Pvt. Ltd.
Rating: BUY | CMP: Rs1,395 | TP: Rs1,740
We recently attended the HDFC Bank analyst meet where the strategy and outlook across business verticals was laid out while further issues relating to the merger were also clarified by the MD&CEO, Mr. Jagdishan. Some key takeaways were (i) post-merger balance sheet might double every 5 years and liability growth would outpace that of assets. (ii) RBI may approve the holding company structure and a NOHFC may would not be required. (iii) CRB would remain the growth engine while retail could surpass corporate. (iv) More aggression would be seen in Government businesses (assets and liabilities) which could intensify competition for SBI and other PSU Banks. On the flipside, acquisition strategy of a PSU bank customer would be the key. We maintain our estimates for FY23/24E and Retain BUY with TP of Rs1,740 based on 3.2x FY24 ABV.
More clarity on merger impact: Post merger balance sheet is targeted to double every 5 years which may translate to a loan CAGR of 15%. Combined market share in liabilities would be 15% (currently 11.5%). Distribution network is guided to double over 3 years and 1500-2000 branches per annum could be added. 60% of the existing branches have a vintage of <10 years which could lead to robust liability accretion. Hence liabilities growth would outpace that of assets while CASA would normalize to 40-42% from 48% now. Over 4-5yr period, ROE would inch back to 18% levels. The NOHFC structure may not be required similar to peers, due to absence of tax neutrality. Hence HDFC Bank may be the holding company. Cost to Income (C/I) is expected to inch up to 39% as retail disbursals gather steam. C/I post the merger could be 32% and target would be to bring it down to near 30%.
Corporate has outperformed the system: Large corporate for HDFCB grew at 16% YoY (22% CAGR Mar'20-22) despite pandemic compared to 0.9% for the industry. This book has an RoA/RoE of 2%+ and 18%. 62% of the book is Non-PSU (+17% YoY) which had an internal rating of 3.83 (~AA and AA+) with the balance contributed by PSU (+13% YoY) having a rating of 2.84 (~AAA rated or Navratna category). Hence only 8% of the corporate portfolio consumes high capital. Strategy is to redesign corporate and RM journey to improve processes which will enable to capture more wallet share. There are 2,237 corporates with a top-line of >Rs1000cr of which asset relationship is with 1,066 companies. Hence addressable market is 617 NTB corporates which translates to a potential of Rs11trn.
CRB would be a key growth driver: LDR in rural is only 30% and hence CRB offers a strong growth opportunity of about 25-30% with ROA of +3%. Also, it is the PSL engine as it fulfils 65-70% of the PSLC requirement. Size of the opportunity in SME is Rs20trn. Currently, SME business is being done from 573 districts, target is to reach 650 districts by FY23. MSME market share is 18.4% in FY22 YoY from 14.6% in FY21. Vehicle finance is another focus area with a growth opportunity of Rs3trn in new vehicles and Rs7trn in WC. Goal within CRB is to double disbursals in FY23 from FY22 levels, double customer base by FY24 and double revenue of FY22 till FY25. KCC market share increased from 6.13% in FY21 to 6.4% in FY22, target market share is 9% by FY24 by expanding reach from 130,741 villages to 165,000/2,00,000 in FY23/FY24. Target is to bring down rural GNPA to 4%. Bank's share in rural deposits is about 9% while it is 18% on asset side; potential is to grow 2x in 18-24 months.
Retail share to increase from hereon: Share of retail would enhance with a focus on new products like xpress auto loans, gold loans and unsecured loans in the Govt. segment. Less than 2% of car buying happens digitally at the dealer level hence the bank sees huge potential in digital auto loans and plan is to disburse 20-30% digitally in FY23. Within unsecured, the bank wants to penetrate the Govt. segment while further build-up the 10-second product (35% contribution to disbursals). On gold loans, endeavor is to increase distribution by 3x, as currently 1,100 branches offer gold and the bank wants to scale it to pan India by Q4FY23. The bank aspires to offer digital personal loans by Q3FY23. Retail deposits have doubled over the last 3 years from Rs5.5trn to Rs10.5trn and HDFCB would like to grow the existing base by 2x within 3.5-4.0 years.
Shares of HDFC Bank Limited was last trading in BSE at Rs. 1396.30 as compared to the previous close of Rs. 1387.45. The total number of shares traded during the day was 101965 in over 5322 trades.
The stock hit an intraday high of Rs. 1400.80 and intraday low of 1379.80. The net turnover during the day was Rs. 141980792.00. |
