The Reserve Bank of India has approved reappointment of Aditya Puri as MD & CEO of HDFC Bank, from November 1, 2018 to October 26, 2020. Shareholders had already approved his appointment in 2015 for a period of five years subject to RBI approval. This approval would be considered by the investor community as a positive move. As under him, the bank has achieved several milestones and become a top private sector bank. The stock to react positive on this news today. Puri has been with the bank since 1994, making him the longest-serving head of any private bank in the country. We have positive outlook on the stock.
HDFC Bank which is India’s largest private sector bank is expected to register ~23% earnings CAGR over FY18-20E led by strong competitive funding profile, better loan mix, high operating efficiency and robust capital position.
We expect judicious mix of wholesale and retail loan assets coupled with robust CASA growth to improve margins. We estimate revenue CAGR of 20% over FY18-20E owing to acceleration in retail loans and fee income. We believe the bank to deliver loan book CAGR of ~22% over FY18-20E augmented by its strong branch network and capital position. NIMs are expected to be stable at ~4.5% over FY18-20E due to higher credit/deposit ratio and high yield retail segment. A sharp reduction in cost-to-income (240bps over FY18-20E) accruing from the bank’s digital initiatives, market share gains and significant improvement in the bank’s operating efficiency would aid in earnings growth. The stock trades at ~3.5x on FY20E P/BV.
HDFC Bank has ~4.5% market share in loan book terms. Its loan book for Q2FY19 end stood at Rs7.5 lakh cr. For Q1FY19, HDFC Bank's retail and wholesale loan mix was 55:45, while cost-to-income ratio was 39.9%, GNPA/NNPA ratio was 1.3%/0.4% respectively, NIMs at 4.3%, and CASA ratio is at 42%.