Despite a 17% fall in 2024 YTD, Morgan Stanley sees a 49% upside in HDFC Bank (2024)

This comes after the lender announced in a press release to bourses that it recorded stable and healthy double-digit year-on-year (YoY) growth in its home loan business after the merger till December 31, 2023. The company's management informed that it recorded 3.6 percent sequential growth as of December 2023 and, after the merger, savings accounts for incremental disbursals have moved to 80 percent from 35 percent.

It also added that the bank’s market share has grown by 18-20 percent on incremental disbursals. On a sequential basis, the bank has gained a leading position as it recorded a growth of 3.6 percent which was the highest among its peers in home loans.

Read here: HDFC Bank announces healthy double-digit growth in home loan business; stock up 2%

The lender noted that its fundamental strategy has been to improve the turnaround time of processing at the front end. The post-merger turnaround time has been reduced to almost a third. This, coupled with the erstwhile HDFC strength of connecting with customers in person, is a potential game-changer in terms of both sales turnover and cross-selling, added the press release.

“One of the biggest opportunities was to generate CASA and initial signs are encouraging. Pre-merger about 30 percent to 35 percent of incremental disbursals were to customers with an HDFC Bank savings account. This has reached about 80 percent of incremental disbursals, post-merger. The Home Loan Business for the Bank has become both an asset and liability generator and is growing sizeably. This leads to a higher stickiness quotient and a stronger customer connect with the Bank for a longer duration," said Arvind Kapil, Country Head - Mortgage Banking, Home Loan, LAP, HDFC Bank.

Morgan Stanley in its report stated that the accelerated market share gains would improve CASA cross-selling in upcoming quarters. "The company gave details on the home loan business after the merger. The turnaround time has improved amid higher market share gains," the brokerage firm noted.

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"Management announced its plans to launch a couple of products in the near term. This includes a) a straight-through journey for home refurbishment loans by mid-March 2024 (a relaunch of a similar product offered by HDFC Ltd pre-merger) and b) the Home Saver product (an offering for existing and prospective home buyers) by April 2024. In a media interview, a senior bank official noted that the Home Saver product is like an overdraft facility and will directly compete with SBI’s Maxgain home loan scheme," informed the brokerage.

It also pointed out that Cross-selling from HDFC Ltd’s service centres has already commenced from February 1, 2024. Home loan customers will be able to avail of products and services like consumer durable loans, credit cards, wealth advisory products, unsecured loans, and home refurbishment

loans. The strength of its team along with digital journeys will enable cross-selling with no incremental costs. On the operational front, the bank plans to convert all erstwhile HDFC Ltd service centres to bank branches in a phased manner and its entire mortgage team will become relationship managers, further said the brokerage.

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Moreover, the bank noted that turnaround time has decreased to almost one-third post-merger. This along with HDFC Ltd’s strength in connecting with customers in person will help improve sales turnover and cross-selling, said MS.

A renewed focus on the self-employed segment will help increase opportunity size. Post-merger, the bank has already launched and expanded its product basket through banking surrogates as well as GST programmes for better assessment of such profiles, added Morgan Stanley.

A sharp slowdown in economic growth weighing on loan growth and resulting in higher NPLs (non-performing loans), high price competitive intensity on loans/deposits, and potential risk of deeper holding company discount if RBI moves to make NOFHC (Non-Operative Financial Holding Company) mandatory are key risks for the lender, as per the brokerage.

Post the announcement of this update in the previous session (February 15), the stock rose over 2 percent. Meanwhile, it has also added almost 1 percent in intra-day today (February 16) at ₹1,427.50.

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However, the stock has been performing poorly since the declaration of its December quarter earnings. It has fallen 14.4 percent in January and over 3 percent in February so far.

India’s largest private sector lender reported a net profit growth of 33 percent year-on-year (YoY) to ₹16,372 crore in the third quarter of FY24. The bank’s net interest income (NII) in Q3FY24 rose 24 percent YoY to ₹28,470 crore.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.

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Published: 16 Feb 2024, 03:24 PM IST