HDFC Bank is undergoing a strategic revamp in its top management to fuel growth in its mortgage segment and optimize branch expansion. Arvind Kapil will lead the mortgage division exclusively, and branch ramp-up responsibilities will be divided geographically. Additionally, the bank is making structural changes in its IT and Digital departments, establishing direct reporting to the CEO.

Key to Growth: Deposits and Housing Book

Jefferies, a global investment bank, views the bank’s growth and investor confidence as dependent on the expansion of deposits and the housing book. The bank’s gross advances stood at approximately Rs 23,545 crore as of September 30, 2023, reflecting impressive growth compared to the previous year.

Jefferies’ Analysis and ‘Buy’ Rating

Jefferies conducted interactions with the management of HDFC Life and HDFC AMC, two listed subsidiaries of HDFC Bank, which indicated increased flows and wallet share growth for them. The bank is also enhancing integration by adding branch and sales staff, which is expected to result in a 10-15% year-on-year rise in wallet share for the subsidiaries by the end of FY24.

Jefferies has maintained its ‘Buy’ rating on HDFC Bank, with a target price of Rs 2,030, representing a 33% upside potential. The bank’s valuations are considered reasonable, and the report highlights its growth prospects and reasonable price-to-book and price-to-earnings ratios.

Cautionary Notes

However, Jefferies cautions against the risk of a sudden spike in interest rates, as HDFC Bank now relies more on non-retail funds, making its funding costs more sensitive to market rates. A slower-than-expected ramp-up of priority sector loans through the Commercial and Rural Banking Division could also impact margins and return on assets (ROA) due to higher compliance costs associated with such loans.