HDFC group companies have seen a massive derating over the last 1 year!
How are these businesses performing? Should investors be concerned?
A detailed thread on the performance of each of these businesses.
Hit "Retweet" to educate maximum investors
Lets go👇
(1/n)
How are these businesses performing? Should investors be concerned?
A detailed thread on the performance of each of these businesses.
Hit "Retweet" to educate maximum investors
Lets go👇
(1/n)
Companies we will cover in this thread
-HDFC Bank
-HDFC Ltd
-HDFC Life
-HDFC AMC
(2/n)
-HDFC Bank
-HDFC Ltd
-HDFC Life
-HDFC AMC
(2/n)
HDFC Bank:-
1 year Stock price return: -13.13%
Business performance:-
FY21 was a year of departure from the "consistent 20% growth" for HDFC Bank
The bank was extremely cautious in growing its loan book thru the pandemic.
(3/n)
1 year Stock price return: -13.13%
Business performance:-
FY21 was a year of departure from the "consistent 20% growth" for HDFC Bank
The bank was extremely cautious in growing its loan book thru the pandemic.
(3/n)
Strategy:-
The Bank remained cautious on retail lending.
For FY21 the bank grew its retail book by mere 6.7% and the wholesale book by 21.7%.
Loan Book has now shited towards Wholesale Book
Retail: Wholesale now stands at 47:53
(4/n)
The Bank remained cautious on retail lending.
For FY21 the bank grew its retail book by mere 6.7% and the wholesale book by 21.7%.
Loan Book has now shited towards Wholesale Book
Retail: Wholesale now stands at 47:53
(4/n)
Asset Quality:-
Gross NPA rose to 1.47% vs 1.32% sequentially.
Most of the slippages came in from the retail book.
The wholesale book was extremely robust.
The bank had 0.9% of the total loan book under restructuring
(5/n)
Gross NPA rose to 1.47% vs 1.32% sequentially.
Most of the slippages came in from the retail book.
The wholesale book was extremely robust.
The bank had 0.9% of the total loan book under restructuring
(5/n)
The provisions and asset quality remain extremely strong
The collections in the book is back to above pre-covid levels and should now stabilise.
COVID-19 problems are far behind the bank.
(6/n)
The collections in the book is back to above pre-covid levels and should now stabilise.
COVID-19 problems are far behind the bank.
(6/n)
Internet Banking Problems:-
In December 2020, the RBI acted against repeated technological outages at HDFC Bank by slapping unprecedented penalties, which included a ban on any new credit card issuance and also a prohibition on launching new digital initiatives.
(7/n)
In December 2020, the RBI acted against repeated technological outages at HDFC Bank by slapping unprecedented penalties, which included a ban on any new credit card issuance and also a prohibition on launching new digital initiatives.
(7/n)
The bank lost its market share in credit cards by a couple of percentage points because of the ban
Come back after the ban:-
Once the RBI lifted the Credit Card Ban
HDFC cameback with a bang and issued 4 lac cards within a short period of time to regain market share
(8/n)
Come back after the ban:-
Once the RBI lifted the Credit Card Ban
HDFC cameback with a bang and issued 4 lac cards within a short period of time to regain market share
(8/n)
Underinvestments in technology:-
The bank appreciates its underinvestments in technology and has pledged to aggressively in technology.
Incrementally 10% of cost will be dedicated to investments in technologies.
Slowly but steadily the technology platforms should improve
(9/n)
The bank appreciates its underinvestments in technology and has pledged to aggressively in technology.
Incrementally 10% of cost will be dedicated to investments in technologies.
Slowly but steadily the technology platforms should improve
(9/n)
Valuations:-
At a Book, Value of Rs 378 the Bank trades at 3.67x its P/B
The bank holds HDB financial which also has turned around from last quarter and should come back to profits from this quarter onwards.
Valuations are still not cheap by any measure
(10/n)
At a Book, Value of Rs 378 the Bank trades at 3.67x its P/B
The bank holds HDB financial which also has turned around from last quarter and should come back to profits from this quarter onwards.
