HDFC Bank (HDB) $55 – Hold
Its merger with HDFC decreases overall operating margins and valuation multiples a little bit; earlier it was one of India’s fastest growing banks mostly on consumer and retail strengths, now we have a giant which is less nimble and owns a lot of wholesale slower earning assets.
However, there are a lot of benefits such as cross selling and the combined entity gains from HDFC’s strong exposure to mortgages, which will continue to grow fast in India.
It’s expensive at 19x earnings, which is pretty high for a bank and for one with mid single digit growth. Overall HDB has returned 7-9% in the last 5 years, which is not bad, but given India’s great growth story it is much lower than even the Indian market (Sensex and Nifty)
I would take a second look below $50; let’s see another quarter of how the merger pans out.
I compared it with ICICI Bank (IBN), which has actually done a lot better as a return on Investment, however that too is expensive right now around $24.36, and could be worth buying if it came down about 10-15%.
Banks are cyclicals, don’t tend to outperform and are not usually fast growers, so entry prices are important.