Everest Bank of India -- this was one of the names contemplated while launching HDFC Bank in 1994. Today, it sounds rather silly. Nonetheless, 25 years later, many of HDFC Bank’s achievements appear as lofty as the highest peak of the world.
The bank posted robust profits through 1998 to 2018 with a compounded annual growth rate (CAGR) of 32 percent for 20 years. In the current financial year (FY19), its net profit is likely to surpass Rs 20,000 crore (it was Rs 15,193 crore in the first nine months), doubling in 4 years. The bank’s return on equity (RoE) has been more than 15 percent for every single year from 1998 to 2018.
Thanks to such stellar performance, the stock has delivered manifold returns since its listing in 1995. HDFC Bank, which got listed at Rs 40, three times its issue price, has generated compounded annual returns of around 29 percent in the last 20 years significantly outperforming the Sensex, which delivered 12 percent CAGR during the same period.
The upward journey of the bank’s stock price is now more than 20 years old. Hence, the most obvious question of investors is: Can the rally continue and wealth be created by investing in HDFC Bank’s stock today? Well, bull runs in stocks don’t die of old age, but from a dearth of earnings. HDFC Bank continues to consistently report 20 percent growth in its net profit every quarter.
A lot of value is being created by its subsidiaries: HDFC Securities and HDB Financial Services. Value unlocking in the subsidiaries through an IPO in future will only add to the stock’s performance. Next in the line could be HDB Financial Services (HDB), a subsidiary of HDFC Bank (the bank owns 95.9 percent stake in HDB).
Overview of HDB Financial Services
HDB was set up as a non-bank financing company (NBFC) by HDFC Bank in June 2007 and began operations in FY08. HDB has emerged as one of the larger players in retail financing over the past few years. It has a presence in 831 cities through 1,165 branches as at March 31, 2018.
While HDB complements the parent's product portfolio and supports collection activities for the retail portfolio, it functions independently and caters to a customer segment distinct from that of the bank.
HDB’s product portfolio
HDB’s asset portfolio stood at Rs 48,014 crore as at September 30, 2018 and has grown at more than 30 percent CAGR in the last four years. The loan book has been diversified with increased presence in commercial vehicle and construction equipment (CV/CE) financing and business loans. As a result, the share of loans against property (LAP) declined to 38 percent as on September 30, 2018, as compared to 60 percent as on March 31, 2016.
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Source: Moneycontrol
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