HDFC Bank 3Q results were below expectations, especially on the Deposits collections. Management was showing confidence earlier that they will be able to garner Deposits at good pace and it didn’t happen this quarter.
But we should also see how other big banks (esp. SBI and ICICI) fared on deposit collections this quarter to gauge how bad HDFC performed. If everyone slowed then the problem is less severe (systemic).
I will not be concerned much if we found that everyone slowed, since it means overall banking sector slowed and when better opportunities come in future then HDFC have good chance to capitalize on them.
But one thing is for sure: the Large base effect has indeed material impact on HDFC Bank. Markets had got it right earlier and I personally overlooked it. Now I have reduced my long term HDFC returns expectations, from 17-20% earlier to 12-16% now. I think HDFB bank is still a good investment bet on return-risk profile.
I am not bothered about NIM reduction much. NIM of 3.5 is not bad if they can keep it for long.
Also, I really don’t mind if markets derates HDFC bank further. I will be happy to buy more at P/BV of 2.0-2.5.
Disc.: HDFC Bank is significant part of my portfolio.
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