Valuations are still not cheap by any measure
(10/n)
Conclusion:-
-HDFC Bank is a strong franchise
-Loan growth mildly slowed down due to the cautious approach by the management.
-Asset quality continues to be very stable
(11/n)
-HDFC Bank is a strong franchise
-Loan growth mildly slowed down due to the cautious approach by the management.
-Asset quality continues to be very stable
(11/n)
Has HDFC Bank lost its mojo?
A class franchise like HDFC Bank does not loose its mojo overnight.
The slowdown will reverse in the coming quarters & the bank should be back to its "20% consistent" growth rate
Corrections are a great opportunity to buy quality franchise
(12/n)
A class franchise like HDFC Bank does not loose its mojo overnight.
The slowdown will reverse in the coming quarters & the bank should be back to its "20% consistent" growth rate
Corrections are a great opportunity to buy quality franchise
(12/n)
HDFC Ltd:-
One of the major surprises over the last 1 year has been HDFC Ltd.
1 year Stock price return:-13.48%
(13/n)
One of the major surprises over the last 1 year has been HDFC Ltd.
1 year Stock price return:-13.48%
(13/n)
Revival in the Real Estate Sector:-
Some factors leading to revival in demand
-Low-Interest rates
-End of builder consolidation that started since the IL&FS crisis
-Sops given by various governments like stamp duty cuts
(14/n)
Some factors leading to revival in demand
-Low-Interest rates
-End of builder consolidation that started since the IL&FS crisis
-Sops given by various governments like stamp duty cuts
(14/n)
What has the real estate revival meant for HDFC Ltd?
The strong demand has meant record loan disbursement for the company.
For the first 9 months of FY22 the company grew at a record 48% for individual disbursements
(15/n)
The strong demand has meant record loan disbursement for the company.
For the first 9 months of FY22 the company grew at a record 48% for individual disbursements
(15/n)
Asset quality:-
The collection efficiency improves to 98.9%.
The Gross NPAs improved to 2.32% on the overall portfolio.
Individual NPAs showed an improvement in asset quality to 1.44%.
The company held provisions of 13,150cr..well in excess of the required provisions
(16/n)
The collection efficiency improves to 98.9%.
The Gross NPAs improved to 2.32% on the overall portfolio.
Individual NPAs showed an improvement in asset quality to 1.44%.
The company held provisions of 13,150cr..well in excess of the required provisions
(16/n)
Pain in Non Individual Loan Book:-
The gross NPAs stood at 5.04% on the non individual loan book.
The company took a big hit due to couple of big corporate exposures.
The corporate exposure continues to be a slight concern for the company
(17/n)
The gross NPAs stood at 5.04% on the non individual loan book.
The company took a big hit due to couple of big corporate exposures.
The corporate exposure continues to be a slight concern for the company
(17/n)
Valuation:-
HDFC Ltd now trades a near 10 year low P/Bx valuation!
One the cheapest stocks in the whole Housing Finance Space.
(18/n)
HDFC Ltd now trades a near 10 year low P/Bx valuation!
One the cheapest stocks in the whole Housing Finance Space.
(18/n)
Conclusion:-
-The real estate up-cycle is just beginning
-HDFC Ltd is a class franchise and has been thru many business cycles.
-The business for HDFC Ltd continues to be extremely strong
Just a matter of time before the stock price catches up!
(19/n)
-The real estate up-cycle is just beginning
-HDFC Ltd is a class franchise and has been thru many business cycles.
-The business for HDFC Ltd continues to be extremely strong
Just a matter of time before the stock price catches up!
(19/n)
HDFC Life:-
1 year stock price return:-25.24%
At one point was the most expensive life insurance stock in the world
(20/n)
1 year stock price return:-25.24%
At one point was the most expensive life insurance stock in the world
(20/n)
Business performance
The company is very aggressive in this space.
The individual premiums grew at an impressive 21%.
The company has very strong operating metrics across all parameters.
(21/n)
The company is very aggressive in this space.
The individual premiums grew at an impressive 21%.
The company has very strong operating metrics across all parameters.
