On Sep 18, 2014, we issued an updated research report on HDFC Bank Ltd. (HDB). The bank has been suffering a continuous deterioration in asset quality, making us apprehensive.
HDFC Bank’s deteriorating asset quality continues to pose a major challenge. As the company, 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 likely persist going forward.
Apart from this, HDFC Bank’s operating expenses are also mounting. In our opinion, a continuous rise in expenses is likely to weigh on the company’s bottom line in the coming quarters. Further, like most of the Indian banks, HDFC Bank is likely to witness higher cost of funds as it would be necessary for the bank to raise its deposit rates in order to meet the increasing loan demand. This is anticipated to keep its margins under pressure.
Given all these concerns, analysts have been bearish on HDFC Bank’s prospects. Hence, over the last 60 days, the Zacks Consensus Estimate has witnessed downward revisions. For fiscal 2015, the Zacks Consensus Estimate decreased 5.2% to $2.18 per ADR, while for fiscal 2016, it fell 5.1% to $2.77 per ADR.
However, with its widespread branch network and strong brand equity, HDFC Bank has been able to garner a large share of the Indian retail credit market. We expect the company’s Retail Banking segment to be the main growth driver in future.
Presently, HDFC Bank has a Zacks Rank #4 (Sell).
Stocks That Warrant a Look
Some better-ranked foreign banks include ICICI Bank Ltd. (IBN), HSBC Holdings plc (HSBC) and Itau Unibanco Holding S.A.(ITUB). All these stocks hold a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment