I dont think comparison with Apple is fair. Apple is an aspirational brand across the globe. Forget the US, there is no competitor across the globe that offers Apple like experience with owning Smartphones – atleast in the minds of people.
Coming to HDFC Bank
The positives –
- the good thing now is that at this point, the starting valuation becomes a little more comfortable to provide decent returns.
- We have Macro tailwinds.
- Branch expansion shows they are again ahead of the competition
- HDFC Bank is a well oiled machine that will continue to deliver on profits, may be 17-18% compounded the next 5 years. Beyond 5 years I think this slows down further.
The Constraints –
- The base is high. Sustaining incremental growth at 20% will require consistent aggressive push of products to customers. Customers may not like after a point.
- Other banks have pretty much caught up or bettered the tech being offered.
- Competitors with lesser customers to manage provide better service. Eventually customers will prefer those as well.
- Corporate Governance at competitors has improved. Tech has led to bringing in more transparency. Debacles like Yes, DHFL, ILFS etc have made regulators more hawk eyed. All these will make frauds in other banks very limited.
- Valuation wise there are still other banks that could offer a meaningful upside – lower base, cautious lending, well capitalized, fintech partnerships, etc. But ofcourse this is to be tested across cycles.
All in all for those seeking consistency with comparatively lower volatility in business performance, HDFC Bank could be the go to bank. For those seeking a higher return albeit with higher risk, other banks offer great value.
Disclaimer – Recent entry in HDFC Bank futures below 1500 and writing calls against it to generate consistent income. Holding multiple other banks as well with a higher weightage in the overall holding.
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