(21/n)
Value of new business margins(VNB) which indicates the profit margin of Life Insurance Company is very poor for LIC.
It means HDFC makes strong Rs 26.4 profit on every Rs 100 of premium earned.
(22/n)
It means HDFC makes strong Rs 26.4 profit on every Rs 100 of premium earned.
(22/n)
The expensive merger of Exide Life with HDFC Life
HDFC Life acquired Exide at a 2.5x Embedded Value!
Looking at the ordinary business for Exide Life.The acquisition was very expensive for HDFC Life.
However the long term benefits will accrue for HDFC Life with time.
(22/n)
HDFC Life acquired Exide at a 2.5x Embedded Value!
Looking at the ordinary business for Exide Life.The acquisition was very expensive for HDFC Life.
However the long term benefits will accrue for HDFC Life with time.
(22/n)
Valuation:-
With an Embedded Value of 30,000cr the company trades at 3.5x embedded Value.
LIC which has poor metrics as compared to HDFC Life will hit the markets at 3x Embedded Value.
(23/n)
With an Embedded Value of 30,000cr the company trades at 3.5x embedded Value.
LIC which has poor metrics as compared to HDFC Life will hit the markets at 3x Embedded Value.
(23/n)
Conclusion:-
HDFC Life is a great Business. In fact it is one of the most aggressive life insurers.
The stock was bid up to irrational valuations...which is now being corrected.
(24/n)
HDFC Life is a great Business. In fact it is one of the most aggressive life insurers.
The stock was bid up to irrational valuations...which is now being corrected.
(24/n)
HDFC AMC:-
1 year stock return=-33.3%
Consistent loss of market share and underperformance of schemes are some major concerns for the company.
(25/n)
1 year stock return=-33.3%
Consistent loss of market share and underperformance of schemes are some major concerns for the company.
(25/n)
Loss of market share:-
Consistent loss of market share is a cause of concern for the company.
The company finally has started to acknowledge it and is on a course correction mode
(26/n)
Consistent loss of market share is a cause of concern for the company.
The company finally has started to acknowledge it and is on a course correction mode
(26/n)
Scheme underperformance and lack of new products:-
Over the last 5 years many schemes have underperformed the market.
The company acknowledges the same and is on a course correct for the same.
Lack of new products is another problem.
(27/n)
Over the last 5 years many schemes have underperformed the market.
The company acknowledges the same and is on a course correct for the same.
Lack of new products is another problem.
(27/n)
The bull market in 2021 has meant that many individual investors are willing to invest directly rather than the Mutual Fund route.
However, this is a cyclical phenomenon and this should reverse as it gets even more difficult to navigate the markets.
(28/n)
However, this is a cyclical phenomenon and this should reverse as it gets even more difficult to navigate the markets.
(28/n)
Increased Competition:-
Many new AMCs like NAVI,Samco,Zerodha are entering the space and increased competition leads to pressure on the expense ratios
(29/n)
Many new AMCs like NAVI,Samco,Zerodha are entering the space and increased competition leads to pressure on the expense ratios
(29/n)
Valuation:-
HDFC AMC is now available at nearly 30% of its equity assets.
This is certainly not cheap.
(30/n)
HDFC AMC is now available at nearly 30% of its equity assets.
This is certainly not cheap.
(30/n)
Conclusion:-
HDFC AMC is a class company with a strong distribution
Active management is here to stay
Expense ratios will be under pressure but volumes will compensate for that.
AMC space is in a down cycle and people will return to mutual funds on market correction
(31/n)
HDFC AMC is a class company with a strong distribution
Active management is here to stay
Expense ratios will be under pressure but volumes will compensate for that.
AMC space is in a down cycle and people will return to mutual funds on market correction
(31/n)
The whole HDFC group has undergone severe correction in the last 1 year.
1-year performance has little significance in long-term compounding.
All these 4 companies are class visionary businesses and corrections should be used to add these stocks
1-year performance has little significance in long-term compounding.
All these 4 companies are class visionary businesses and corrections should be used to add these stocks
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