On Dec 17, 2014, we issued an updated research report on HDFC Bank Ltd. (HDB). Despite significant improvement in Retail Banking segment, a continuous deterioration in asset quality and mounting expenses make us apprehensive.
With a widespread branch network and strong brand equity, HDFC Bank has been able to garner a large share of the Indian retail credit market. In fiscal 2014, Retail Banking segment emerged as the major profit driver. The trend continued in the first half of fiscal 2015 as well. We expect the segment to remain the main growth driver in future also.
Additionally, over the last 30 days, the Zacks Consensus Estimate has remained stable. For fiscal 2015, the Zacks Consensus Estimate stood at $2.12 per ADR, while for fiscal 2016 it was $2.62 per ADR.
On the flip side, HDFC Bank’s operating expenses continue to mount. In our opinion, persistently increasing expenses are likely to weigh on the company’s bottom line, going forward.
Also, HDFC Bank’s deteriorating asset quality remains a major challenge. As the bank, aiming at rapid expansion, stretches to meet growth targets and takes on new loans that are better to avoid, it often leads to asset quality deterioration. With the bank further expanding its reach, we believe that this trend will persist in the coming quarters.
Currently, HDFC Bank has a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Some better-ranked foreign banks include CorpBanca (BCA), Grupo Financiero Galicia S.A. (GGAL) and Banco Latinoamericano de Comercio Exterior, S.A (BLX). While both CorpBanca and Grupo Financiero Galicia sport a Zacks Rank #1 (Strong Buy), Banco Latinoamericano de Comercio Exterior holds a Zacks Rank #2 (Buy).
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