On Wednesday 2nd March 2022, HDFC Bank Stock marked the 52-week low levels of Rs. 1,354.4. The Stock has continuously underperformed in the last 1 year and has delivered lower returns. Hence, in this blog, we will discuss some facts and figures about the stock or the business which will help you to make a wise decision that whether to buy/sell the stock or not.
HDFC Bank- Financials:
- Gross & Net NPA of the HDFC Bank is at 1.26% and 0.37% respectively as of Q3FY22. The Bank is reporting the lowest NPAs among the private sector banks.
- The Bank managed the risk quite phenomenally during the Covid-19 pandemic period.
- Bank generally builds liability franchises and deposits. Liability Franchise refers to the amount deposited with the bank in the form of a saving or current account deposit. Banks then lend these amounts after keeping aside the capital adequacy ratio amount.
- Now, this traditional banking business is being challenged by New-Age Tech Business where products like Buy Now Pay Later, etc. are highly trending.
- The net profit of the bank during June 2020, the worst affected quarter during the pandemic was Rs. 6,927 Cr. which has now grown to Rs. 10,591 Cr. in the December 2021 quarter.
- The CAGR profit growth of 3-years, 5-years, and 10-years is 19.8%, 20%, and 19.8% respectively.
HDFC Bank- Valuations:
- On a 3-year basis, the HDFC Bank stock hit the lowest mark of around Rs. 765 on 23rd-24th March 2020.
- The 1-year median PE of the stock is 25.55, while the current PE of the stock is 20.97 depicting the correction of more than 20% in the PE ratio.
- The 3-year Median PE of the stock is 25.83.
- The stock was trading at around Rs. 765 which is currently at over Rs. 1,350 showcasing the rise of 70%-75% in the stock price. But the rise in PE is 30%-33% i.e., from PE levels of 16 to the current PE of 20.97.
- The 10-Year Median PE of HDFC Bank stock is 25.87
Why Did HDFC Bank Stock Fall:
- The Major reason behind the fall in the stock price of HDFC Bank was on account of the business being punished by RBI for its new digital initiatives, new credit cards issue, etc.
- The ban on digital initiatives is continued, but the ban on the new credit card issue is lifted.
- The free-float market capitalization of the bank is quite large, with high holdings of Foreign Institutional Investors (FIIs), and since the stock is part of the index, and hence when there is index selling, which is currently going on in the Indian market, then stock part of the index also suffers the consequences.
What Should Investors Do?
On the front of new digital initiatives of the HDFC Bank, the ban can be lifted in the coming period and the company can then continue its tech initiatives. From the valuation prospect, the HDFC Bank stocks appear to be in a comfort zone. The Bank looks quite strong after noticing the growth potential of the bank, credit growth, lifting of the bans, strong liability franchise, and other favorable factors.
Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.